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Customer Analysis Key to Sales and Pricing Strategy

As shoppers get more selective about where and how they shop, getting the price right is more important than ever for retailers wanting to be competitive in a very restricted economy. Changing consumer shopping habits are however making it harder to get pricing strategies right, so says Deloitte Risk Advisory Partner Nina Le Riche.

Cape Town, 14 December 2012 - “Sales are no longer only about offering customers reduced prices to move ageing stock or to increase footfall.  Pricing and sales strategies must become more sophisticated to enable retailers to cope with new shopping environments. Retailers will have to work harder than ever at pricing things correctly. The key here is having a more sophisticated understanding at a local level about who your customer is. You need to know who’s in your store so you can influence their behaviour,” says Le Riche.

By implementing analytical rigour across the value chain beginning with the customer, businesses can streamline all aspects of their value proposition, while saving costs through continuous improvement of processes.  In a challenging economic environment and an ever-expanding landscape of new and untapped data sources, the practical question for business is: how can we unlock the value of information to gain a competitive advantage? Analytics techniques are increasingly being used across all aspects of retail to extract greater value from existing data, generating new perspectives and using predictive techniques to better plan for the future.

Le Riche points out that retailer’s post 2011 Christmas discounting levels remained higher than those seen in the previous two years despite caution with buying volumes.  As a result, many are now re-evaluating markdown budgets, processes and systems in order to protect their gross margin from further erosion.

“It is important retailers understand that the application of the correct markdown strategy can deliver significant returns of approximately 5-15% cash margin improvement,” she says,

Recent trends in the retail sector have shown that;

  • Increased price sensitivity amongst consumers has resulted in an increased focus on pricing and promotions
  • The fluctuation of commodity prices has further increased this complexity
  • There is an increased penetration of convenience formats
  • A lack of robust pricing strategies and architecture at category level
  • Promotion effectiveness has been impacted (severely in some cases) by the evolving competitive landscape.

For businesses to make tangible and sustainable improvements to their bottom line it is vital they transform their pricing and promotions strategy to take into account all of these factors.

Le Riche, who leads a team of consumer and data analytics specialists, has some advice for retailers wanting to unlock the secret of the sales.

  1. Getting the first and second markdown right is critical. The first two markdowns clear 90% of stock. The third markdown results in few incremental sales and a negative margin contribution.
  1. Discounting to different levels is the key to unlocking potential. Markdown levels are constrained by process guidelines and operational considerations. By varying the levels of markdown across a wider range it is possible to reduced margin leakage.

“While markdown efficacy is a complex area, there are a number of questions which may need to be investigatedWhat to markdown, where to markdown, when to markdown and by how much to markdown; are questions to be asked before embarking on a sale or promotion strategy,” says Le Riche

“These insights have been gained from practical experience in the European market where Deloitte has successfully implemented robust strategies and models to improve markdown performance across a wide range of retail businesses. Deloitte is ranked as the Number 1 global pricing practice by Kennedy recognising the market leading robust methodology the firm has developed to find solutions to maximise the impact and turn-over generated from an informed, targeted sales and promotion strategy,” says Le Riche.

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