OPINION: Tactical pricing is the future of successful retail

Kantar Retail’s Stephen Mader talks about the importance of reaching shoppers at the right moment with the right proposition…

Arthur C. Clarke once said: “Any sufficiently advanced technology is indistinguishable from magic.”

When looking at the pricing landscape today, in particular the disruptive nature of e-commerce 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 e-commerce era of retail than the ability to build a working commercial model. That commercial model for most retailers (be they multi-channel or more pure-play bricks 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.

The primary impact of an increasingly digital world is the ability to see pricing more visibly across outlets. Either on their own, or powered by retailer or third-party applications, truly price-sensitive shoppers can compare prices in real time. In particular, this pricing strategy is most prevalent for items considered high-ring purchases and for SKUs with highly memorable price points.

Retailers that create contextual pricing and promotions will see success in 2014. To a large degree, this could very much be a big part of the future of impulse purchasing: reaching shoppers at the right moment with the right proposition. Context can also be about the set of products the shopper is trying to buy (i.e. what solution they need). The most obvious example of this remains the bundled solution sets available in the electronics and home improvement segments, as well as Amazon’s “if you bought this, buy that” style of contextualised solutions.

Every retailer will need to improve their understanding of which items are “context drivers” and which items can most comfortably be sold along with those context drivers.