Roadmap for Pricing Success

Building a
Winning Online
Retail Pricing
Strategy

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 Table of Contents

Introduction 1

The Data-Driven Approach 2

How to Execute a Price Test 3

Markdowns and Promotions  4

Estimating Demand  5

Estimating Price Elasticity  6

Determining Price Position  7

How to Take Advantage of Pricing Opportunities  9

Building a Sustainable Pricing Strategy  11

Conclusion  12

About Wiser  13

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 Introduction

You’re either offering shoppers the right

product at the right price or your retail
business is at risk. The ability to price
effectively is becoming a core competency
needed in the retail industry in order
to maintain a sustainable competitive
advantage. While this might seem a little
extreme, it’s the reality in such a saturated
market with increasingly sophisticated
competitors. The aim of this guide is to help
you become well versed in the latest and
greatest advanced pricing strategies.

The following pages will break down

how you can execute markdowns and
promotions without tearing down the brand
you’ve worked so hard to build. You’ll learn
the newest ways to estimate demand, test
prices, manage your price position, and
take advantage of the greatest pricing
opportunities.

If you’re ready to drive value and maximize

profits for long term growth, buckle up and
let’s get started!

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 The Data-Driven Approach

Data science is a word that is thrown around A data-driven approach to pricing works in
in numerous industries, but at its core, it three steps:
simply is the study and extraction of insights
from big data. In order to take advantage of
1. Mining real-time competitive data for
data science, retailers need to mine data. up-to-date insights on both pricing and
Data mining is the process of collecting inventory. Web crawlers are rising in
large amounts of data in hopes of finding popularity as the primary data source.
patterns and outliers. It allows retailers to
make more accurate predictions based on 2. Pricing is based on multiple variables,
past events. including competitive data and your own
historical sales data.

3. Analyzing the correlation of your price

changes to revenue and profit (pricing
effectiveness), and using the analyses
to adjust, make informed decisions, and
continuously optimize.

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 How to Execute a Price Test

It’s important to always have a clear vision Based on the outcome of ongoing price
in place to make sure you are mining the tests, retailers are able to make better data-
right data. Therefore, retailers should follow driven decisions in both the short-term and
a price testing framework in order to get the long-term.
most out of each of their tests.

1. Ask a question and set goals: What

do you want to gain from your data?
Example: By pricing 1% below my
competitor, will I see a bump in revenue?

2. Do your research: This is where

competitive data comes into play: what
are your top competitors’ prices like
and how have they changed in the last
month?

3. Make a hypothesis: Based on your

analysis, what do you think will happen
and why?

4. Conduct an experiment: Test your

hypothesis on a specific set of SKUs
that have a high enough sales volume to
get sufficient data from and use another
group as a control with comparable
sales growth. Test for at least 30 - 60
days for more statistically significant
data.

5. Analyze the results: If I got a sales lift,

why? If I didn’t, why not?

6. Retest: Optimization is an ongoing

process.

