Retailers are riding the coat tails of the industrial manufacturing sector in an effort to reap the rewards of strategic pricing. “Retail businesses are now seeing their pricing becoming more complex,” explains Styrbjörn Horn, founder of Navetti. “They can no longer keep it in Excel sheets.”
Twenty years ago, leading industrial manufacturers were also starting to recognize and respond to global transparency and its effect on their businesses, as local markets were no longer isolated islands with separate prices. Advances in internet technology and mobility played the biggest role in this development. In 2002 Horn founded Navetti, following a request by a global industrial manufacturer to help them address their challenges with pricing inconsistencies across their worldwide business. He created a new approach called value based and market driven pricing, and designed a pricing tool to control and manage the methodology.
Multiple other multinationals followed suit, as they too started to feel pressure from a client base with growing access to global price lists, and the results were immediate. Navetti has seen a clear trend of immediate increases in revenue with all their clients. In the first year alone after implementing a price management system, the incremental revenue has ranged between 4% and 15%, due to higher customer trust and a value-based pricing approach.
The increased transparency in pricing within the manufacturing sector has not gone unnoticed in other categories. Better understanding of the mechanics of value-based pricing, together with a stronger focus on price optimization and better availability of advanced price management tools such as Navetti PricePoint™ mean that the principles of operational pricing are increasingly being applied in by consumer retailers as well.
Even for traditional “brick-and-mortar” retailers, e-commerce is practically mandatory for any seller that wants to be competitive and profitable today. But this involves more than having a web site where customers can browse and buy products. As an e-tailer, you need to understand what competitors are doing and what customers expect, as well as being able to keep an eye on trends in order to make both predictive and reactive changes to product prices.
“The closer you get to the final customer,” explains Horn, “the more important the need becomes for continuous price revisions, rather than periodical pricing.”
Thanks to the push made 20 years ago by the industrial manufacturing sector for the same solutions, the retail industry can now reap the rewards of pricing methodologies and tools like Navetti PricePoint™, that can handle complex price optimization calculations and agile continuous pricing revisions.
Price optimization users can now easily understand and calculate their value drivers, as well as adjust for different markets and store locations based on information collected within the software. These tools are also able to manage high volumes of products and price changes, while staying on top of competitor activity through web scraping capabilities.
The ability to track the complexities that affect daily pricing is tantamount to a successful business strategy. Pricing tools help define and implement the pricing strategy based on customer perceptions and priorities. And once in place, the system monitors and adjusts prices as desired so that the defined business performance metrics are optimized, and also create data and reports that help identify if further revisions to the pricing strategy should be considered in order for the company to stay ahead of the curve.
While there are similarities in retailing today and what the manufacturing industry was doing back then, there is one difference. “The companies that we approached in the first five to ten years had not even considered pricing as a strategy. We had to teach them something new” Horn says. “But we don’t have to do that for retail. They are starting out with that knowledge in their hands, which is the first step towards success.”