Produce, Pricing and Problems
This post is a joint collaboration with Syed Muzaffar and Sriram Giridharan.
Pricing is perhaps the single most important decision any business will have to make – from product development all the way down to a single link on your website, pricing reflects everything you do as a business. Pricing decisions determine the future of your product - customers know whether a product is worth their time and investment when they see the price on it. Intelligently managing price structures is a key to securing business success.
Getting it right, a company will thrive – getting it wrong can run the risk of lasting damage to an organization. Price your items poorly, and you're leaving money on the table. Price your items well, and you'll beat out your competition without diminishing the perceived quality of your brand.
What challenges do I face with pricing?
Extolling the virtues of great valuation aside, dynamic pricing is not easy. The prices of perishables fluctuate every single day according to demand and supply. When you’re a retailer dealing with fruits, vegetables and other groceries that add color to our palate, how do you prioritize a comprehensive Revenue Growth Management (RGM) approach for pricing produce?
A definitive answer does not exist to the question of how demand is impacted when you cut or raise the price of a fruit or vegetable. Yes, companies usually do it with a lot of manpower – people to analyze data and understand how pricing is affected by seasons, festivals, events, supply and demand, and so on.
However the efforts to measure consumer responsiveness are often hindered by data limitations, the volatile nature of demand, and diversity in tastes of customers across each store. Here are some of the challenges you must confront –
? Pricing products in accordance with their shelf-life.
Let’s illustrate this one with an example; a banana is an important perishable product, but even if you drastically reduce the price of bananas as a store promotion it is unlikely to effect a change in sales as a banana has a minimal shelf-life of 5-6 days – knowing this, customers are unlikely to want to stock up on bananas they might never get to eat.
Buying a bulk supply for such a promotion would only lead to an inventory loss if it doesn’t sell at the optimal price!
? Product seasonality.
The purchase trend of highly seasonal items like watermelons and mangoes differ substantially in summer and winter according to their availability. Seasonality plays a big role in pricing a fruit or a vegetable – it’s important to stay ahead of the curve and cut or raise prices accordingly.
? ‘Individuality’ of a product.
The less ubiquitous a product, the less fluctuation in pricing. Broccoli is arguably more ‘exotic’ than eggs but one could argue that barely anyone buys a lot of broccolis at a stretch, no matter how low the price. It’s important to define a product’s exoticness when it comes to pricing, so as to identify faster and slower moving products.
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? Identifying demand-driving products.
Some products are simply more central to daily living than others. They are what draw customers to your store as a produce retailer – and often, they are not standalone purchases. Identifying these “driver products”, understanding their associations to other store items and pricing them effectively can create demand that reflects in the margins of the associated products.
? Private-Label pricing.
Many retailers offer their own private brands on various store items such as sugar and bread. When hosting their own labels in the same store as larger and more well-known labels, competitive pricing can tilt the odds in favour of an in-house brand and help level the field when competing with much larger brands.
? Sourcing Benefits.
As a retailer, when you get sourcing benefits from the manufacturers, do you prioritize transferring the benefits to your customers or enjoy the margins by staying at the same price levels? Knowing which products to push for sourcing benefits and for which products should the benefits be transferred to the end customers is critical in RGM.
? Identifying price elasticity in products.
Pricing is the primary way to balance a product’s profit margin with its demand, and the price of every product invariably hits an inflection point – where customers become highly sensitive to changes in pricing and the demand drastically changes with price. Identifying the inflection point can help ensure that your pricing strategy leaves no money on the table.
In Conclusion...
Pricing is a fickle thing, and understanding the price elasticity of any product is an indispensable part of any business’s Revenue Growth Management (RGM) strategy. It helps companies predict the revenue outcome of a price change before it happens, rather than simply validating to see whether it works after the fact.
The fuzziness of the factors we’ve outlined make pricing a challenging task – and one that often doesn’t give you the best answer if done manually. Teams may underestimate or overestimate the potential of a product’s revenue, leaving money on the table. With margins stretched thin and industries still reeling from the setback of the pandemic, how can you find newer, more efficient ways to navigate the pricing landscape boosting your bottom-line and keeping prices feasible for customers?
With the uncertainties of the new year, the requirement for advanced data-driven solutions to dynamically compute the optimal price for your produce is a call to arms. Many retailers sit atop an entire oilfield of raw, untapped data that is not being utilized to its fullest in serving as the basis for business intelligence – from PoS data and vendor pricing to inventory and much more. Financial simplifications using past data figures, seasonal demand trends and competitor models are best achieved using advanced tools build and designed to serve these very purposes.
At Ganit, we specialize in solving problems using data. With our state-of-the-art pricing solution, we harness the power of cutting-edge data science to formulate the right pricing strategy to understand customers and work through the challenges faced by retailers burdened with the unenviable task of juggling various considerations in pursuit of a better margin growth.
Are you looking to eliminate the antiquated manual-pricing process for your business? Reach out to us today.