How British retailers should manage prices to survive COVID-19
Responding To COVID-19: Retailers Should Do To Keep Calm And Carry On
Retail, like many other fields, struggles due to the worldwide pandemic. Regarding the UK, 75% of British retailers are sure that COVID-19 has and will continue to have adverse effects on their businesses. Some companies have already shut down. Panic exaggerates, but retailers forget about one truth: every crisis comes to an end. You only need to know how to act adequately and quickly, and considering market-driven pricing may give the correct answers.
Drivers of retail growth in crisis time
On a stable market, retailers naturally rely on three drivers of growth: awareness, availability, and relevance. This idea is accurate for any retail — whether you are offline, e-commerce, or omnichannel player, you should always consider the impact of these three elements on your success.
Even during the crisis, these factors remain crucial. But the priorities of their consideration alters. As an illustration, it is reasonable to temporarily minimize activities aimed at the increase of awareness (advertising and media) and focus on availability (distribution and supply channels). It becomes a challenge to have a sustainable supply chain or estimate manufacturing delays in crisis time. A drastic distribution decrease impacts offline retailers primarily: stores are closed due to the quarantine, and sales can be cut to a half.
More importantly, relevance (pricing and assortment) experiences reshaping: essential goods boom and non-essential blast. It leads to substantial shifts in demand and general retail dynamics. Dealing with that becomes a working solution for overcoming the recession.
Anti-crisis price management: All you need to know
Foremost, you shouldn’t doubt that pricing is vital for retail. According to a recent Nielsen study, a 1% price change can result in up to a 3% change in sales. In crisis times, this opportunity is critical. Thus, we have three key points to consider.
Adapt your pricing needs
Every retailer strives to set a balance between scale and profits as well as dominate the market. These primary needs work in regular times; goals would probably change during the downfall, though. Now, retailers focus on how to balance the costs of production and distribution and getting rid of poor-selling stock. The first need is critical in the essential category since manufacturing costs increase, local production closes, import decreases, shipping delays. The non-essential segment, in turn, faces issues of selling old items at reasonable prices to replenish assortment with high-demand SKUs. In this way, pricing needs have to be transformed correspondingly: you should manage cost pushes and old-stock issues to stay afloat, which can be done by choosing a suitable pricing strategy.
Implement relative pricing
Relative pricing becomes more important than an absolute one. Firstly, it depends on the categories of products. For essential goods, relative price relevance is based on the market competition mostly. While in non-essential categories, it is important to track the demand for essential goods and spend on healthcare or utilities of shoppers. Consumers tend to buy cheaper but still qualitative essential goods and decide on whether purchasing a non-essential item or not.
Secondly, a pricing strategy should be a market-driven one. It allows you to identify true competitors and monitor their performance. Specifically, this approach may work well for UK e-commerce, where there are hundreds of competitive platforms and omnichannel retailers that have already embraced online or will do so soon due to COVID-19. By assessing the data of true competitors, you can set relative prices quickly. At the same time, to analyse the inputs instantly and carefully, you should consider the technological solutions i.e., pricing software empowered by machine learning.
Acknowledge absolute prices
Any product has an absolute price, changes of which reflects in the eyes of buyers with inertia. Therefore, you should be aware of price thresholds because crossing them with price raises causes unpredictable demand alterations. But one point is clear that the constant ignorance of a price threshold leads to the cease of product purchases. Acknowledging absolute prices combined with monitoring true competitors, allows you to make price increases smooth and well-timed.-+
Gradually, the perception of price transforms so that new price thresholds can be set. However, how can you find new absolute prices and avoid crossing price intervals without sales drops? You should listen to your customers because only they know what future thresholds will be and why absolute prices shouldn’t be ignored. To implement it in practice freely, you may use pricing software that forecasts pricing patterns and rules, helps to set optimal prices, and evaluates demand.
During any crisis, businesses devote all efforts to staying alive. If you, as a retailer, utilize a market-driven strategy to pricing, you get a solid opportunity to survive and develop. Focus your attention on true competitors, reshape the pricing needs, and beware of price thresholds. These steps are critical to consider right now.