Intricacies of Pricing in Today's Economy - Grocery Perspective
The art of pricing has always been one the most intricate functions in any business. The complexity increases exponentially when it comes to the grocery arena. More number of SKUs, low shelf life, high shrinkage, razor thin margins are some of the attributes that add to the complexity.
In the recent past, customers have become increasingly price sensitive especially when it comes to purchasing grocery. Grocery retailers have been quick in responding to this changing market trend. Below are some of the areas, retailers have amended to stay on top of the competition.
Pricing Strategy - Grocery retailers are moving from the traditional EDLP or Hi-Lo pricing strategy to hybrid pricing models based on product groups. Retailers have started classifying their items into groups like critical, key value, foreground and background items based on a combination of parameters like price sensitivity and sales volume. Each of these product grouping can have different price strategies which can further change by product categories as well. For example the strategy for a critical produce item like banana may vary from the strategy for a critical dairy item like milk.
Promotion Strategy - Grocers are venturing into more complex and customer oriented promotions to stay on top of the competition. One example is a retailer attracting customers by providing scratch cards based on the items they purchase which can win the consumer attractive rewards. Customer Relationship management has been a prime focus for most of the grocer retailers and they have started to collect customer sale information to reward the regular customers. For example a grocer provided a free turkey on the thanksgiving week for loyalty card customers if they spent more than X dollars in the store over the last n number of weeks. Grocery retailers are also venturing into collaborating with other industries to execute some of their promotions. For example a grocery retailer is providing discounts at the gas pump stations for its loyalty card customers based on the spending at its store.
Granularity - From the earlier concept of pricing at a store group level, retailers are getting into more complex store grouping at category level. They are also moving towards the ability to price at individual store level to price match competition at a granular (store) level. Retailers are breaking down the weekly ad flyer areas finer to provide location specific promotions based on demographics and competition.
Margin Calculation - More retailers are investing on price optimization packages and analytic tools to better forecast the impact of price changes. Retailers are also fine tuning the cost calculation methods to go from a traditional base cost to an Activity Based Cost structure to predict margins better.
As consumers are growing more digital-savvy and price-savvy, Grocery Retailers are increasingly leveraging the Internet, social and mobile platforms to execute targeted promotions. Many Grocers have already established e-commerce websites to provide electronic access to their weekly ads and enable online shopping. Some Retailers have even integrated the customer's online shopping list with their mobile devices and send targeted coupons while the customer is in the store. Various social networking sites like facebook, twitter etc. are also being leveraged to reach customers.
These trends provide a tremendous opportunity for Grocers to collaborate with their IT partners to execute their complex strategies through optimal IT solutions. The grocery retailers are living up to the saying that when the going gets tough the tough gets going. It will be interesting to see what more intricate situations the economy will throw in and how grocery retailers will leverage IT to cope up to these challenges.
