You’ve Invested in a Price Optimization Solution Now It’s Time to Select the Data Provider

You’ve Invested in a Price Optimization Solution Now It’s Time to Select the Data Provider

Finally, retail grocers have the pricing optimization software they need to increase margins and gain a shoppers trust. So what’s the hold-up?

The Technology Has Evolved, So Should the Data

Pricing optimization software companies like Revionics, dunnhumby, and PROS let retail grocers leverage predictive analytics to make price changes in real time — which the industry is starting to buy in.  For so long, grocers had to make decisions about all their products, in all their stores, in a given region with excel spreadsheets and intuition. It was like moving a glacier. And they were as likely to cost themselves some marginal gains as to make them. But with today’s pricing technology and analytics, retailers can adjust prices with near surgical precision, trimming the cost and eking out higher margins on every item.

That should mean we’ve reached a golden age of retail pricing. Unfortunately, even if grocers are utilizing a price optimization solution, they aren’t always receiving the necessary amount of data from their competitive pricing collection partner as needed.  Over the past year, we have seen a variety of categories grow and shrink in multiple markets, making it tough to keep tabs on the competition. We’ve even seen some grocers cut their items in a category by 50%, while other grocers in the same market, unaware of the change, continued to price against those nonexistent items. The cause of these pricing issues is more than just bad data, but bad competitive data practices.

As the technology has evolved, the data collection practices that fuels these pricing solutions needs to evolve as well. We’ve identified three key issues affecting the pricing data and wanted to share our two cents.

  1. The frequency of checks is too slow: As the items in the categories continue to revolve, the price capture cycle needs to speed up. Previously one month or six weeks would allow retailers to gain accurate visibility into a competitor’s pricing strategy; but with the available technology, prices change weekly. Retailers need to keep up and should reevaluate the frequency of their competitive price checks to ensure they are receiving accurate prices to analyze.
  2. Stop limiting incoming data with family pricing: Some retailers try to expedite the process of data collection, and save a few cents, by requesting family pricing collections. So instead of having a variety of flavors and sizes in an entire product line, analysts are only seeing one item and one price for that retailer. The problem with this tactic is that not all items in that family share the same price. These discrepancies make it difficult to summarize the prices on the shelf, leaving the pricing analyst to make assumptions. Historically the family pricing approach avoided data overload, but with today’s pricing solutions it should not be needed.
  3. The secondary price point is still valuable: The lowest price or active price points are the most important data point, no retailer will argue that. But some retail grocers don’t utilize the original price in their analytics, making it impossible to know what the actual discount margin was. Pricing data is there to help the analyst understand price trends, including the pricing delta discount and the frequency of the discounts. As the software gets more advance these historical data points will become more and more valuable to help understand competitors’ pricing models and help create better predictive analytics.

So Why Is Price Optimization so Important?

As a shopper wanders the aisles, they are constantly comparing prices, either on their phones or subconsciously. If it turns out that the majority of the items in their cart are 10% to 15% more expensive at one retailer or grocer than another, they draw an immediate conclusion that they are getting a “bad deal”. They start putting items back on the shelves and make a beeline out the door and search for a better deal.

More than a Lost Opportunity but a Lost Shopper

And you can’t blame them, they’re making strategic, of the minute decisions to cut their cost margins, based on the latest data available to them. CPG companies and retailers do the same but have more sophisticated costing models and resources. With this advantage, it’s up to the retailers to keep their pricing in line and provide reassurance to the shopper that they are getting the best deal.

To some degree, having a sophisticated pricing system without using the optimal data available is like buying a fancy computer without the software. Without the data, the pricing solutions are marginally useful, at best. Retailers have an opportunity to leap forward in their precision and their profits. Now’s the time to do it!

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Seth Nagle, Senior Marketing Manager at RW3 Technologies understands the power of innovation but also its limitations. Attending Salve Regina in New England, starting his career in Silicon Valley, and now living in Austin, Texas; Seth provides a unique tech perspective to a complex CPG and Retail Grocery Industry that is in constant disruption.

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