In the retail sector, Competitive Intelligence techniques can be used to understand the market, your competitors and their strategies. Similarly, these techniques offer you a chance to identify your competitors’ strengths and weaknesses. You may also get an idea of how much business each of them does in comparison with one another.
You should know about:
Where does your target market buy products?
What are the prices charged for similar products?
Which brands are most popular?
Who is buying those brands?
Competitive Data provides a fundamental perspective for the creation, delivery, and capture of value. Competitive Data is an essential component of the pricing strategy as it helps in understanding the competitive landscape of your business. This can be used to identify potential threats and opportunities, determine appropriate actions and make informed decisions that are aligned with your strategic objectives.
When retailers are competing with other businesses, they must consider the market and its pricing strategies. If a retailer is a price leader, they can use their position to set the standard for pricing in their industry. For example, Amazon sets prices for books at $11.99 or $12.99 and then sells them at a loss in order to sell more copies and grow market share.
A price follower will take into account what the price leader is doing and adjust their own pricing accordingly. This might include matching or undercutting the leader to grow market share.
One challenge posed by competitive pricing is that it’s difficult to determine whether sales are a result of the profit maximizing price of $30 or the fact that $30 might be the cheapest in the market. The secret is to combine these two pieces of data and compare the absolute price with the price relative to the market. Every retailer, whether a price leader or price follower, needs to adapt. Fresh market data means that a response with repricing is needed. The key to mastering a reactive pricing strategy is to predict how competitors will react and act accordingly. Good retailers reverse engineer the market pricing model and adjust continuously, anticipating their competitors’ every move
In reactive pricing, a retailer adjusts the price of their products based on market conditions. This strategy is used by retailers to be competitive and capture sales while maintaining a profit margin.
However, reactive pricing strategies do have their limits. Some wholesalers provide retailers in the US with a Manufacturer’s Suggested Retail Price (MSRP) which is the recommended price that they suggest their products are sold at to retail customers. In Europe, the same recommendation is known as Recommended Retail Price (RRP). While not legally binding, it does present bounds for reactive pricing strategies that may suggest pricing that varies above the MSRP level.
Separately, some wholesalers also choose to implement a Minimum Advertised Price (MAP) policy. MAP agreements between wholesalers and retailers state the minimum price that a product can be sold for to retail customers. MAP policies are used to prevent price wars, but they are restrictive and impact retailers’ ability to implement unbound reactive pricing strategies.
Additionally, pricing regulation varies globally. This presents challenges for omnichannel retailers that operate internationally because they may be required to follow MAP policies in one region (e.g
The retail industry is a prime example of how markets can be disrupted by companies that focus on price. Amazon initially came into the market as a pure online player, and focused on pricing. This caused many retailers to adapt and implement reactive pricing strategies, such as $1 more or less than Amazon, or even increasing their price when Amazon goes out of stock on a product they carry.
Quicklizard provides an advanced pricing infrastructure that makes your business truly thrive.
Seamlessly combining two common approaches for dynamic pricing - rule-based automation and price-optimization. In the former, rules are predefined—based on past knowledge and experience—and are applied under human supervision. Price-optimization offers reinforcement-based methods (such as trial and error) to automatically adjust performance variables as more data is fed into it over time.
About Quicklizard (TASE: QLRD)
Established in 2010 as a competitive date company, pivoted in 2017 to become a SaaS platform for Price optimization. Today, Quicklizard is the leading pricing optimization platform for retailers and brands. Offering retailers the ability to fully manage their pricing strategies on a single platform that provides the tools, insights and analytics required to achieve pricing excellence.