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Are You Still Using Spray and Pray Pricing?

Most retailers still advertise on price, without any data to back it up. That's a race to the bottom--and you're not likely to win.
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Pricing strategy is one of the most important tools any marketer has, and that's particularly true for retailers. Competitors typically carry the same brands and, let's be candid: When was the last time you had an outstanding customer service experience at a store or online site? (Even if you did have one recently, it likely stands out sharply from the norm.)

Given how technology has put impressive tools into the hands of consumers—including the ability to comparison shop on the spot with a smartphone—you'd think that retailers would get smarter as quickly as possible. And yet, according to a recent study from Retail Systems Research (RSR), that isn't the case.

Pricing as a marketing tactic

When price becomes transparent, business theory suggests that you need to find ways other than simple discounting to attract customers. When consumers know what everyone is charging, being price-competitive is nothing more than a baseline requirement, and trying to maintain different prices in different sales channels as a way to maximize profits would seem like wishful thinking. But retailers apparently are increasingly leaning on pricing as their major marketing strategy.

According to this survey of "70 qualified retail respondents" (not great for statistical projections, but large enough to at least make it interesting), more than two-thirds saw consumer price sensitivity as a top business challenge. The reaction? About 76% increased the number of price changes that they sent to their stores.

'Spray and pray'

RSR thought that price transparency would lead to pricing consistency (because consumers increasingly will be able to see if they're receiving an unfavorable price). Retailers could offer customers special pricing based on being a loyal or active customer or exhibiting a desired behavior.

But that's not what happed.

"Instead, retailers appear to have returned to a "spray and pray" approach to promotions—an increase yet again in promotional activity, but without any of the customer data or capabilities to enable the kind of targeting that makes "your price" possible."

Show me the data

About 64% said that "measuring the impact of pricing decisions" was one of their top three operational challenges. In other words, these companies are depending on price as a major (if not main) promotional tool, and yet they can't tell what the result is. Furthermore, according to the study, retailers don't have the technology or business processes in place to effectively use personalized offers.

This could trigger a race to the bottom, as retailers blindly cut prices to compete with each other. And that should scare anyone in the business — whether a retailer or a manufacturer that will see price degradation and potential erosion of market positioning.

Last updated: Apr 26, 2012

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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