Managing Pricing and Profitability in Retail FMCG
Companies can successfully manage pricing and profitability by fulfilling unmet customer needs, identifying the “right price” based on competition, setting effective promotions, minimising margin leakage of markdowns and improving overall margin performance.
In terms of identifying the right pricing, advanced analytics provide the platform to consistently set the “right” price at the right time for the right products across the entire product life cycle. – not just as a one-time event. According to Deloitte, pricing solutions can expect an immediate margin performance improvement of 2% – 4% and a sales growth of 1% to 2%.
When evaluating if your company is practicing the best pricing scheme, find out how your company assess price parity with competitors’ pricing? How does your organisation price products and run promotions based on competition, brand image, market basket and whatever other factors? How does your organization plan your market baskets with discounted SKUs to lure buyers and marked up SKUs to recover margins? The main challenge is that, with the increasing complexity in retail today, applying advanced analytics in pricing can be critical to stay ahead in the market.
Furthermore, in minimising margin leakage of markdowns, advanced analytics are an effective means to increase the performance of markdowns. Retailers can facilitate a minimum amount of margin leakage with markdowns by establishing the most effective discount cadence at the store or item level based on inventory and sell-through rates.
To analyse your effectively your organisation is minimising margin leakage of markdowns, identify how you use historical sales, inventory, market, and promotional data to help you plan merchandise needs for optimal customer appeal and profit? How much of your revenue on seasonal items are impacted by markdowns and what process do you have in place to plan for minimizing markdown leakage?
The challenge in this is that the main cause of markdown leakage can always be traced back to a lack of adequate pre-season planning, as well as misjudged in-season adjustments to those plans. Inaccurate demand forecasts, markdowns taken at the wrong time, on the wrong products and/or in the wrong location are typical instances of loss-making decisions.
Finally, in improving overall margin performance, pricing requires precision at the most-granular levels (i.e. across stores, customer segments, channels) and must account for other key strategic considerations. Studies found that advanced analytics can help retailers improve the way they analyze, set, and deliver pricing in a sustainable and predictable manner.
When analysing how well your company is improving overall margin performance, it is good to question if your organisation is able to drive good elasticity in pricing according to category roles, competition, and item-specific relationships, such as size and brand. Does your organisation have the analysis to identify unmet customer needs and fulfill them profitably? The challenge is in identifying how well-positioned is your organization to optimize everyday prices for sales, margin, and volume goals, as well as how equipped is your organisation to set effective promotions for the right products at the right price at the right time.
1. Market Basket – items frequently purchased together by individuals or demographic groups.
Accelteam has been actively working with customers from the various technology industries driving business improvements through advanced data-processing technology. With the aim to promote full use of mass and complex data sets, Accelteam has the solutions to help companies use data to generate better and smarter business decisions.
In fact, for the past two decades, AccelTeam has been one of the leaders in providing advanced data-processing technology throughout the region. If you would like to learn more about Tableau, please reach out to us at firstname.lastname@example.org.