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 Markdowns and Promotions
No need to start shaking in your boots, this isn’t
an exercise in margin depletion. Markdowns
are simply necessary to clear out old inventory
sometimes, so it’s a good idea to use them
strategically to avoid a negative impact on your
bottom line.
Retailers are used to taking competitor
pricing and business goals into account
when planning promotions, but
including additional data points in the
analysis helps take it to the next level
and avoid marking down the wrong
products that won’t drive traffic like
they’d hoped.
The goal is to markdown pricing to get inventory
moving quickly, but avoid selling at or below
cost. One way to find the sweet spot (the volume
and profit maximizing price) is through price
testing. On Amazon specifically, one example
of how online retailers can do this is by first
lowering the price in small increments until they
win the Buy Box. Then they can slowly raise it
until they lose the Buy Box. Essentially Amazon
sellers can identify what is the highest price for
which they can win the Buy Box and milk it for
profits, giving them the best of both worlds. This
helps retailers sell more, protect profit margins,
and gain a deeper understanding of the price
elasticity of that specific product. The same
principles can be applied outside of the Amazon
marketplace, of course.
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It’s also important to understand competitive
actions with regards to promotions and
discounts in order to help strategize your own
promotions.
Types of data you can analyze:
• Promotional cadence and frequency (infer
their promotional calendar)
• Promotional mix (how often key competitors
are offering free shipping, for example)
• Depth of discount (what percent are products
being discounted by)
• Look and feel of homepages and marketing
emails, including seasonal promotions
Here are some of the key value ads of tracking
this type of competitive data over time:
• Ability to spot trends
• Determine if and how competitor promotions
are affecting your own sales and promotion
redemption rates
• Gauge how well the competition is doing
By incorporating competitive analysis in your
promotional strategy, you can boost sales,
profits, and return on advertising spend (RoAS)
by delivering more compelling promotions of
your own. Couple this with your internal data on
which promotions worked well with consumers
and it can lead to even better predictions of
customer behavior, and ultimately satisfaction
and loyalty.
6
 Estimating Demand

Demand estimation is getting quite predict how many goods you will sell for
advanced. It no longer consists of simply different variable levels. The best part is
looking at seasonal sales data and using the self-learning aspect - it will adapt and
that to forecast the future. Now, regression improve the algorithm over time to keep
models are changing the way retail your forecasts accurate and up to date.
professionals estimate demand and optimize
So how does this help you find the perfect
their prices.
price for your product? If you can predict
If you want a more sophisticated and demand, you can input it into a price
accurate way to estimate demand, you’ll optimization model that can maximize
want to consider putting your trust into revenue or profits, depending on your
a machine learning algorithm. When a goal. It takes out the guesswork out of
machine learning algorithm estimates pricing, helps avoid falling into the price
demand, it uses different factors and cutting trap, and allows you to capitalize on
applies various weights to understand the pricing opportunities you may have missed
importance of each. These factors can otherwise.
include variables such as traffic, historic
It works in real-time and uses both internal
sales data, time of day, competitor prices,
and competitive data to find the best price
seasonality, and more. By doing this, it can
possible.

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 Estimating Price Elasticity

Measuring price elasticities is key when Estimating the appropriate elasticity for
it comes to pricing your products. Each your product takes a little bit of time and
requires a different strategy. Price elasticity testing. Commodity products are typically
is defined as the extent to which your the most elastic across the board. More
pricing changes impact your sales. When unique items, such as electronics, are where
a product’s price is elastic, there is a you have more flexibility with your pricing.
significant change in demand when the Test different prices for these products and
price changes. So when you increase it, measure the impact on demand over time.
demand takes a hit. With these products, Doing this can help you understand how
you may have to simply accept the market flexible you can be with certain products,
price and that you will need to compete on and allows you to optimize down the line.
price, because your shoppers can simply go Elasticity estimates are an important step
to a competitor for a lower price. They are to improve your pricing strategies, optimize
typically low margin items, so often there your promotions, and maximize your return
isn’t much room to lower prices, either. on marketing spend.

When products are inelastic you can have

a little more fun. Inelastic products feature
price and demand that is not as directly
correlated. So you can increase the price of
the product (within reason) without facing Quick Tip
major demand backlash. Competitors’ prices
If you’re the only seller on the market, test
usually vary significantly, giving you an
price elasticity until demand is solidified.
opportunity to make a margin. You can use
this knowledge to find opportunities to raise % of demand
= Price Elasticity of Demand
pricing and capture more margin without % of price
affecting demand significantly, and compete
on factors other than price, like customer
service, shipping, etc.

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 Determining Price Position

One of the first steps to eradicate price

warfare in the retail industry is to widen
the frame of competitive analysis. While
it’s important to track prices on individual
products, measuring competitive price
position by larger frames of reference like
brands or categories can give retailers a
better idea of the bigger picture of their
competitive landscape. This can open the
door to pricing strategy optimization in a
couple of ways.

