The Pricing Blog by Omnia Retail
01.10.2024
Top 7 strategies for successful digital pricing transformation
7 Strategies for Successful Digital Pricing Transformation Pricing transformation means completely changing the way a company sets its prices, using new digital tools and technologies to make better pricing decisions....
7 Strategies for Successful Digital Pricing Transformation Pricing transformation means completely changing the way a company sets its prices, using new digital tools and technologies to make better pricing decisions. This process aims to set prices that accurately reflect the perceived value of products or services, dynamically respond to market competition, and maximize profitability. Leveraging software solutions, businesses can ensure they are setting optimal prices for each transaction, considering factors such as customer demand, market trends, and competitive landscapes. In today's rapidly evolving business landscape, pricing transformation has become a critical priority for organizations seeking to stay competitive and maximize profitability. As market dynamics shift and customer expectations evolve over time, companies must adapt their pricing strategies to keep pace. Pricing platform provider Omnia Retail has joined forces with Horvath, the international management consultancy with a focus on transformation and digitization, to share insights on the key elements of success we observe in businesses that have successfully undergone a pricing transformation. Drawing on our combined expertise in pricing software and strategies, we've identified seven key pillars that can help businesses successfully navigate this crucial process: 1. Secure Full C-Level Sponsorship The foundation of any successful pricing transformation lies in obtaining full support from top management. Our experience shows that pricing transformation needs to be a top priority for sales and marketing, product management, finance, and IT departments. Without strong backing from the C-suite, pricing initiatives often struggle to gain traction, especially because they impact many teams and may fail to deliver the desired results. With C-level sponsorship, the right KPIs (profit/revenue) can be prioritized effectively within each team. To achieve C-level sponsorship, we suggest: - Articulate the potential value and impact of pricing transformation on the company's top line - Develop a compelling business case that outlines both short-term wins and long-term strategic benefits - Quantify benefits by running a proof of concept (POC) where you A/B test the effectiveness of your pricing strategies - Ensure that pricing objectives are aligned with overall business goals and strategy By making pricing transformation a C-level priority, companies can ensure that the necessary resources, attention, and support are allocated to drive meaningful change. 2. Foster Collaboration Between Business and Technology Teams Successful pricing transformations are not solely a business initiative or an IT project; they require seamless collaboration between both domains. Our experience shows that when both the business and IT sides feel ownership, a well-developed pricing strategy will take shape and can be effectively implemented. We suggest to consider the following: - Establish cross-functional teams that bring together business expertise and technical knowledge - Ensure clear communication channels between business stakeholders and IT professionals - Develop a shared understanding of pricing goals, challenges, and potential pitfalls - Leverage technology as an enabler of pricing strategies, not just as a tool for implementation Remember, introducing pricing software alone does not solve pricing problems. It's the synergy between business acumen and technological capabilities that drives true transformations. 3. Focus on Big Wins and Quick Victories While pricing transformation is often a long-term journey, it's essential to maintain momentum by focusing on major achievements and celebrating quick wins along the way. To do so, we suggest the following: - Build confidence in the transformation process - Demonstrate tangible value to stakeholders early and fast (e.g. the aforementioned POC) - Generate enthusiasm and buy-in across the organization - Secure ongoing support and resources for the initiative To achieve this: - Start with an isolated part of the business. E.g. one category or 1 geographical location. This allows for a quicker ROI and lower time investment. Successful pilots then typically serve as boosters for global roll-out. - Identify high-impact areas where pricing improvements can yield significant results such as focussing on highly dynamic product groups, Key Value Items (KVIs), and high runners. - Use available technology in steps. First automate the more tedious tasks to free up time, then use that time to focus on developing commercial strategy in more depth. - Celebrate and communicate successes internally to maintain motivation and engagement as a transformation needs to be sold internally as well in its early stages. Any improvement in pricing should pay for itself. By delivering on quick wins, you can cross-finance the journey and support fast achievements, creating a positive cycle of improvement and success. 4. Internalize Pricing Know-How External consultants and software partners can kick-off a pricing transformation. They will generate value quickly but it’s crucial to internalize pricing know-how within your organization. Both for adoption and continuity, dedicated resources are critical. This ensures long-term success. We suggest following steps to internalize pricing knowledge: - Invest in training and development for your team - Document how you develop and execute your pricing strategy - Encourage knowledge sharing and best practice dissemination across departments/teams/countries - Use a proper pricing platform that enables collaboration & knowledge sharing within your organization - Develop a pipeline of pricing talent within your organization By making a pricing transformation program truly yours, you build internal capabilities that will drive continuous improvement and adaptation to market changes. 