BRANDOOGLE

Category: Pricing

  • For some Retailers, Black Friday should be renamed Brown Friday

    When I was in elementary school I had to do a project on my family’s history. I asked my father if any of our ancestors had been war heroes.  He went on to tell the following story:

    In the 1700’s a great grandfather many generations back had been an Admiral in the Royal Navy.  One day a sailor called down from the crow’s nest to report that a Spanish warship had been spotted on the horizon.  The Admiral turned to his first mate and told him to get the Admiral his red shirt. “That way” he explained, “if I am wounded in battle, the sailors won’t be alarmed”.

    A moment or two later, the sailor in crow’s nest frantically called down that it was not just a single Spanish warship, but the entire Spanish armada. The Admiral calmly turned to his first mate and instructed him “Go get my brown pants”.

    I was recently reminded of this story as the first reports started coming in about the weak Black Friday retail store traffic. Shortly after the initial retail reports started coming in, the internet sales volumes were reported, and at surprisingly robust levels.  So the pundits were half right. Sales volumes in total were up, but heavily lopsided towards on-line sellers*.

    How, with all the resources and big data at their disposal, and months of planning did so many experts and retailers get it so wrong?

    How? Because 83% of the sales on Amazon were to third party sellers (as reported by therobinreport.com), and most large retailers don’t participate in Marketplaces. The reason most of large retailers don’t participate in Marketplaces, is the same reason that many consumers are drawn there to shop:

    PRICE

    When online sellers choose to participate in a marketplace (Amazon, Jet, Rakuten, etc.) they commoditize products, and compete almost exclusively on price. Retailers have a much different, and generally higher, cost structure than their online counterparts, and therefore cannot compete solely on price. It then follows that major retailers cannot compete on marketplaces. Unfortunately, it looks like that’s where the shoppers were.

    So despite the huge advancements, and investments, in OMNI Channel infrastructure, technology, customer experience initiatives and web design by most large retailers, shoppers chose to spend their money where they could get the best deal. Interestingly, what the large retailers did not invest in was technology and service providers to help ensure pricing integrity across their assortment. By monitoring which brands were chronically discounted online, they could have steered their assortment into brands that have demonstrated an ability to maintain pricing consistency across channels. In that environment, consumers would have expected to pay the same in store as online. Not coincidently, retailers could have leveraged their customer experience assets to win the sale. Price would no longer have been a part of the equation.

    Regardless of what the reason is, shoppers appear to place a lot more weight on price and 2 day delivery, than the black Friday retail consumer experience.

    A few years ago, the fear was that shoppers would visit retail and buy online (showrooming). This year proved that fear to be misguided. Now retailers are struggling just to get the shoppers in the store. The truth is that the retail landscape is forever evolving. In years past, the major retailers shrugged off the risk of a single product, single brand or single website posed to their business. To continue the metaphor, a single warship. They are now seeing much of their assortment available at much lower prices from an entire armada of online sellers. If retailers choose not to invest in the pricing management solutions in the coming year, then they should probably reach for their brown pants.

     

    *Most of the major retailers have yet to report if e-comm sales, and margins, made up for some, or all, the shortfall in store traffic. Not all retailers break out there numbers by e-comm versus traditional store sales.

     

    David Coleman is the CEO and Founder of Brandoogle (brandoogle.com) and can be reached via e-mail at dcoleman@brandoogle.com. Brandoogle is a supply chain research organization that specializes in the identification, investigation, and remediation of pricing irregularities on the internet. Brandoogle works with both Retailers and Brands to improve margins using a proprietary suite of software and services.

     

  • Is Dynamic Pricing the Retail Equivalent of On-Line Gaming?

    In the spirit of full disclosure I am not, nor have I ever been, the CEO of a major retailer. That said, if I was, and my Chief Merchandising Officer told me that his/her strategy to improve profits was “to buy into inventory, and sell it for whatever we can get” I would at the very least  wonder aloud if I had the wrong person in the job, and in a worst case scenario begin severance proceedings.

    Quite frankly, in the retail world, buying into inventory always carries some risk. Be that as it may, the approach described above is not informed risk taking, rather it is unbridled gambling.

    While I seriously doubt any CMO has actually verbally articulated a “sell it for what we can get” strategy to their CEO, there seems to be a growing mountain of evidence that, in fact, some retailers are beginning to follow this approach.

    This shift in retailer behavior is being driven by the intersection of two powerful market forces: consumer price sensitivity, and dynamic pricing technology. The price sensitivity of consumers has been a market force for eons, but with advances in data analysis we can now see for the first time at a granular level how price sensitive consumers truly are.  A recent report by Cognizant (as reported by retailtouchpoints.com) suggests that 90% of shoppers will switch retailers over price. The second market force, dynamic pricing, is the relatively new ability of retailers to instantly re-price goods based on real time information about competitor pricing.

    When the market forces of price sensitivity and dynamic pricing collide, retailers can draw the erroneous conclusion that in order to generate sales, and thus profit, they must price match their competitors. (This may be one of the underlying factors driving the recent earnings warnings offered by Walmart).

    One of the underlying assumptions about price matching competitors is that they actually have inventory on hand that is immediately shippable.  But what if they don’t?*

    Unfortunately, even with the current advances in price monitoring technology, it is impossible to know if a competitor has inventory on hand, or whether the competitor is simply waiting to receive and order before they procure the product.

    If the competitor doesn’t have inventory on hand, should the retailer really be price matching? And if they do, how much profit has the retailer forgone on the sale?

    There are no simple answers to this dilemma, but there might be alternatives.

    • Only work with vendors that aggressively enforce their MAP policies
    • For those vendors with weak pricing enforcement, only take product on consignment
    • Only use price matching on chosen loss leaders
    • Demand exclusive packaging or SKU numbers from vendors
    • Some combination of the above

    The upshot is that for retailers, buying into inventory always carries some risk, but buying into inventory and applying a dynamic pricing matching tool without a reasonable understanding of probable margins goes well beyond normal risk taking and borders upon institutionalized   gambling.

     

    * Analysts at Brandoogle estimate that anywhere from 3-5% of the time, the web site posting the lowest price cannot immediately ship the selected item.   

     

    David Coleman is the CEO and Founder of Brandoogle (brandoogle.com) and can be reached via e-mail at dcoleman@brandoogle.com. Brandoogle works with both Retailers and Brands to improve margins and combat grey markets using a proprietary suite of software and services.