In this whitepaper, you will get a clear roadmap for pricing scenarios usage:
- Description, formulas, advantages, and disadvantages of working pricing scenarios that help retailers efficiently manage turnover;
- A list of necessary data that will help retailers set up and analyze pricing scenarios to obtain business goals (KPIs);
- A list of tools that can be used to effectively work with repricing scenarios.
Using the repricing algorithms from this white paper with your business data and goals allows for an improvement of your online store’s turnover.
Setting the Price at the Smallest Value Among Your Competitors Scenario
Description:
This scenario helps maintain the value of products at a minimal level, while not selling at a loss.
| keep the price at the minimum level among your competitors |
until | the difference with the current price changes is less than 25% |
then | do not reprice the product automatically, instead notify the manager |
Benefits:
If the goal of the retailer is to sell as many goods as possible, then this scenario is one of the best ways to do so. However, as in any scenario, it has one significant drawback.
Disadvantages:
The rule of setting prices at a minimum value among competitors is very simple to implement, but it does not let the retailer make more revenue.
The Minimum KVI-positions Price Scenario
Description:
It helps maintain the lowest possible price on the market by following the key competitor with the lowest price. However, the price should not be lower than the minimum markup.
| if | the product is in the list of KVI-positions |
then | reprice it to 5% percent below the competitor’s minimum price |
and | it needs to withstand the minimum markup of 3% of the cost price |
Benefits:
This scenario helps retailers achieve two goals simultaneously: increase turnover and take some of your competitor’s customers due to the minimum cost of KVI-products.
Disadvantages:
Attracting buyers who are looking for the minimum price of a product rarely works in the long run. These customers are always in search of the minimum price, which means that during the next purchase, they’ll look for the cheapest option on the market.
The Dynamics of Sales and Stock Scenario
Description:
This scenario is created for those retailers who work with their warehouse. It helps carry out the plan for turnover, without selling the entire stock.
| use the “Minimum Margin” scenario |
while | the number of sales is less than the number of products in the warehouse |
else | use the “Plan for Turnover” scenario |
Benefits:
This scenario helps synchronize the dynamics of sales with the rest of the warehouse and prepare storage space for the newly purchased batch of goods. A category manager can purchase products several months in advance.
Disadvantages:
It’s difficult to calculate the dynamics of sales and the correlation with what is left over in the warehouse by taking into account seasonal sales surges. To work effectively with this scenario, you may need the statistics from the last couple of years.
Repricing Considering the Promotional Activities of Competitors Scenario
Description:
This scenario is created for those retailers who track the promotional activities of competitors and want to react to them promptly.
| if | the competitor has a promotion on their products (either a discount or gift) |
then | set the price of the product 5% lower than competitor |
and | hold onto a minimum 3% markup |
Benefits:
This scenario helps retailers deal with the implicit dumping of competitors, bonuses and road markers, by offering a more favorable price for the product. This makes it possible to entice some of your competitor’s buyers who compare prices on marketplaces.
Disadvantages:
Like some other scenarios aimed at increasing turnover, this approach does not allow the retailer to earn more, and the competitor who launched the promotion may be in a better position, since the costs of conducting promotional activities are often taken on by the supplier.
Stock Reducing Scenario
Description:
This scenario is similar to the “Dynamics of sales and stock balances”, but takes into account the age of the stock. The task of many category managers, and often one of the KPIs, is not to exceed the “old stock” share above a certain value.
| if | the product is kept at stock more than N days | then | set its price at the level of the purchase price +1-3% regardless of the pricing of the competitor | else | use a different repricing scenario like, for example, the market price |
Benefits:
By monitoring the “health” of the stock, retailers won’t have outdated products overflowing in their warehouses. This lets them avoid the subsequent sale of such products by selling at a loss as a forced measure. In addition, the sale of products with a low markup, without looking at competitors, allows you to quickly increase sales and execute the plan for the reporting period.
Disadvantages:
- It’s useless for new products that just became a part of the inventory. In this case, you need to apply other scenarios.
- Not all ERP-systems take into account the age of the stock and they only process quantitative indicators.
Market Positioning Monitoring Scenario
Description:
This a scenario for combating the dumping of competitors should a certain manufacturer establish a minimum market positioning.
| if | there are one or more violations of MRP by competitors |
then | notify the manufacturer of the violation |
and | set the price at the level of the competitor that made the violation |
Benefits:
At a high frequency of monitoring competitors’ prices, this scenario promptly records the violation of the MRP and increases the sale of products that correspond with MRP.
Disadvantages:
If you don’t reach an agreement with the supplier about this kind of scenario in advance, there’s a risk that you’ll spoil the business relationship with the supplier. At the same time, the monitoring frequency should be high enough to secure the violation of MRP fairly quickly and respond faster than the other competitors.
As you can see now:
Each of these scenarios requires the retailer set particular values which is why we did not quote specific figures in the examples. The data that is used is an important component for working with scenarios.
Necessary Data
For effective scripts usage, the retailer needs a high-quality, actual and correct data. It needs to be collected without errors on marketplaces and the competitor’s websites at the time pricing need to be done.
The retailer needs to have the following information to work effectively with pricing scripts:
-
Product data: stock availability, price, cost, KVI-positions.
Item Stock attribute KVI tag Cost, $ Multicooker Redmond RMC-M92S in stock YES 95 LCD TV Samsung UE43KU6000 in stock NO 700 Notebook Apple MacBook Air 13' low in stock YES 925 -
Business goals data: minimum markup, planned markup, turnover and margin plan, etc...
Item Stock attribute KVI tag Cost, $ Minimal mark-up, % Planned mark-up, % Planned turnover, units Planned margin, $ Final price, $ Multicooker Redmond RMC-M92S in stock YES 95 12 18 150 3000 115 LCD TV Samsung UE43KU6000 in stock NO 700 3 6 75 3375 745 Notebook Apple MacBook Air 13' low in stock YES 925 5 8 120 9000 999 -
Competitor’s data: prices, stocks, promotions.
Item Stock attribute KVI tag Cost, $ Minimal mark-up, % Planned mark-up, % Planned turnover, units Planned margin, $ Final price, $ Competitor 1 price Competitor 2 price Competitor 3 price Promo attribute Stock attribute Multicooker Redmond RMCM92S in stock YES 95 12 18 150 3000 115 120 111 115 markdown in stock LCD TV Samsung UE43KU6000 in stock NO 700 3 6 75 3375 745 750 735 720 gift low in stock Notebook Apple MacBook Air 13' low in stock YES 925 5 8 120 9000 999 995 1019 999 no promo out of stock
By integrating this data into the scenario and analyzing a performance of the latest, the retailer can understand how the product’s price affects its sales, what is the influence of the key competitors on sales; create a Price Index report to track the effectiveness of retailer’s pricing and the impact of its competitors more effectively.
Pricing Scenarios Tools
The simplest pricing scenarios tool is an Excel spreadsheet. But, since this tool has more flaws than advantages, it is much more effective to use special pricing services.
The Price Management product, a part of the Competera Pricing Platform:
- Integrates all the collected internal and external data and visualizes it.
- Sets product prices according to the preset script rules.
- Detects anomalies and opportunities to optimize pricing—for most scenarios the retailer needs to use threshold scenarios to keep the correctness of pricing.
To calculate the ROI of such tool for your business, do not hesitate to contact our pricing experts.
Useful resources
- Article and free online course on Pricing Strategies
- How to collect data: build or buy pricing solution
- What is Agile PricingTM?
- How to explain pricing strategies in a way even child will understand
If you want to know which of the above pricing rules will be effective for your online store, chat with our pricing experts—they will answer all your questions.