5. Include Local Teams in the Process Pricing transformation should not be an "ivory tower" exercise conducted solely at headquarters. To ensure success, it's crucial to involve local teams and incorporate diverse perspectives from across your organization. We suggest the following to include local teams: - Engage sales representatives in target markets to gather on-the-ground insights - Seek feedback on conceptual and design ideas from front-line employees - Involve top performers from various regions in the transformation program - Conduct pilot programs in select markets to test and refine pricing strategies By going out and involving sales reps in markets, you can get valuable feedback, test ideas, and create a more robust and effective pricing transformation program. 6. Embrace Continuous Iteration and Adaptation In today's fast-paced business environment, a static pricing strategy is a recipe for obsolescence. Your competitors are constantly evolving their approaches, and your pricing strategy must do the same to remain effective and competitive. Following key reasons to prioritize continuous iteration: - Market dynamics change rapidly, affecting demand patterns and customer preferences - Competitors adjust their strategies, potentially eroding your competitive advantage - New technologies emerge, offering opportunities for more sophisticated pricing approaches - New competitors might pop-up or existing competitors might fundamentally change their commercial strategies in certain categories/geographies - Economic conditions fluctuate, impacting customer purchasing power and behaviour To implement an iterative approach to pricing: - Establish a regular review cycle for your pricing strategy, considering both short-term adjustments and long-term strategic shifts - Leverage data analytics to monitor market trends, competitor actions, and the impact of your pricing decisions in real-time - Create a feedback loop that incorporates insights from sales teams, customer service, and market research - Develop scenario planning capabilities to anticipate and prepare for potential market shifts - Foster a culture of experimentation, where testing new pricing approaches is encouraged and learnings are quickly incorporated By committing to continuous iteration and adaptation, you ensure that your pricing strategy remains agile, responsive, and ahead of the curve. This iterative mindset will help you stay one step ahead of competitors and maintain a strong market position in an ever-changing business landscape. 7. Ensure Transparency and Organization-Wide Understanding A successful pricing transformation goes beyond just implementing new strategies and technologies. It's crucial that the entire organization understands and embraces the new approach. Transparency in both the strategy and the tools used to execute it is key to preventing resistance and fostering widespread adoption. Following key reasons why transparency is critical: - Builds trust across departments and hierarchical levels - Increases buy-in and commitment from all stakeholders - Facilitates better decision-making at all levels of the organization - Prevents the "black box" syndrome where pricing decisions seem arbitrary or unexplainable Steps to promote transparency and understanding: - Clearly communicate the rationale behind the pricing strategy to all employees, not just those directly involved in pricing decisions - Provide comprehensive training on the new pricing approach and any associated software or tools - Ensure that the pricing software used is user-friendly and provides clear explanations for its recommendations - Provide access to relevant pricing dashboarding broadly in the organisation - Create accessible documentation that outlines the principles, rules, and logic behind the pricing strategy - Establish open channels for questions, feedback, and suggestions from employees at all levels - Regularly share success stories and case studies that demonstrate the positive impact of the new pricing approach If a pricing strategy is not understood, it is unlikely to be effectively implemented. By prioritizing transparency and fostering organization-wide understanding, you create an environment where everyone from sales representatives to C-suite executives can confidently explain and support the pricing decisions being made. A pricing transformation is a complex yet critical process for retailers aiming to thrive in today's dynamic market. By implementing these seven key strategies, organizations can set themselves up for long-term success. As market dynamics shift, customer expectations evolve, and competitors adjust their strategies, your pricing approach must remain flexible and responsive. By internalizing expertise, leveraging technology wisely, and fostering a culture of pricing excellence throughout your organization, you can create a pricing strategy that is both robust and adaptable. At Omnia Retail and Horvath, we're dedicated to helping businesses navigate the complexities of pricing transformation. By leveraging our combined expertise in retail pricing strategies and management consulting, we provide comprehensive solutions that drive sustainable growth and profitability. As you embark on your own pricing transformation journey, keep these seven key strategies in mind. With the right approach, commitment to transparency, and a willingness to iterate and adapt, you can unlock the full potential of your pricing capabilities. This will not only lead to improved financial performance but also position your organization to swiftly respond to market changes and maintain a significant competitive advantage in your industry.
12.08.2021
How pricing influences the consumer decision making process
Pricing has a major influence on a consumer’s decision making process and if you know how to take advantage of this, you can increase both sales volume and revenue. This is because there are a few key factors that a...
