As retailers assess the fallout from inflation, the lack of a shared view on pricing strategy is hindering the effectiveness of these plans, a study from technology firm Revionics found.
The problem is marketers, or teams responsible for promoting products and services, are far more confident in their firm’s pricing strategy than the teams that develop pricing itself.
The study, which surveyed more than 300 retailers, found that 73% of marketers said they were confident in their organization’s price perception management, while just 43% of merchandising and pricing teams shared that view.
“Marketing organizations tend to be more confident in everything from forecast accuracy, how effective our strategy is at private label, driving price perception or managing costs increases effectively,” while merchandising and pricing teams typically are more guarded and focus on managing expectations, said Matt Pavich, senior director of retail innovation at Austin, Texas-based Revionics. “You can’t have a successful pricing strategy in the market unless both of those functions are aligned.”
Different performance indicators among marketers and pricers may be contributing to this disconnect, he added. It can cause problems in the rollout of pricing strategies, especially if a brand is positioned as ‘low price’ and that approach isn’t aligned with market trends.
Responding to inflation
Brands are now under more pressure to align pricing and promotion strategies as consumers become more price sensitive and less loyal, the survey reported. At the companies surveyed, merchandising and pricing teams were far less bullish about pricing moves relating to inflation when compared to marketers: 83% of marketers polled said they felt confident about pricing responses to cost increases due to inflation, while just 46% of merchandisers and pricers shared that view, Revionics reported.
The disconnect can affect how brands implement dynamic pricing plans. Dynamic pricing is defined as fully or partially automated pricing changes based on shifts in demand, customer behavior patterns and other factors. Brands are doubling down on these tactics to help them meet inflationary pressures, CFO Dive reported in September.
For example, just 25% of merchandisers and pricers said they were investing in this strategy within six months, while 55% of marketers felt organizations should make this investment within that time frame.
“Pricing is front and foremost on everyone's mind with inflation. It's the fastest lever you can pull to achieve quick results,” said Pavich.
Data and analytics have an important role to play in efforts to interpret market trends, but oftentimes it takes senior leadership intervention — through technology and business process moves — to ‘rally the troops’ toward a common goal, he suggested.
“The CFO has major decision power on a lot of things that can influence [pricing strategy],” said Pavich. “Have you invested in the right pricing technologies? Do you have the right analytics and reporting?”
As for the varying performance indicators within various groups — particularly merchandisers and pricers versus marketers — CFOs can help bridge the gap by ensuring KPIs support broader company objectives, he noted.
“When it comes to things like understanding if something is successful, the company should have very clearly stated objectives that they're marching toward … whether that's coming from the CEO, the CFO or the leaders of the different [internal] organizations,” he said.
