Inventrak Blog

For consumers, the price of a product is and will continue to be one of the main factors influencing a customer's decision to buy.

In the past, pricing decisions were often based on instinct and a few key figures, such as the goods sold and the profit margin achieved for all stores. Today, retailers have far more sophisticated tools and can even analyze how price changes affect the buying behavior of individual customers. On the whole, pricing is becoming more analytical.

By analyzing the sensitivity of different customers, retailers are able to charge customers different prices and improve their profitability.

Generally, the sensitivity of customers to price can be analyzed by their location and their own buying habits.

1. Regional Price Differences

While many retailers still charge the same price for the one item in all their stores, there is a trend towards charging different prices in different areas based on regional criteria. The effect of changing a price differs from region to region, even in different parts of the same town.

Retailers are now beginning to evaluate in greater detail the price sensitivity of customers in different areas. The price sensitivity of a store's customers is a result of the spending power in the area of the store, the values attached to the product and the amount of competition in the area.

2. Personal Price Differences

In addition to regional price differences, modern technology makes it possible for retailers to set different prices for different people. This may seem rather unusual at first, but is common practice even today in many companies. Numerous pricing methods are targeted at specific groups of customers in particular .

Some common pricing policies for customers are:

• Coupons: These are in widespread use throughout the US and are sent to customers in brochures or email. They entitle only the holder to get discount on certain items.
• Personalized Coupons: With the information technology, retailers are now able to create their customer database. Personalized coupons are increasingly being offered to the signed-up customers by direct mail, email or cell phone message. These special offers are based on the customers' past buying habit.
• Discount for signed-up customers: In addition to the coupons given to account signed-up customers through direct mails or emails, discounts are commonly granted on specific products to these registered customers.
• Loyalty bonuses: Loyalty bonuses are also commonly granted to certain registered customers. The bonus programs are based on minimum sales or on collecting points that can then be cashed in for price reductions or free gifts.

As a result of all these activities, it is often the case in many countries, such as the US, that the cost of the one basket of goods can differ considerably from customer to customer. Retailers are thus faced with the problem of processing this correctly at the point of sale and also of making appropriate analysis.

The future will see retailers striving for a more intelligent and diverse approach to price management that takes into account the emotional requirements of their customers.

Retailers are recognizing that customer loyalty cannot only be achieved in the long run by aggressively pricing their whole assortment but also by developing intelligent pricing policies targeted at specific customer groups.

There is a clear trend among retailers to take a more professional approach to price management, a process that is considered of extreme strategic importance. The strategic aspect of pricing policies is also becoming more important.

Strategic pricing first requires the retailer to define the basic strategy, especially at merchandise category level, as different approaches (to increase frequency or profits or create a certain image, for example) may require totally different prices.

The retailer then has to analyze systematically the effects of the pricing strategy to determine whether the pricing policies reach the goal.

For retailers, promotions are now being planned and analyzed less on instinct and more on the basis of the knowledge acquired on price sensitivity, target groups and their behavior, and so on.  Choose the right IT tools for your strategic price management, and you will see the difference.