Pricing has a major influence on a consumer’s decision making process and if you know how to take advantage of this, you can increase both sales volume and revenue. This is because there are a few key factors that a pricing strategy can impact to make that decision making process work for you as a retailer, or as a brand with a direct to consumer channel. Before we dive in and look at the effects of pricing itself we need to identify the two decision making styles people have as well as the five different steps consumers follow when making a purchase decision. We can then map pricing rules to key moments in this decision making process. System 1 and System 2: A consumer has two thinking styles they can use to come to a choice. Kahneman (2011) wrote about these two systems in his book Thinking Fast and Slow and describes them as System 1 thinking and System 2 thinking. System 1 thinking refers to our intuitive system, it is fast, automatic, effortless, implicit and emotional. System 2 thinking refers to reasoning, it is slower, conscious, effortful, explicit, and logical. People are more likely to rely on their System 1 thinking when products are cheaper and less impactful to their lives or when the decision makers are busier, more rushed, and when they have more on their minds. Our System 1 thinking is quite efficient, it would be impractical to logically reason through every choice we make while we are making menial purchase decisions. System 2 logic is often active in consideration of our more important, more impactful, and more expensive decisions. Which of these two systems is used depends on the type of product and the situation the consumer is in. A consumer will make a quick and fast choice if they need a pair of socks for example. In these instances a quick decision is made without a big time investment and this is often a retailer’s long tail of products. If, however, a consumer needs to purchase a house, car or new TV they will most likely go with System 2 thinking. The consumer decision making process: Having discussed the thinking styles, let's discuss all the steps a consumer goes through when making a decision. Most obviously within the second system the decision making process can be split in five steps. These five steps range from not knowing what to buy, to the retrospective evaluation that follows the eventual purchase decision. These five steps were originally proposed by John Dewey in 1910 and still function as an important theory within consumer behavioral models. The five steps are as follows: 1) gathering information 2) evaluation 3) action 4) implementation 5) evaluation of decision outcome. In step one, our model consumer gathers the information needed to make an evaluation. In this step they initially have to define the problem for themselves. Imagine our consumer’s TV breaks down a week before the World Cup. The defined problem is that they do not have a working TV anymore and will not be able to watch the highly anticipated international tournament as expected. Then the consumer identifies the decision criteria and weighs these criteria, for example the size of the TV, the audio quality, the amount of money they want to spend, and the usability of the TV after the World Cup to name a few. Before they start to evaluate the options they will first evaluate the alternatives. You could watch the football on your work laptop, in a pub, or at a friend's place. Accordingly, the consequences of the alternatives are assessed. If you go to the pub for example, you still won't have a working TV, irrespective of the World Cup. Once all of these criteria have been assessed, step two kicks in. In step two, the evaluation process begins. The consumer judges all available options collected during step one to then calculate the optimal outcome for themselves. They will look at the TV, listen to the TV, compare prices, etc. with the end goal of finding the TV with the highest utility for themselves. Step three is simply the decision making itself. Our example consumer will choose the option that has the highest outcome or utility to them. From a retailer’s perspective this means that not only a product itself is selected, but also the store at which the desired product is purchased. This is a key distinction because you want the purchase to happen at your store or webshop, not at the store or webshop of a competitor, irrespective of which TV is chosen. Step four is the actual execution of the decision, also known as the implementation. In this step, the consumer will actually execute the decision made in step three. Our model consumer will go to your webshop and leave the webshop once they have paid for the TV and have the delivery date confirmed in their mailbox. If of course yours is the right price. Last but not least, in step five, the retrospective purchase evaluation takes place. Our model consumer will evaluate their decision to see if they bought the right TV or if they made any mistakes during steps one and two. They will decide if they need to correct these mistakes, or in some cases, if any of the criteria or available options have changed since they made their decision. This is an important step, especially when looking at the ratio between the customer lifetime value and the customer acquisition cost. It also influences repeat purchases, the price perception your customers have and defines your relationship with the customer. Where does pricing come in? Now that we have discussed both systems and the consumer decision making process we can look at the effects of pricing. Margin increase for long tail products: For the long tail of products, System 1 is active and as such consumers will quickly skip through the five steps, if they use them at all. For these products, you can increase your selling price to a sustainable level to increase your margin. Consumers will most likely not put the same weight on the product price and they will not re-evaluate the purchase afterwards. The impact of these purchases is not high enough to warrant that kind of financial nor time investment. This allows you to increase profitability without increasing product returns or creating a bad pricing image in your consumers’ eyes. Examples of pricing rules in this area are margin uplift based on stock, product views, and/or selling price until an equilibrium or the RRP is reached. Creating visibility for high runner products: For larger, more impactful purchases, for which System 2 is relevant, consumers will run through the five steps. Therefore, you want to ensure price is not a negative influence on the consumer's decision making process. A great example of products for which System 2 thinking is used are high runner products. For a quick overview of a high runner strategy please check out this article on “What is a high runner strategy?”