A bird’s-eye view of where your competitive

price position lies across different categories
can help retailers get a better understanding
of what areas to focus their analysis on.
Identifying and understanding their place
in the market can affect the way they price
different items or groups of items, because
one pricing strategy is not applicable to
every product they may be selling.

Comparing prices against the competition at

a category level helps retailers understand
where they have pricing power and can
command a premium across different
verticals. While one seller might be selling a
laptop at a higher price, they might be more
competitive in the electronics category as a
whole.

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 One way to measure price position is with
the Market Price Index (MPI). It is a new
proprietary metric that retailers are using to
gain an understanding of where their pricing
stands within their specific competitive
landscape. It is a weighted index based on
popularity, so top viewed products will have
a higher weight than a seasonal item that
doesn’t get much traffic most of the year.
Therefore, your score will reflect what you
sell most instead of simply the breakdown of
your inventory.

These weights are attached to products and

compared with top competitors. Next, the
two separate inventories are matched up.
Wherever there is an in-common product,
it is added to the score. In the end, each
retailer is left with a score on a 1.0 scale.
1.0 means that two competitors prices are
exactly the same on all the SKUs they have
in common. If it is 0.89 it means that you
are 11% cheaper than your competitor on
average. If it is 1.07, then your prices are 7%
higher.

This index represents a retailer’s price

position in relation to top competitors and
your pricing opportunities. Based on this
information, you can determine where you
need to step up on competitive prices and
where you could actually raise prices and
improve your margins.

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 How to Take Advantage
of Pricing Opportunities
When online retailers take a step back 1. Identify where they command a
and observe the bigger picture of their premium. If there are categories where
competitive landscape, they can make more they are priced higher than competitors
overall, but sales are high or even rising,
informed pricing decisions and streamline
that means they command a premium
the price optimization process. Finding and may have identified where they can
out where they are most competitive can test raising prices further. From there,
improve marketing efforts, pricing strategy, they can invest more marketing dollars
and most importantly, their bottom line. into that category, draw more customers
to those products, and continue
So how exactly can online retailers use this profitable growth upon that strong
information? Based on this price position foundation.
analysis, meaningful pricing opportunities
can be identified for retailers to take action 2. Infer a competitor’s pricing strategy
on. For example, they can: when looking at pricing from a more
comprehensive point of view and
monitoring changes and trends over
time. If a competitor is making price
changes around the same time as
a retailer, it’s evident that they are
attempting to keep up and mimic
a pricing strategy. These are the
competitors to keep a close eye on. It’s
also important to measure the impact of
each competitor’s price changes on their
own sales. If competitor price changes
have an effect, competing on price is
necessary. If not, then the retailer has the
upper hand.

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 3. Use it as a starting point for price test These are just a few of the use cases that
hypotheses. Retailers can identify the retailers can take advantage of. A high-level
best products to reprice and test often, view of your price position helps identify
and the ones they should avoid changing specific areas to deep dive into to find
pricing on too drastically by estimating
more details and test. That, coupled with
price elasticities. By making calculated
corresponding sales data, gives retailers the
price changes for certain products and
measuring fluctuations in sales and ability to make well-calculated price changes
price position, retailers can understand that can be both competitive and profitable.
which products are elastic and which are
inelastic. Inelastic products are the ones
that can endure more price changes. By
focusing on inelastic products, retailers
can have a focused, stronger pricing
strategy that obeys consumer buying
cycles.

4. Determine cross selling opportunities

with complementary products or related
categories by identifying categories
where they have maintained strong
price positions over time. Understanding
different price positions and how they
interact with one another can have an
incredibly positive impact on retailers’
bottom lines (for example, by upselling
an already profitable item with another
that holds a price premium).

