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COMPETITIVE PRICING INTELLIGENCE: NEW DEMANDS EMERGING FOR AN AGE OLD PRACTICE

The practice of collecting competitive pricing data is as old as retail itself. While some new tactics have been introduced over time, never in the history of retail have we experienced such rapid pace of change as we have witnessed since the onset of online commerce.

Driven by fundamental changes in the dynamics of retail, competitive pricing intelligence is now –

• More important: Immediate visibility to pricing information encourages aggressive price shopping, with showrooming and webrooming becoming the new normal. With the competition just a click away, retailers must win the battle for the customer’s heart and wallet with each and every purchase.

• More complex: At the same time, online commerce has dramatically increased the magnitude of competitive pricing data, as the competition is no longer just the store down the road.

• More time-sensitive: Pricing volatility has increased to new levels, as changing prices online is much easier and faster than changing them at the store.

These three fundamental shifts are calling for a new approach to retail pricing practices, an approach that can address the growing importance, complexity, and volatility of competitive pricing.

This eBook reveals how successful retailers stay ahead of the competition by using competitive intelligence and pricing data to maximize margins and profits.

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The use of competitive pricing data is quickly becoming an industry staple.

According to a 2014 RSR Research study1, over 58% of the retailers surveyed are either currently using competitive price data, or are in the process of doing so.

With more products, more sales channels, and more dynamic pricing, the amount of competitive pricing data available to retailers can be staggering. Just 10,000 products with 10 competitors in 5 different channels can create over 5 million data points in one month.

Big data brings big opportunities, but also big challenges.

The key to success is turning competitive pricing data into smart operational decisions that best position your prices against the competition in every category, at every sales channel, throughout the product lifecycle.

Trying to make sense of such vast amounts of data without the right tools is a recipe for failure. To turn competitive pricing data into actionable insight, you need a tool that allows you to visualize the data, slice and dice it by competitor, product, and channel, assess the impact of competitors’ prices on your sales, and evaluate multiple what-if scenarios for your competitive response.

TURN COMPETITIVE DATA INTO SMART PRICING DECISIONS1

Big data brings big opportunities, but

also big challenges.RSR Research, The Pricing Paradox, April 2014

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While competitive pricing information is a key ingredient, merely tracking competitors’ price movements will not help you make the right decisions. The real power of competitive pricing data is realized when this information is laid against your internal data.

Cost data Product cost information is fundamental, allowing you to understand what your margins are for each product and where you need to take action to maximize profit opportunities.

Sales dataCross referencing competitive pricing information with sales data allows you to understand the real impact of competitor prices on your business. Armed with this information, you can better pre-empt and respond to the moves of the competitors that really matter. It also allows you to identify low converting items that may require more competitive pricing.

Inventory dataKeeping an eye on inventory levels and velocity allows you to adjust your pricing decisions accordingly. It allows you to identify items that are performing below expectations due to non-competitive prices. At the same time, you may be able to raise prices and capture higher margins on products that are low on inventory and hard to replenish.

COMBINE INTERNAL AND EXTERNAL DATA TO GAIN BETTER INSIGHT2

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With increasing product assortment and shorter product lifecycles in many categories, effective management of product assortment and pricing is becoming more challenging than ever before.

Different products have different characteristics. They also impact your bottom line in very different ways.

SEGMENT YOUR PRODUCTS 3

Smart grouping of products is vital to effective assortment and pricing decisions. It starts with segmentation by category and brand—not too granular that you cannot see the forest from the trees, and not too broad that you lose sight of important opportunities.

Beyond the basics, you can use internal data to apply additional segmentations that will help you achieve your desired business outcomes.

For example, using your sales data allows you to focus your attention on Key Value Items (KVI) that have the greatest impact on your business.

Other useful ways to formulate data-driven decisions by segmenting your products include:

• Fast moving vs. long tail items. While high volume items may have a greater impact on your revenues, slow moving items and tail products may provide excellent opportunities for margin optimization.

• High vs. low inventory levels. Adjust prices to reduce excess inventory, or capture higher margins when inventory is low.

• Seasonal vs. year-round items. Manage assortment and pricing decisions according to the cyclical nature of seasonal items.

Smart product segmentation and grouping helps you focus on the key products that can drive the desired business

outcomes

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Understanding the product lifecycle and applying the right pricing strategies at each stage is one of the qualities separating winners from laggards. According to RSR Research2, retail winners are twice as likely to address end-to-end price lifecycle management compared to the industry’s laggards.

Each stage of the product lifecycle—from introduction to growth, maturity, and decline—brings its unique pricing challenges and opportunities. Each stage calls for different actions, requiring a different set of tools.

MANAGE THE PRICE LIFECYCLE 4

Challenges and opportunities

• Selecting the right assortment

• Initial pricing for your penetration strategy

Increasing sales and market share

Maximizing margins and profits while retaining market share

• Identifying end-of-life products

• Markdown management

Questions you need to answer

What new products are the competitors selling? At what price?