. For these high runner products, pricing is one of the key influencing factors in the purchase decision. An important distinction to make is the difference between the product choice and the vendor choice. At all steps price influences which product a consumer will choose and how they will feel about that purchase afterwards. While only at steps three and five will pricing influence at which store or webshop the product will be bought and how they will feel about your shop afterwards. Therefore dynamic pricing should primarily focus on the impact pricing has on vendor choice where you want to use pricing to make a consumer choose for you over one of your competitors. All else being equal, the consumer will most likely go for the cheapest option. Meaning that it is essential to be competitive for these high runner products. However, service, delivery terms, etc. will also be of influence and can set you apart. These additional services also have an impact on your pricing image from the consumer’s perspective. Examples of pricing rules are setting your price equal to key competitors if available and setting them equal to market average or slightly above tier two or tier three competitors so your combination of product and additional services offers the highest utility to the consumer. Maintaining the feeling of value for your consumers in the evaluation: In step five it is essential that during the retrospective evaluation period, the consumer will not find a significantly better option that provides them with more utility. Examples are price drops a couple days after the purchase or the release of a newer, better product for the same price. The result is that a consumer might reconsider their choice, send back the product, and make a new purchase decision. Therefore you want to minimize significant price drops and offer compensation for large price decreases in your store to customers still in the evaluation period. This will reduce returns, unhappy customers, and will have a positive effect on repeat purchases with you as a vendor. Rules that one can implement here focus on promotion pricing where you could drop the price of products near the end of the product lifecycle to give consumers the feeling they still get value out of last generation's product. Next to all mentioned rules, safety rules are always a good idea so you never price above RRP or below your minimum margin price, making the system work for you without risk. How to capitalize on the consumer decision making process in your pricing strategy? Omnia allows you to easily set your own rules to both generate uplift on these long tail products as well as be competitive on high runner products compared to your key competitors, or the entire market if desired. Implementing any of the strategies mentioned in this article is very straightforward with a pricing tool such as Omnia. Dynamic Pricing with Omnia is able to capitalize on the combination of timely competitor data, giving an outlook on the market that can be used as input for any pricing rule, and your own internal data such as page views, stock coverage, conversion rates, high runners and more. This can be done either through feeds or Google Analytics for example. Interested in how Omnia Retail can help you increase profitability with any of the mentioned strategies or business rules? Contact your dedicated solution consultant if you are a customer or request a custom demo for your assortment!
05.05.2021
Should Dynamic Pricing Change Your Company's Pricing Organization?
How to set up your organization's pricing team? Within our customer base we often see that a dynamic pricing initiative supported by software implementation is a moment to rethink pricing responsibility. Historically...
How to set up your organization's pricing team? Within our customer base we often see that a dynamic pricing initiative supported by software implementation is a moment to rethink pricing responsibility. Historically pricing often fell within the domain of the buying department. But with an ever growing emphasis on margin vs revenue and price change frequency it is smart to think about who should be using a pricing tool and ultimately be responsible for pricing. Should it be the buying department, a dedicated pricing team or another option altogether? This article dives into the three different flavors of organizational setup we see within the Omnia customer base, each with their own advantages and disadvantages. Data driven category managers In the first of these three organizational structures the responsibility lies with the buying department/category managers. This implies that the party responsible for choices on assortment, merchandising, buying and pricing remains responsible for pricing. The advantage here is that there is a strong link between pricing and key topics such as assortment or negotiating better purchase prices from suppliers, which also falls under the responsibility of buying. Keeping this responsibility in one decision making unit increases the likelihood of driving synergies. Next to that this option does not require a high investment in your team as these buyers/category managers are most likely already responsible for price changes. This would allow them to spend their time on a strategic level instead of on manual price changes. A potential disadvantage is that buyers within the more traditional buyer profile are not always data-driven and might need training to be comfortable to think more in explicit pricing strategies as well as automating those in tools. Next to that you need a clear owner of the tool to manage the daily operations