5. Validate their pricing strategy. Is

there a competitor that’s important
for the company to be within a certain
percentage range of in terms of pricing?
Evaluating price position can tell a
retailer if they have truly been executing
on that strategy. Alternatively, if a
retailer considers itself to be a premium
brand that should be positioned above
competitors but the data shows that it
is not, that should raise a flag and spur
action.

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 Building a Sustainable
Pricing Strategy
Achieving a sustainable pricing advantage in i. A rules-based approach: Break
retail consists of a balance between effective down your SKUs into groups with
similar attributes and create rules
base prices and optimized markdowns that drive
that lay out what price adjustments
profit and revenue goals. It’s also essential to to make under what conditions. This
have a process in place that allows you to be is a more hands-on approach that is
agile and adapt to changes in the market as they semi-automatic. Try testing rules with
occur. While it’s becoming increasingly difficult a smaller set of SKUs before rolling
out at scale, and periodically analyze
to maintain this type of advantage, it’s not
the correlation of price changes to
impossible. They key is to embrace a dynamic, your KPIs to make adjustments
data-driven approach and have the willingness over time.
to let go of some familiar old practices.
ii. An algorithmic approach: Procure
or develop a predictive model
that allows you to automatically
1. Rigorously collect data - Build and maintain leverage your data in near real-
a database comprised of data on competitor time to proactively adjust pricing
pricing and inventory, demand, elasticity, according to your goals. When a
profitability, sales, and more. This will serve machine learning algorithm takes
as your baseline to enable you to optimize the reigns, it can remove human
your pricing based on internal and external bias out of the process and has the
variables that drive demand. Highly consider added benefit of continuing to train
automating this process, as it’s important for itself and improve over time as you
scalability. feed it more data. This is a hands-off
approach that is fully automatic.
2. Properly leverage the data - Raw data is
not enough. Effective use of it is the tricky b. Building a sustainable pricing strategy
part. Here are some of the ways retailers can can have a positive impact on other
make the most out of their data: parts of your business as well. Beyond
pricing, you can use your database
a. Especially for retailers with a large to determine where to invest more in
number of SKUs and high sales velocity, marketing spend, to inform inventory
automate at least part of your pricing selection, for demand forecasting,
process to reduce manual work and and more.
allow your business to scale. Once
you’ve established your business
goals, there are two main ways to
implement this:

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 Conclusion
Price transparency is at an all time high and
retailers are now required to have optimized
prices at all times, otherwise they risk losing
significant sales. There are so many moving
parts and getting them all aligned is a
necessity in order to be best positioned for
success in retail.

Pricing strategy is a unique part of online

retail because the same strategy won’t
necessarily work across the board. Why?
First, there isn’t one magical pricing strategy
that works for all retailers. Second, one
pricing strategy doesn’t always work across
all of a retailer’s SKUs. And finally third,
pricing strategies can and will evolve
over time.

Having the most effective pricing strategy

means balancing a strong brand identity
while also staying flexible based on changes
in your unique competitive landscape.
This balancing act provides the boundaries
within which you can reprice, test, and
take your business to the next level.

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About Us Wiser is a single source partner by design,
with solutions for every aspect of retail, including:
Wiser is the leading provider of actionable data
for better decisions. Wiser collects and analyzes Market Intelligence
online and in-store data with unmatched speed,
• Historical & Trended Pricing
scale and accuracy. The Wiser platform then blends
these insights with advanced workflow software • Promotional Analysis
to drive business value for brands and retailers,
including restaurants. Using a unique combination • Assortment Intelligence
of data science and human validation, Wiser offers • Competitive Benchmarking
integrated solutions for every aspect of retail, all in
one place. Optimization

Learn more at www.wiser.com and follow @wiserdata. • In-store Shelf Health

• Rule-based Repricing

• Marketplace Repricing

Compliance

• MAP Monitoring & Case Management

• In-store Merchandising

• Assortment and Content Parity

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