Where do you have non-competitive prices that provide opportunities to grow revenues?

Which products are priced too low? Do you have opportunities to raise margins?

Which products are showing signs of declining sales? How is the competition pricing these products?

Smarter decisions you can make with competitive insight

Set the right price to match your strategy for each product / category

Identify the products and channels where you can lower prices to capture market share

Adjust prices on each product at each channel to maximize profits

Pinpoint the right timing and pace for product markdowns

INTRODUCTION GROWTH MATURITY DECLINE

2 RSR Research, The Pricing Paradox, April 2014

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Further complicating matters is the proliferation of sales channels and online marketplaces. A retailer may have one set of competitors offline, a different set of competitors online, and yet another on Amazon or Walmart.com.

Prices in these marketplaces can vary from those in the retailer’s own channels, adding yet another level of complexity that can challenge even the most sophisticated retailer: Who is the competition in each of the channels? Which products should we sell through each channel? What is the right pricing strategy for each?

According to RSR Research3, 65% of retail winners are applying multiple pricing strategies in response to channel proliferations, vs. only 28% of retail laggards.

To effectively compete in today’s multi-channel reality, retailers must step up their game with new capabilities that allow them to simultaneously track, analyze, and respond to competitor prices across multiple channels, each requiring its own competitive strategy.

MASTER YOUR SALES CHANNELS5

One-stop tracking for all of your sales channels

Your eCommerceWebsite

Amazon is often the first place people go to shop, so it’s important to know what competitors are selling at there. With Marketyze, we can now track prices on 65-to-70 percent of the products we carry. This includes data from Amazon Marketplace competitors we were not able to previously monitor.

Susan Palazzese, Former Executive Vice President of eCommerce Marketing & Operations, ReStockIt.com

3 RSR Research, The Pricing Paradox, April 2014

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Knowing which competitors actually impact your sales for each product and category is paramount to a successful competitive pricing strategy.

Retailers tend to have a different set of competitors in each category, and sometimes even within the same category. For example, an office supply retailer can have one set of competitors impacting sales for printers and another for printer ink.

That’s where competitive elasticity comes into play:

Price elasticity helps you understand how customers react to your price changes. Competitive elasticity gives you the ability to understand at a product / category level how your sales are impacted by changes in each competitor’s price.

Correlating competitive pricing data with your own sales data (both online and offline data) gives you the insight you need to effectively adjust your prices to meet volume and margin goals.

KNOW WHO YOU REALLY COMPETE WITH6

HIGH RELEVANCY/LOW IMPACT

LOW RELEVANCY/LOW IMPACT

HIGH RELEVANCY/HIGH IMPACT

LOW RELEVANCY/HIGH IMPACT

React to events that impact your performance

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Reacting to the competition is just the first step. To stay ahead of the competition, you want to understand each competitor’s pricing strategies and tactics.

What promotions do they run and when? How often do they update their prices? Across how many products? Who is a leader and who is a follower?

By gaining visibility into your competitors’ moves for each product, category, and brand you can understand the level of volatility across the competitive landscape and focus on the areas requiring the most attention.

Armed with this knowledge, you can define your strategy for each competitor. Who do you want to follow? Who should you preempt? Ignore? When do you need to update your prices?

This information can get as granular as you need it to be, allowing you to define specific strategies for each product category, each sales channel, just for your KVIs, or any other combination.

UNDERSTAND YOUR COMPETITORS’ PRICING TACTICS7

Who do you want to follow?

Who should you preempt? Ignore?

When do you need to update

your prices?

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To understand how the top office supply retailers manage their prices, we looked at 1,462 office supplies products sold at Amazon, OfficeDepot, Staples, and Walmart over the period of Jan 21st – Feb 21st 2015.

MARKET ANALYSIS:Price volatility in office supplies

Increased Prices

Decreased Prices Total Updates Items Updated %

ChangedAvg. Changes

per Item

officedepot.com 153 97 250 195 13.3% 1.3

Staples.com 221 192 413 173 11.7% 2.4

Walmart.com 1726 2565 4291 1237 84.6% 3.5

Amazon.com 1571 2086 3657 863 59.0% 4.2

What have we learned?• Walmart has updated almost 85% of the

1,462 items and Amazon has updated nearly 60%, while Staples and Office Depot have updated prices for only a little more than 10% of the assortment.

• Walmart has updated the prices of over 25% of the items on multiple occasions, while Amazon has done the same for 10%-12% of the items—both significantly more than Staples and Office Depot.

• Although Walmart has updated prices on the most items, Amazon has made the most price changes per item.

Download the complete market report with additional charts, analysis, and

insight

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For better or worse, promotions play a big role in today’s retail battleground. Some categories are practically dominated by promotions, forcing all retailers to play along.

Promotions are very costly—both in terms of lost margins as well as advertising dollars. Promotions are also short-lived. To capitalize on the opportunity, you need to react quickly.

