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When the Price Isn’t Right: Why Retailers Need Data

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American retailers are trying desperately to dig themselves out of a price-promotion hole that trained consumers to only spend when something’s on sale.

Indeed, at some point the so-called race to the bottom became a freefall as department stores and specialty chains alike slashed prices in a desperate bid to get people to shop. But the joke’s on them: while deep discounts have hurt their top and bottom lines, off-price retail has flourished.

According to a new report on pricing from the Retail Systems Research (RSR), sponsored by strategy and analytics firm Precima, retailers are more worried now than in previous years about consumers’ perception of their prices.

Titled “Pricing 2016: Life Becomes Unmanageable,” the report reviewed current practices and challenges and found that only 35 percent of retailers believed their company had a strategy in place to manage prices and promotions effectively across all channels.

“Never before has there been a greater need for analytics to inform a data-driven pricing strategy,” Brian Ross, president of Precima, said. “Retailers are acknowledging this need for greater analytics, recognizing that to overcome the barriers of implementing effective pricing practices, they need to improve the analysis process for pricing and the integration of software solutions that support pricing decisions and work flow.”

The report also revealed that half of U.S. retailers consider the increased price sensitivity of consumers to be a business challenge. Respondents said they worried that putting more effective pricing practices in place would lead to negative customer reaction, but RSR said such a conflict could be addressed with analytics.

“Retailers with customer data have a leg-up in the market and can leverage their competitive advantage through identifying key customers and then pinpointing what is important to them and where they care about price,” Ross continued. “Further, the next generation of pricing will need to incorporate competitive prices and data-defined competitive price indices to optimize price investments. The pay-off in doing this right is huge, namely incremental sales, profit and growth from loyal customers.”

Another highlight from the report: less than half of retailers feel their pricing strategy is building customer loyalty and only 23 percent said it’s driving bottom-line results. Further, 41 percent cited a lack of IT resources as a barrier to implementing effective pricing practices, followed closely by a lack of available data.

“Back in 2012, we began expressing serious concerns about both strategies and tactics, but retailers seemed convinced they could win the race to the bottom on price, or at least by participating in the race, they could stay in the game,” Paul Rosenblum, a partner at RSR, said, noting that retailers are now beginning to bear the brunt of poor pricing decisions. “Consumers may be sensitive about price but no retailer, not even the lowest-priced retailer, can win on price forever.”

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