Retailers Find Challenges in Localized Pricing

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Retailers Find Challenges in Localized Pricing

DENVER -- Retailers view localized pricing -- the ability to offer different prices to different customers -- as a critical strategy for 2009, but are challenged to deliver differentiated pricing without alienating consumers, according RSR Research's latest study of 85 retail companies, which found retailers are turning to promotions and loyalty offers as a way around this problem.

What's more, while past efforts at promotion optimization have stalled, retailers show renewed interest in the technology, along with tools for customer segmentation and analysis, according to the survey of 85 retail companies taken in September and October.

"While it's true that retailers see big opportunities in promotions, it's stunning to see the extent their existing IT infrastructures get in their way," said Paula Rosenblum, managing partner at RSR Research, and co-author of the report. "Retailers already 'on the bubble' before the economic downturn are in a particularly bad place, with technical and cultural barriers preventing them from moving quickly to take advantage of customer-facing strategies. Those retailers who are unable to leverage customer insights will find the environment that much more challenging."

"Going Local: Emerging Best Practices in Localized Pricing," sponsored by Revionics, found retailers view localized pricing and promotions as critical to successfully navigating a challenging economic environment. Respondents said they are concerned about shoppers' price perceptions and view localized and customized promotions as an important way to attract and retain them in difficult economic times. In particular, retailers are returning to customer analysis and promotion optimization, to design the right customer offers, along with improving store-level ability to deliver those offers to consumers.

According to the retailers, the top three business challenges they face are pressure to improve the bottom line (73 percent of respondents), increased price sensitivity of consumers (55 percent, up from 39 percent the year before), and touch economic conditions/consumers spending less (47 percent).

When it comes to capabilities required to implement a strategic pricing practice, respondents said they need clean price data; strong coordination between merchandising, marketing and stores for promotions; and executive sponsorship. Unfortunately, there are significant gaps between the capabilities needed to make pricing a strategic practice and retailer's current capabilities, according to the report.

For example, clean price data is valued by two-thirds of the retailers surveyed, but found at only one-third, according to the report. Strong coordination between merchandising, marketing and stores is valued by 63 percent of respondents, but only 34 percent achieve it.

Many retailers also lack a way to track store execution of price changes and promotions, a well-defined process for updating prices in stores and a merchandising process that incorporates price analysis.

"One of the most surprising outcomes for me is the leadership role of grocers in particular," added Nikki Baird, managing partner at RSR Research and co-author of the report. "Six months ago we would have said that grocers are IT investment laggards -- they historically built their own applications, they suffered from thin margins and only grudgingly invested in IT. With the economic downturn, that's all changed. As consumers start to eat in, grocers are taking share of wallet from restaurants. The retailers who want to take advantage of this shift have realized that they need packaged applications to get the promotion capabilities they need up and running quickly."

For a complementary copy of the study, go to
RSR Research’s Web site by clicking here.

CSNews Online Senior Editor Barbara Grondin Francella asks retailers if local prices aren’t so nice in today’s Spare Change blog post. Click here to read her thoughts, or share your own.