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Pricing & Profitability Management in Retail

Pricing for profit

Abstract

Pricing for profitA large, publicly owned specialty retailer wanted to focus on pricing to quickly boost sales and profits. Management identified three areas for its efforts: optimizing pricing for regular and promotional goods, decreasing price overrides at the point of sale, and improving price tag execution.

The Challenge

Historically, the retailer had set prices by following a set of guidelines that adjusted prices in response to changes in cost or competitors’ prices. Merchants conducted competitive shopping research in different markets and combed the Internet to identify competitors’ prices, and then they adjusted the company’s own prices accordingly. Most pricing decisions were reactive, and there was little knowledge of customers’ price sensitivity in certain product categories. Additionally, the company was losing significant margin from price overrides performed by sales associates in the stores. 

Although the company recognized that store associates needed to be able to use price overrides in certain situations to uphold the retailer’s price match guarantee and to address customer service issues, executive leadership believed that the current override rate was excessive and that overrides were often used beyond their intended purpose. Finally, in-store audits revealed that, on average, only half of the products on store shelves were tagged correctly. Many price changes initiated at the corporate office were not reflected on the stores’ price tags, and a number of items also had incorrect or missing tags. 

This exposed the company to the risk of potential Attorney General lawsuits on behalf of customers who discovered that prices were higher at the register than was designated on the price tag. The company wanted to clear up this problem as quickly as possible to avoid negative publicity and customer dissatisfaction.

How We Helped

With Deloitte’s assistance, the company implemented several key improvements to quickly address these issues:

  • The company used price optimization analysis to set regular and sale prices for several important product categories. The resulting fact-based pricing, rooted in advanced analytics, allowed the company to achieve short-term margin and profit improvements.
  • The company reduced the price override rate by educating store associates and management on proper markdown procedures and instituting a method of clear accountability. Retail leadership implemented price override budgets and developed tools to track and report on override budget compliance and activity.
  • To improve tagging execution, the retailer identified ways to reduce the number of price tags sent to stores and worked with field leadership to increase efficiency in store processes as well as improve management oversight and accountability.

Solution

These strategic pricing efforts led to $9 million in additional margin for the retailer over a period of six months.

As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see  www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

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