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July 27th, 2022 (Updated 08/15/2022) | 10 min. read

Key Metrics for Robust Retail Industry Pricing 

It is no secret that retail customers value price above most other factors. A recent McKinsey survey found that when it comes to many staples that consumers regularly add to their grocery store trolleys, price ranks well ahead of other considerations such as quality and brand. However, with the ongoing uncertainty of the supply chain, debilitating fuel costs rises increasing delivery costs, many retailers are on the back foot when it comes to managing their prices and the public’s perception of them. In that light, we are going to take a deep dive into the key metrics that you will need to keep track of for your retail organization to remain robust, relevant, and profitable in its pricing moving forward in the current environment. 

At Pricefx, helping retailers implement and make the most from their pricing software solutions is a huge part of what we have done for the last decade. Part of that process means providing tips on the best key indicators to track in their business to maximize profit and prevent margin leakage. Despite the current shape-shifting economic climate, we’re assisting innovative retailers in finding opportunities to simultaneously improve consumer price perception whilst protecting profit margins, by going on the offensive and leveraging advanced, AI-informed pricing tools to create and support a centralized pricing strategy/s. 

In this article, we will examine some of the key challenges retailers are currently facing, and the key pricing metrics they should be focusing on to ensure continued profitability and growth, and prevent leaking profit. 

Setting the Scene: Today’s Retail Industry 

As we alluded to above, from global health emergencies to conflict and all manner of uncertainties in between, the last few years have seen a tornado of unsettling events that have disrupted the status quo in the retail industry. Not only has the status quo been reset, but it looks and feels that the combination of Covid-19 and the drift to online shopping, the ‘great resignation’ and associated labor shortages, ongoing inflation and the upheaval created by the Ukrainian conflict may have permanently rewritten some of the retail industry’s genetic code.  

What you, your pricing team and your business always took for granted as the ‘norm’ has been challenged.

 

The most important factor for the ongoing success of your retail business’ pricing strategy is to be committed to establishing a pricing strategy and clearly communicating it clearly across the organization to all the stakeholders involved in the pricing process.

 

Consign to oblivion the concept that pricing is a ‘set and forget.’ 

 

To survive now in the ultra-competitive retail industry, you will need to be proactive and pricing nimble, adapted to pivot in whatever direction the current economic climate or customer demand dictates.

 

Setting innovative and data-driven retail pricing strategies to increase profit will require constant renovation as uncertainty continues to evolve into a replacement for ‘foregone conclusion.’

Getting pricing right is a hard enough challenge as it is, but when hampered by the triple threat of inflation, supply chain issues and labor shortages, it’s difficult to know which are the right levers to pull to adjust pricing. During these challenging times, customers place extra importance on value, even if it means switching brands or shopping at multiple retailers to find the best price on certain items and not sacrificing quality.  

Cutting costs with lower-quality products won’t suffice. Instead, retailers should be looking to set pricing strategies that will drive value for their consumers. One way to do this is to listen to your customers.  

How?  

Digging into your sales data and using pricing software to analyze consumer purchasing behavior will help you uncover what products matter most to them and where you can focus on driving value for them and making extra profit for your company along the way. 

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Learn More Here About Managing Margin Compression with a Real-World Retail Industry Example 

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Key Pricing Metrics in the Retail Industry 

Central to your company’s retail pricing strategy for the year ahead will be protecting margins, optimizing prices, price pivoting where/when required, keeping up-to-date in real-time and building a solid foundation for your strategy with the right technology.  

First up, a needle-like focus on your traditional key pricing metrics to monitor your forecasted business outcomes and advancements in your pricing strategy will be as important as it ever was. 

However, to stay pricing relevant in the ‘brave new pricing world,’ you will need to get granular by tracking several non-traditional retail pricing metrics that are putting up their hands to be transformed into retail industry metric staples sooner rather than later. 

‘Traditional’ Retail Industry Pricing Metrics 

Of course, there is a set of traditional everyday pricing metrics that you have been tracking forever that should not be forgotten. It is not all about the new-fangled metrics that are only uncoverable with pricing software.  

We’re not going to bore you with long winded explanations of metrics you already know inside out, but suffice to say, do not forget the ‘devil is in the detail’ with your traditional retail industry pricing metrics like; 

  • Total revenue  
  • Gross Profit 
  • Net Profit 
  • Volume  
  • Sales by Square Foot (bricks-and-mortar stores only) 
  • Sales per Employee 
  • Conversion Rate 
  • Customer Retention Rate 
  • Average Transaction Value 
  • Stock Turn 
  • Shrinkage 
  • Year-on-Year Growth  
  • Sell-Through 
  • Foot Traffic 
  • And many more……… 

But for those retailers who are sick of putting the current unpredictable pricing spot fires, consider the range of non-traditional retail industry pricing metrics below that could potentially make the difference between an average and an unexpected successful quarterly result. 

