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Wiser pricing

Shoppers compare prices across retailers’ sites and on the barometer of Amazon’s [IRDX RAMZ] marketplace but while this snapshot gives a single view, watching over the longer term gives insight into those retailers’ pricing strategies. Min-Jee Hwang, Marketing Director, Wiser reveals more.

BEING VISIBLE and found is an important start to the sales process but a product’s price is a determining factor in gaining both the visit and the sale. While some retail brands are able to control prices, for many retailers price competition is vital. How do they know, however, whether their prices are competitive? How can they be sure that they are flexing prices sufficiently responsively to remain continually competitive, while also not discounting more than the market requires?

For some retailers keeping competitive requires a careful watch on the competition, albeit with an automated system reducing the laboriousness of the task. John Lewis, for example, is well known for its price matching promise of ‘Never Knowingly Undersold’ requiring it to match competitor promotional events online.

Brands are in a more robust position, able to set their own pricing strategy while in the consumer electronics industry, many brands dictate the pricing strategy for their products to retailers, thus making retailers differentiate themselves in other ways such as add-ons or extended warranties.

Since January, Wiser has been tracking 100 of the best-selling products from each of 50 retailers within InternetRetailing’s IRUK 500 ranking and comparing the prices on the retailers’ sites with the same products as sold by Amazon UK – and not its marketplace sellers – to give some indication as to the level of sophistication of pricing strategy across the industry. Apparel was excluded due to the complexities of comparing like products.

Amazon has been its usual exemplar of retail strategy making millions of price changes every day and there has been rarely a moment when Amazon didn’t change a price. We expected retailers to have a sophisticated pricing strategy and alter prices on particular skus, such as different colours, based on what is selling fast. Amazon alone was operating to this level among the top 50 retailers. So, the question is why is Amazon in a class of one in UK retailing?

The other retailers fell into one of three groups:

  • Group One: 11 retailers made brand or category-specific price adjustments. This is a kind of dynamic pricing and may even be responsive to other retailers’ movements, but it lacks the granular, item (or even colour/size) specific adjustments that are the hallmark of dynamic pricing sophistication;
  • Group Two: 21 retailers fell into the non-targeted price changes and few price changes category. This catches retailers that are adjusting prices by the same proportion in a large number of products without a clear category or brand tying them together. We also have retailers in this group that have made a few price adjustments to an otherwise static offering;
  • Group Three: 18 retailers made no or negligible price changes. It’s unsurprising that prices for some of the retailers remained fairly static since retailers in this group included jewellers (who you wouldn’t expect to change prices too much), and cards (which people will buy anyway).

In Group 1, office supplies company Staples reduced prices by an average of 17% on 75% of the skus monitored between January and February. They maintained the same position in the following month, so was January the outlier? January and the holiday season is typically slow for office supplies retailers so rather than decrease prices to increase demand, perhaps they increased prices to capture more margin on the lower volume of sales and dropped prices in the subsequent months?

Looking at some of the other retailers and brands in this category, we recorded that the prices of Bosch toasters at Currys were reduced overall by the same percentage in February. Other than that, there were no discernible trends in the rest of the month and few price changes in March.

In Group 3, prices on the vast majority of skus at Disney Store remained static in February and March while most of those on Amazon decreased. Being a manufacturer perhaps consistency of brand pricing/perception is more important to Disney than competitor pricing or consumer demand. Owning the supply chain gives them the ability to maintain a certain margin.

Overall, the research to date shows that prices across the retailing industry in the UK aren’t as dynamic as we thought and retailers are not changing pricing on a daily or weekly basis. However, since the beginning of the year products from over half of the retailers have become more expensive and therefore less competitive to Amazon to some degree.

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