The world of retail pricing is never easy, especially with the recent Price Inflation.
There are more combinations of products and prices than there are atoms in the universe. Not to mention the ever-evolving competitive threats. With Price Inflation running 7-8% year over year and prices rising 146 basis points in the last month retailers find themselves asking, “What’s the right price?”
Current Price Inflation Insights
Adding fuel to this fire, Walmart has recently announced that they are challenging their suppliers to reverse the inflation trend. Walmart is starting to use additional promotions to maintain a strong price gap. Walmart stated:
“We’ve had a significant presence of our Walmart rollback program in stores and online. We’ll continue to maintain those kinds of promotional activities. One of the things I used to do when I was a buyer is if you get cost inflation coming through, you can actually mitigate it by taking prices down on higher margin items with rollbacks to mix within categories. We want to maintain relative value gaps, so that in any situation where the customer is budget-sensitive or time-sensitive, they can trust that they’ll get a value and when transacting with Walmart.”
Walmart has always been slow to raise prices against cost increases, and they’ve now added in this new dynamic. This has everyone watching to understand when and how they respond to the onslaught of manufacturer cost increases.
Historically, many retailers have been quick to act on cost changes, moving retails up as soon as they received a cost increase. In monitoring retailer pricing, this approach is still prevalent, but every retailer and every market are behaving differently. For example, price increases are higher in the Great Lakes and South Central vs. other areas of the country. According to recent NielsenIQ research, overall average prices are rising faster than everyday prices. This dynamic is driven by reductions in promotion depths of discounts. Some retailers are protecting margins by raising everyday prices while others are pulling back on promotions.
Inflationary Pricing Strategies
Now, more than ever before, it is imperative to keep a pulse on price position. Tracking your price position can’t be done just once a month, or once a week. The lens used by consumers to determine competitiveness is now every transaction. It is time to step back and ask: “What can we do differently to react to these cost pressures?”
- Price Image Drivers: Identify Price Image Drivers using behavioral science to determine the items that impact on shoppers’ price perception. Don’t just focus on the same old KVIs that all of your competitors are using. Identifying Price Image Drivers has enabled Engage3 clients to be laser focused with their price investments. Even with inflation, they are winning market share, driving trips and expanding margins.
- Passing Through Costs: Fund the investment in Price Image Drivers by increasing prices on background items that won’t hurt your price perception. Then reinvest these funds to win on your key items. When getting a cost increase you can hold prices down on your Price Image Drivers and pass-through cost increases on background items.
- Advanced Competitive Intelligence: Leverage highly localized competitive intelligence data from a variety of sources to track your competitors’ price position.
- High Frequency Monitoring: Monitor competitor pricing on key items more frequently, in order to not only identify when and what a competitor is doing, but why. For example, how long does it take a competitor to react to a cost change. If they increased a price but the market share leader did not, did they move back down? Consider also whether you have the right breadth of coverage.
Pricing has never been an easy trade and the current environment has added immense pressure and complexity. But by increasing awareness of competitors and understanding your Price Image drivers, you will be positioned to optimize your pricing.