The ‘New-World’ Retail Industry Pricing Metrics

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Keeping pace with the current rate of change in the retail industry feels like an entirely new chapter for this industry, and the economy as whole. The new normal for retail businesses is to continually review and adjust their strategic pricing plans on the fly.  

With that, consider some of the following ‘less traditional’ pricing metrics that may soon become established parts of your retail industry pricing lexicon; 

Online Sales Relative to Brick-and-Mortar Stores 

As discussed above, with the online sales boom that was precipitated by CoVid-19 (and that shows no sign of slowing down anytime soon), this metric benefits omnichannel retailers — i.e., those retailers selling online and offline. 

To measure it, compare the traffic, sales and/or revenues generated from locations where you have a brick-and-mortar presence with your online sales in the same area. 

For example, imagine you just opened a new store in Phoenix AZ to accompany your many online sales in the same location. You can measure the impact of your bricks-and-mortar stores on ecommerce by looking at web traffic and sales from users in zip codes in Phoenix and surrounding areas. 

Consumers today are increasingly using multiple channels to shop, so you need to get a handle on how your physical presence influences your ecommerce sales. Will you price your goods the same on each channel or not? In the modern world, where people are interacting with your retail brand in different ways and places, crediting your sales to a single channel is not granular enough and your pricing needs to reflect that. 

On-Time Delivery Percentage 

Also closely related to the rise of online shopping, tracking your on-time delivery percentage is a key metric to track. What percentage of your products are arriving to your customers on time? If your goods are being delivered late, how late do they arrive and is it affecting your customer retention rates?  

Once the pandemic powered the current increase in online retail in early 2020, customer satisfaction with on-time delivery suddenly became much more of a critical and key metric to follow. Maintaining a stellar on-time delivery percentage will result in many more happy customers returning to your online store and using your business as their online retailer of choice for future purchases.  

Distribution Costs 

You do not need us to tell you that the increasing fuel costs and the salaries you need to pay drivers to deliver your online products to your customers are out of control. Follow the unpredictable and spiraling distribution costs closely – they all come with extra costs for your business. 

Stay on guard against these costs and be sure to pass on increased costs to meet your retail company’s targets. If prices must increase, they must, but explaining the reason why is critical in maintaining the trust of your customers. Your customers should be understanding. After all, they are intimately aware that the cost to fill their car with gas has increased! 

Distribution costs are often overlooked in pricing systems. Making them transparent and readily available allows for agility in your organization’s related pricing actions. 

Sales Per Unique Customer 

Measuring how you create lifetime value for your customers by sustaining profitable win-win relationships addresses the very heart of your performance as a retailer. 

The special metric addresses how much wallet share retailers can drive across their consumer base based on breaking down sales transactions granularly per individual and analyzing cases of multiple purchases per year, or even look at less-frequent, large-scale purchases.  

Data & Automation– Your Retail Company’s Secret to Pricing Success 

To make your retail business pricing journey a successful one, the most compelling projects include a vision plus a strategy to improve your value propositions working hand-in-hand with data analytics and automation to substantiate your company’s supporting processes.  

Data analytics informed by artificial intelligence (AI) have already begun to assist retail industry players to forecast their pricing and predict their sales numbers.  What’s more, an automated system keeps a close eye on your retail competitors and formulates data based on their price points. Such a tool saves your business time in having to manually check in with companies within your industry and produces invaluable analysis reports to guide your own pricing decisions.  

The specifics of these analytics can be tailored to fit the unique needs of your company, but on the other hand, the knowledge of the fluid pricing structure of your competitors provides you with the data you need to win more and more customers. The number of companies choosing this scientific fact-based approach to pricing metrics is yet another developing trend. 

Technologies such as Pricefx’s AI-informed and automated pricing software can empower retail industry sales teams to hit their targets while pivoting their price adjustments as a path to attaining their business goals. 

Reforming pre-existing static behaviors into proactive ones is crucial for these types of new and exciting pricing journeys. Leveraging data analytics to unlock the power of the above key retail pricing metrics will enable tracking of the rapid industry changes in real-time. 

Learn more in the article link below about the Important Pricing Metrics & KPIs to track in your organization: 

CTA-Learn-More-About-Key-Pricing-KPIs

About the Author 

As a pricing professional, Sara-Marie Gansert has been supporting companies across various industries to improve their margins by finding and realizing the right pricing strategies. 

Now working as a Solution Strategist for Pricefx she introduces businesses to pricing software tailored to master their individual challenges in pricing. 

On the weekends you will find her hiking in the Black Forest, exploring the cities of Europe, or enjoying a good book.