Today’s blog comes from guest contributor Ryan Kinzy, managing partner of DoubleBlaze Consulting. DoubleBlaze is a JDA partner working with retailers to improve their lifecycle pricing processes and helping them realize increased profits. A longer version of this article originally appeared on the firm’s blog.
When we engage with retail prospects for our consulting services, the first thing I usually ask is, “Are you setting prices in a spreadsheet?”
If the answer is “yes,” you were likely experiencing challenges with your ERP or Host Merchandising system that were insurmountable and that led you to externalize price-setting. Often, it is not just a single spreadsheet, but many spreadsheets that must work in unison to deliver prices.
If you suspect you might have pricing problems, how do you find out? We typically start analyzing where errors are the most obvious. For retail, you can typically start with store operations:
- Track how many wrong prices are reported per week and which stores have errors
- Take a sample of orders and re-price them. A random sample will indicate if there are pricing errors
- Quantify the financial impact of the errors:
- If a product is overpriced, you risk losing a sale. You can also undermine customer satisfaction, but that is tougher to quantify.
- An underpriced product will impact profit, and this is easily calculated. Also, identifying pricing errors takes time and effort that has a cost, in that an employee must analyze the error, correct it and move it through the systems to eCommerce or the POS.
Analyzing this process and mapping it to fashion customers, we’ve seen a multi-step process that identifies several potential points of failure.
What Can Go Wrong?
Where can your process go wrong? To answer that question, it’s best to do a thorough review of the process at your business. We look at each step, interview the people doing the task and map out the steps and tools. For apparel and fashion, here are typical areas of opportunity:
When a product is introduced, the merchant typically defines price points to target and then assigns specific styles to each price point. The number of style-color-size combinations is where the process gets cumbersome. Price errors can occur when products aren’t mapped correctly or while converting prices for different countries.
Specific promotions are often only defined at a high level. When a promotional event gets closer, the merchant will set specific discounts for a category, price points for a set of items, “buy X get Y” promotions and so on. A merchant will define these in as much detail they can within a spreadsheet, then hand it off to a pricing administrative team for execution. However, the interpretation gap between what the merchant wants and what the administrator enters can be a source of errors. A merchant may inadvertently copy a style from a previous promotion or make an error while assigning a given item to a promotion. The pricing administrator may be able to catch the errors, but some errors will slip through.
Also, when merchants rely on separate systems for planning and executing markdowns, if there is no systematic handoff between setting the prices and executing on them, more problems can occur.
In addition, given that each store has their own point-of-sale system and might have different prices, promotions or markdowns, most stores get their own set of prices and rules. For a large retailer, there can be 400 or more individual systems. Each system is a potential failure point given that the POS must receive the prices, load them and pull in the rules.
Finally, store personnel move items and tag them. In parallel, promotional sheets are provided to the stores for product placement, promotional signage and prices. Any number of issues can occur here. Tight coordination is required at each store to ensure the prices are correct on the tags and the products are in the right spot.
Take Stock of Your Process
Reviewing this process can reveal areas of opportunity to plug the holes. In this example, an up-front system that allows the merchant to directly enter promotions or price changes directly would eliminate the opportunity for confusion with the price administrator. A system to quickly and reliably transmit the calculated prices to the POS might be needed. Alternatively, the POS could call out to a central pricing system which would eliminate the need to transmit the price data. The promotional and placement sheets that store personnel use could be generated out of the price execution system rather than being created manually. In some cases, electronic tags could be used.
Regardless, once we’ve identified the most egregious spots, we tackle them first. Typically, the ideal retail pricing and promotion solution relies on systems that can keep all these relationships in sync, and this usually includes better processes as well.
Learn more about JDA’s retail pricing and promotion solutions by visiting the JDA Knowledge Center. And take a complementary Lifecycle Pricing Self-Assessment to benchmark your company against the very best in the business.