and settings of the pricing software. That being said, the Omnia portal is designed with ease of use as one of its key value propositions. Dedicated pricing team Pulling the pricing responsibility away from buying/category management and placing it into a dedicated pricing team is the second possibility. The major advantage of this strategy is that pricing is done by specialists, which can increase speed of learning and strategic improvements. Improving the sophistication of your pricing strategy and the potential value you could get from a dynamic pricing tool. A potential disadvantage is that this setup can lead to organizational challenges, or even tensions, where category managers still have margin targets, but they can not decide directly on a key driver of that margin; pricing. This means that as the positive externalities fall away it will also be more difficult to realize benefits such as category managers using data to do data-driven negotiations with suppliers, assortment optimizations, etc. Combined superpowers The third approach is a hybrid one where the accountability remains at buying/category management, but there is a central Pricing Team (or single Pricing Manager) that is responsible for the execution of the strategy and the daily operations of the software. This pricing team or manager is advising the buyers/category managers on the settings and strategy. The role of the category manager is to define what competitors to track and how to weigh them, set contribution margin targets, determine rounding logic etc. This setup has a key advantage over the other two setups where such a centralized role (or even team) can take the lead on pricing, train the team to use the tool, and facilitate knowledge sharing among category managers. This creates more uniformity and a clearer overarching pricing strategy as well as that the positive externalities, such as data driven negotiations in the buying department, remain in place. In a sense, it combines the advantages of both previously discussed setups. As sadly no setup is without disadvantages, this setup also has two. First of all the responsibility distribution can become vague and this distribution needs to be clearly outlined from the get go. Secondly, it requires a higher investment in your company's team than having just category managers but it could be well worth the investment if the budget allows it. Which flavor is right for you? All three flavors can work and, as with everything, it also is a question of proper execution. Important inputs for this decision are what the typical profiles of your current category managers are, thus are they data driven or not and have they worked with pricing strategies before? Next to that it’s important to know the time frame in which you want to implement a pricing tool as well as the willingness to invest in a pricing team. Irrespective of your setup, the automation of a dynamic pricing tool will ultimately lead to more time spent on optimizing the pricing strategy, instead of manual price changes. Therefore it is not about saving FTEs but about ensuring those FTEs work on a more tactical and strategic level, making them as effective as possible.
05.01.2021
Meet the Team: Martijn Crooijmans
In this edition of Meet the Team we have Martijn Crooijmans in the starring role. Martijn is one of our fresh Junior Consultants within our new traineeship program. What is your favourite quote? “If you put your mind to...
In this edition of Meet the Team we have Martijn Crooijmans in the starring role. Martijn is one of our fresh Junior Consultants within our new traineeship program. What is your favourite quote? “If you put your mind to it you can accomplish anything”, which is a quote from back to the future, but I feel like it’s mostly true. What is your top-3 favorite books or podcasts? The “Velocast”, a cycling podcast and a fun and easy way to follow the cycling world. “Business adventures”, a book on, well, business adventures. And “WeCrashed” which is a short podcast on the crash of WeWork and quite interesting to go through. What do you do at Omnia Retail? As I am currently in the traineeship I will cycle through multiple different activities throughout the year. Right now I am working within customer service mostly. This allows me to get to know the product and our customers. Next to that I am joining in on consulting work and customer success work for some customers. Next month I will trade these activities in for a couple months of sales to see how things are going in that department. What is something people in your industry have to deal with that you want to fix? That is a great question but with my three months of experience I don’t think I have seen enough issues yet to know which ones are the most frequent and important. I guess more automation as computers don’t make mistakes once everything is set up properly. But in which area and how are questions for a later date. What are your credentials/past experience, for working in your position? As this is a traineeship/junior function my past credentials are fairly limited. Before I worked at Omnia Retail I followed a bachelor in Management and Marketing in Wageningen and a master in Business Development and Entrepreneurship in Utrecht. I wrote my thesis on SaaS companies and did business analyses for an IT company. So this traineeship at a Saas and tech company was a logical next step. What do you like about working at Omnia Retail so far? The culture for sure. You can’t just walk up to a colleague at work with questions as everybody is working from home. So the fact that everybody is really helpful and goes out of their way to help you by setting up digital meetings is great. Everybody just feels accessible. What are the values that drive you? I really appreciate it when things go efficiently and effectively as well as level-headed people. What do you enjoy doing when you are not working? As the podcast could have indicated I enjoy going for a cycling ride every once in a while and I really enjoy swimming. Next to sports I enjoy watching a good movie or meeting with my friends, even though that last one is a bit difficult these days.
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