To make the most out of your promotions, you need pricing intelligence tools that automatically map out the competitive landscape for your promotions, allowing you to:

• Focus on the right set of competitors for each promotional item.

• Get a real-time snapshot of your position against each one of them.

• Quickly correct any non-competitive or over-competitive prices to improve volume while protecting your margins

• Dramatically improve ROI for your campaigns.

MAKE THE MOST OUT OF YOUR PROMOTIONS8

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IDENTIFY IMMEDIATE MARGIN AND REVENUE OPPORTUNITIES9

Rather than trying to get everything done at once, focus on the quick wins.

Based on the data that Marketyze has been analyzing over time, we can say that, in most companies, 10-20% of base prices are significantly out of line. Correcting the prices of these products can make a substantial difference in bottom line results in a matter of weeks.

Your pricing analytics solution should clearly highlight areas where your prices are too low resulting in lost margins, as well as items that may be overpriced resulting in lower than expected revenues.

In most companies, 10-20% of base prices are significantly out of line

Easily idenify quick win margin and revenue opportunities

MARGIN OPPORTUNITIES VOLUME OPPORTUNITIES

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USE THE POWER OF AUTOMATION TO OUTPACE THE COMPETITION10

Once you’ve exhausted the low hanging fruit, the challenge is to maintain your competitive edge with limited time and resources.

You can’t expect your competition to stay still.

Trying to manage pricing effectively with spreadsheets is not going to cut it anymore. You just cannot keep up with the pace of change for each product in any channel in any given time period without the right tools.

Automating the collection of price intelligence and using advanced analytics to formulate the best pricing strategies is a must-have for any retailer today.

Using innovative pricing analytics tools to automate pricing decisions is how winning retailers improve their agility to take advantage of market opportunities.

Beyond the obvious benefits of saving time and reducing price miscalculations, automated pricing rules enable retailers to accelerate the path from data to decision, capture additional profits, and prevent margin and market share losses.

Here are just a few examples of how automated rules can help you ensure compliance with your pricing policies and strategies:

• Maintain your prices in sync with your competitors in each category (e.g., no more than 2% above or below the top 5 competitors).

• Alert when a competitor launches a promotion for one of your KVI’s.

• Suspend promotion pricing when inventory levels dip below a certain threshold.

Easily define and manage your pricing rules

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BACKGROUND:The Best Buy Secondary Markets Division refurbishes and resells products that were traded in, returned, or overstocked in stores. A key goal for the division is to “keep these products out of landfills and give them a second chance for use,” said Robert Biles, General Manager - Online Consumer Sales, Secondary Markets, Best Buy.

CHALLENGES:Pricing used electronics can be challenging because there are not always clear benchmarks. Certain item may be older or have a unique condition, Biles noted. Because the electronics business can be highly commoditized, a penny’s difference in pricing can have a significant impact on sales, according to Biles. However, retailers always need to walk a fine line between providing compelling and competitive pricing while also protecting profit margins.

SOLUTION:The Secondary Markets Division of Best Buy has experienced a surge in sales and satisfaction since partnering with Marketyze, a pricing intelligence software company, to keep a constant pulse on the electronics landscape.

“We’re leveraging a view of the entire competitive landscape,” Biles explained. “One of the things that Marketyze can do for us is take that data, which is very far reaching and can be a bit inconsistent, boil it down to make it easy to base our pricing algorithm off of.”

Case in Point:BEST BUY RAMPS UP SECONDARY MARKETS DIVISION

Marketyze allows us to be more automated and up-to-the-minute, but also dig in more and make sure we’re protecting margins. It has helped us build a more profitable business that also delivers more value to the customer.

Read the complete interview on Retail Touchpoints:

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10 WAYS TO STAY AHEAD:Quick reference

Turn competitive data into smart pricing decisions1

Combine internal and external data to gain better insight2

Segment your products to zero in on opportunities3

Manage the price lifecycle4

Master your sales channels5

Know who you really compete with6

Understand your competitors’ pricing tactics7

Make the most out of your promotions8

Identify immediate margin and revenue opportunities9

Use the power of automation to outpace the competition10

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HOW CAN COMPETITIVE INTELLIGENCE HELP YOU WIN?

New retail realities call for new competitive pricing strategies and capabilities – better data, crisper insight, faster action.

Marketyze helps leading retailers turn these challenges into opportunities, using competitive pricing intelligence to outsmart the competition.

Gain immediate visibility into your competitors’ movesMarketyze’s patent-pending technology collects, extracts, cleans, and accurately matches your products with those of your competitors, in a fully-automated and self-learning process.

Turn competitive data into actionable pricing insightsCorrelate competitive pricing and availability data with your internal sales data to determine how market pricing affects your actual performance.

Get unfair advantage with the science of pricing Combine robust rule-based decision support with price performance insights and analytics to generate automated recommendations that result in smarter pricing decisions. Contact us for a

complementary analysis

Tel: 650.209.6610

info@marketyze.com

www.marketyze.com

Selected Marketyze clients