Price Wars: The Future with Price Optimization Solutions: Part II

Pricing optimization is the key to your success in the battle with price wars

The solution is, to stop the war before it begins:

You must in-fact reveal your strategic intentions to your competitors ahead of time. Price matching and other public statements (In your policies, marketing and advertising) will signal to your competitors that you will not tolerate a price war, and intend to fight using all resources at your disposal. Make sure that your competitors understand the rationale behind your pricing policies. This should go a long way to preventing a price war.

Is a price war imminent?

There are times when it appears imminent; however, there are many tactical responses to deal with a competitor’s moves.

Non-price response:

The weapon of choice is to compete on differentiation. So a competitor has decided that they want to play in your sandbox? It’s costing them dearly to lower their prices. Now you have to haul in new sand, and add features to your offerings that give added value, but often cost little to implement. Define the differences in the quality of your service, packaging and otherwise better experience for the customer overall. These differentiation techniques need to be obvious to the consumer.

Even if a product is identical, you can emphasize many features in your marketing that set you apart. For example, if yours is certain to be in stock at the time of ordering – then say so! Can your competitor guarantee that? Maybe they can too, but fail to mention it – in which case, you win on that point. Another powerful tactic is to offer rebates and frequent buyer awards to your most loyal customers. Look for the kinks in their armor and take full advantage. Smaller companies do not likely have the marketing budget and firepower – while larger companies tend to react more slowly. Size them up and take full advantage! Understand too that there is a serious downside to lowering prices. Companies would be wiser to stress their service, quality, and commitment to their customers first, before going on about price. When the focus is on the brand, competitive prices will appear a bonus.

Sometimes, revealing your cost advantage is a powerful signal, if one exists. Letting a competitor know your strategic intentions and capabilities publicly is key to getting them to back off. In reality, if you are using price optimization, you’ll pay slightly less attention to a competitors moves – and be more focused scientifically on what your customers are telling you. After all, they are the ones that are keeping you in business!  It’s amazing how, in many markets, product pricing varies wildly, and it is rarely the lowest price that matters - so long as the key players are all within percentage points of each other. The quality of service, the ability to obtain product when needed, and the perception of how easy (or difficult) you are to deal with versus them is what ultimately counts.

These are hallmarks that must be properly conveyed to your customers through marketing and advertising messages. You’ll have a much easier time with pricing if these other pieces of the overall business puzzle are properly in place.

Price response-reaction:

How to respond by price? If you must… Recalibrate your offerings, so that products often purchased together can be bundled together for a discounted price. Your customers will appreciate it! Find related products that offer higher margins, and bundle them with items that offer lower margins (so that the overall sale on such bundles remain profitable). Plan ahead of time, then put into practice more complex pricing offerings with discounts on volume, price promotions and loyalty programs that are not easily duplicated at the time you introduce them.

Last, simply adjust pricing on products that have the highest movement (these are your most visible products – and therefore are most price-sensitive) to match the competition. Resist lowering pricing below the competition! By price matching, this has the effect of letting them know that it is pointless to continue, and you are not interested in fighting, you’re simply matching whatever lower price they create.

Cleaning your product data

Leveraging good data is paramount to the pursuit and execution of pricing excellence, and of course is a goal that you should always strive for. The more complete your ERP information, the more powerful options you will have to strategically price with. If your data needs work, there is a hidden value in that Promoter® also features a trove of opportunity that goes far beyond simply correcting and optimizing prices.

For example, Promoter® is highly effective as a clean-up tool as well, quickly identifying anomalies and erroneous issues in your product data other than the price. Are your product descriptions inconsistent? Promoter® will find them. Has someone in the organization failed to input a cost on a new product, or is supplier information missing? Promoter will find it all. Promoter® makes discovering, cleaning, and maintaining your data infinitely easier.

As always, I hope that this information is helpful, and good luck in your pricing optimiztion journey!

For more information, contact:

Advanced Pricing Logic® Software Inc.

1770 Saturn Way

Seal Beach, Ca 90740

562 594 0275 B

562 594 7275 F

www.aplpromoter.com

By Dave Leonard

Chairman, Advanced Pricing Logic Software, Inc.

ABOUT THE AUTHOR

Dave Leonard is the CEO of Advanced Pricing Logic. He has over 30 years of executive management experience in multi-channel retail, distribution, manufacturing, and catalog merchandising. Mr. Leonard has extensive experience in the area of technology analytics as it relates to price optimization for the mass marketer, inventory control and optimization, purchasing optimization, and consumer pricing psychology.

ABOUT APL

At Advanced Pricing Logic we are dedicated to designing innovative analytic software that makes our customers more profitable. Our software transforms data into insight and provides the platform to turn insight into action. Designed by business professionals, our software follows three guiding principles: encapsulate world class analytics, enable customers to take sound action through easy to use applications and ensure ROI less than a year after purchase.

Photo courtesy of www.freedigitalphotos.net