Big Idea

The new “Magic” of Pricing

Any sufficiently advanced technology is indistinguishable from magic.

Any sufficiently advanced technology is indistinguishable from magic.”   Arthur C. Clarke

When looking at the pricing landscape today, in particular the disruptive nature of eCommerce and Digital Shopper Marketing, it is tempting to see Clarke’s quote as somewhat prophetic for present day through 2020: that sufficiently advanced technology in the hands of both consumers and retailers will condemn pricing strategy to the realm of the mystical.

At the same time, nothing is more fundamental to a retailer’s ability to navigate the challenges presented by the eCommerce era of retail than the ability to build a working commercial model. That commercial model for most retailers (be they omni-channel or more pure-play brick and mortar) will be rooted in the ability to earn a sustainable trading margin. Pricing strategy is obviously an essential part of that, but many of the tools available today (largely item-level price-elasticity-style analytics that hold the rest of the world constant in their models) seem…well, pretty far from the magic of a sufficiently advanced technology.

Executive Summary
This Big Idea focuses on understanding four core areas of the new pricing landscape:

1. Current Pricing Environment
Pricing today is heavily influenced by global market evolution. Different market stages require retailers to develop multiple types of pricing skill:
  • Exploration. The accumulation of retailer pricing power
  • Concentration. The development of traffic stimulating pricing
  • Penetration. The need to apply analysis to shelves to drive profits
  • Maturation. The ability to use operational strength and skill to create permanent price separation versus key competitors
  • Postmodern. Using science, precision, and segmentation to avoid trench warfare

2. Climate Change
These are the forces shifting global pricing across all stages of market evolution (i.e., the “climate change” of the global pricing environment). These factors are the retail equivalent of global warming, even if it happens everywhere, their impact will be different based on what the starting state is:

  • Transparent. Technology-enabled shoppers (and small businesses/farmers) see prices across multiple outlets far more easily and quickly
  • Personalized. Data and analytics allow retailers to deliver pricing based on shopper behaviors
  • Contextual. Location in space and time helps retailers deliver “situational pricing”

3. The Battleground
Where will price wars be fought? Price wars are going to be fought on multiple levels, requiring that retailers be flexible.

  • Item-level pricing. This will decrease in importance as transparency makes this an “everybody loses” scenario
  • Basket-level pricing. How will retailers work to construct shopper lists and baskets in an eCommerce grocery world and with shopping-occasion curation?
  • Solution-level pricing. Need-state curation as retailers bundle solutions
4. Winning Strategies
To be successful, retailers must adopt the following strategies:
  • Better. Differentiation will always be the key to avoiding commoditization, but today’s differentiation will need to be rooted in a legitimately better solution than competitors
  • Curated. A word that has popped up here already, but in this case, means a heightened degree of targeting
  • Individual. Using behavior and communication platforms to reduce the need for and desire to compare

Big Idea

What Are "Big Ideas"?

Forward looking and thought provoking, Big Ideas focus on the topics we believe will most significantly affect the retail landscape. Developed by our experts, these are the must-have insights in helping you prepare for the realities of tomorrow.