06 Feb Are You Executing Price Changes In Your Store Effectively?

Pricing Strategies

Pricing strategies are a constant theme of discussion at all retailers, and one of the most common issues is: Which sells more at the best margins: end-of-season sales or regular markdowns?

Everyday Low Price

The everyday low price concept turns markdown into an obsession, based on the theory that people return to the place where they get the best price. It demands a minute-by-minute attention to the most aggressive price competitiveness, and focuses on in-store execution, which is all about labeling and re-labeling. Grocers and general merchandisers have invested heavily in the technology to manage such a business model, from space allocation, to price optimization, to perpetual inventory solutions.

End-of-Season and Special Event Sales

End-of-season sales and sales for special events continue to be a crucial part of specialty retailing. Back-to- School, Thanksgiving, and Anniversary sales represent a very significant proportion of annual sales. The ability to reduce or increase the price in the store is a powerful tool but fraught with danger:

• What happens if the label price is lower than the system price? Confusion at the POS? Customer dissatisfaction? Litigation? Ruined reputation?

• What if the label price is higher than the system price? Missed promotional opportunity? Unnecessarily reduced margin?

Yet all stores do make price actions, even with a label gun or a red pen, which give no assurance of accuracy or timeliness. Specialty retailers need to put to use the same technology in which the grocers and the general merchandisers began to invest some years ago. Fashion and other specialty stores need to present the “high quality/best value” model they purport to have adopted. And they need to develop a buzz about the store at the end of every week, not just at the end of the season. It’s price optimization and execution technology that they need.

Regional Pricing

Variable pricing is another strategy. Store chains typically implement variable pricing by region or demographic zone. They analyze buyer behavior by product and product line and find that certain products do not achieve margin or sales volume expectations at the regular price. By increasing the price in certain regions or zones, margins are increased and sales volumes are unaffected. By decreasing the price in other regions or zones, volume targets are achieved, though at a lower margin.

All of this sounds marvelous in theory. At headquarters, variable pricing models achieve the perfect balance of margin and sales volume. At the store level, it’s another story. Products in higher-margin regions don’t get labeled with the higher price and the mismatch between label and system can be costly. Products in lower- margin regions that don’t get labeled just don’t sell. The end result is often conflicts between store operations and pricing teams.

This is because ultimately, variable pricing can only be introduced if there is an efficient labeling technique at the stores. Some retailers have set up re-labeling lines in the distribution center for consumer electronics products, but for most product lines it is an expensive and time-consuming operation. It’s just not feasible. Re-labeling is a task that is best done at the store as goods arrive.

Price Optimization

Retailers do take a professional approach to markdowns and are making increased use of powerful price optimization software to improve decision-making and profitability. Price management software helps retailers increase revenue by recommending which specific items to mark down, when to do it, and by how much. Powerful forecasting algorithms analyze historical sales data and other factors to take a lot of the guesswork out of markdown decisions. Price optimization software provides similar input but can manage the entire product price life cycle. Good software is flexible enough to customize results for individual stores within a chain to account for geographic and demographic differences. It should also integrate directly with point-of-sale (POS) systems, and allow retailers to manage prices at multiple levels, including department, product class, sub- class/type, SKU, and U.P.C.

Price management software alone is not enough to stimulate sales and turn inventory. The software must be backed with strong processes and management to make sure recommendations are followed. Software can accurately tell the right item, right price and right time to mark down an item. But it can’t make sure the mark- down will be done right away; if it isn’t, sales will be missed. How efficiently price changes are handled will go a long way to determining the value and return on investment the price optimization system provides.

Retailers are making increasing use of regular markdowns and variable pricing strategies, but they still have to answer the big question: How will we implement all these price changes in the store?

Variable pricing, re-labeling, and markdowns are a common, everyday occurrence in retail, although individual retailers and even individual stores within a chain differ greatly in how these pricing operations are handled. Pricing has become a science, but for most retailers, execution is anything but scientific. Price labeling should be managed with all the care and planning given to other key areas of the business, and supported with appropriate systems. Otherwise, retailers put themselves at risk for lost sales, sluggish inventory turnover, and inefficient labor practices. For example, one Zebra customer calculated it lost 20 percent of the potential profits from each promotion it ran because of the extra labor cost required to prepare for the sale.

The key question: How can you execute variable pricing and markdowns most efficiently?

The answer: via wireless label printing technology.

Large grocery chains have implemented such processes over the last five years for perishable foods. The big discount apparel retailers have done it for marking down branded clothing. But now, thanks to the ready avail- ability of high speed and in-store wireless networks, chains of all sizes, even small specialty store chains, can implement regular markdowns.

Pricing systems from suppliers such as SofTechnics alert store managers of new pricing recommendations on their wireless PDAs and desktop PCs. Managers then approve the new pricing in real time to trigger new price labeling jobs to store associates in the aisles. Zebra® mobile printers are used to print the price change labels just where they’re needed. Re-labeling can also be done at receiving as soon as goods arrive at the store. Retailers with effective variable pricing models and execution techniques scan in all shipments as they arrive. The system identifies those items that need re-pricing and automatically prints out new price tickets via a networked mobile label printer.

How mobility adds value

Supporting pricing applications with wireless printing minimizes the incremental time required to re-label goods with markdown prices. Mobile and wireless computing systems already in use at thousands of retail loca- tions are easily adaptable to support flexible, responsive markdown operations. By taking advantage of the existing in-store wireless infrastructure, retailers can create new price labels right in the aisles.

The return on investment for this operation comes from reduced labor time needed to label goods. The time savings range from 25 percent to 40 percent among SofTechnics customers that have converted to an in-aisle printing application. Integrated, in-aisle printing also gives retailers the pricing accuracy and other benefits associated with mobile printing, which will further improve the effectiveness of their markdowns and promotions. For example, printing a bar code on the new label means that clearance or marked-down products can be processed quickly at the POS and stock can be adjusted accurately. Yet at the same time, these reduced- price products are differentiated from regularly priced products so the system remains intact.

To investigate ways to add value while cutting prices, go to http://hiveta.com/Company-Information/Content#rid=175.