© 2013 IBM Corporation

Dynamic and Intelligent Omni-Channel Pricing

January, 2015

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Agenda

Price consistency: What matters to consumers

Omni-channel pricing: Current state for most retailers

Solutions and best practices

Consumers rate price consistency as #1 Omni-channel expectation (out of 39)

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Price consistency across channels

In-store, locate out-of-stock item and get it shipped home

Track order status

Consistent assortment across channels

Return in store of online purchase

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2

3

4

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Source: Greater Expectations – Consumers are asking for tomorrow, todayIBM Institute of Business Value, 2014

But what does price consistency really mean to customers?

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Conclusion: “Consistency”

pertains to strategy, not

matched prices across

channels

Source: Greater Expectations – Consumers are asking for tomorrow, todayIBM Institute of Business Value, 2014

Reality of retail organizations often sees separate approaches and even organizations for pricing…

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…while prices and channels have converged for consumers

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A variety of pricing solutions are available to retailers

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Solution Sample Providers Functionality

Competitor price feeds

Nielsen Provide periodic summaries of market or chain prices

Pricing intelligence 360pi, Profitero, Ugame Curate online competitor data and provide visualization and reporting

Rules-based pricing, price optimization

Revionics, KSS Provide traditional tools for pricing; can be used separately in each channel

Dynamic pricing Boomerang Commerce, Wiser, Upstream

Provide dynamic pricing for online only

Omni-channel pricing IBM Omni-Channel Merchandising (DemandTec)

Provide dynamic pricing for online plus ability to coordinate across channels while maintaining key product relationships

Fast but typically very simple rules-based

Doesn’t maintain key product relationships

Brand and private label Size relationships Line relationships Channel relationships

Dynamic Pricing solutions used in isolation can lead to a downward spiral / race to the bottom

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Lower the price of branded product to match

competitor

Lower the price of private label products to maintain

price differential

Further reduce price of branded product to match

competitor

Further reduce price of private label products to maintain price differential

..and so on

Impact to Private Label example

$$$$

$

Competitors reduce prices by 1%

Impact on my sales by channel

Category A Category B How are my sales affected by various competitors changing their prices?

Which changes should I react to?

Who are my key competitors by category?

Pure Online Competitor

Competitor C

Competitor B

…but less of an impact on my

sales in Category BCompetitor A

price reductions have the most impact on my online sales in Category A…

A coordinated approach allows data and insights to be used across channels for better pricing decisions

Reducing channel price by 1%

Sales impact by channel

Category A

Category B

Reducing the online price has minimal

effect on store sales of

either category

Will sales in one channel be cannibalized by price changes I make in another channel?

How does it vary by category?

Reducing the store price

cannibalizes online sales in category A, but

has a lesser effect in

Category B

A coordinated approach allows data and insights to be used across channels for better pricing decisions

Best practice approach to Omni-Channel Pricing

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Final thoughts

Pricing science has advanced dramatically in the past 10 years – increase your awareness of the new capabilities

While simply having online Dynamic Pricing is tempting, think through the implications prior to implementation

Ensure corporate pricing practices are consistent with goals

Develop a step-wise approach (foundation, strategy, rules, optimization)

Become more surgical in pricing practices, especially with respect to understanding competitors