With shifting buying patterns affecting the way consumers purchase retail products, fewer things can have a bigger impact on your businesses’ bottom line for the year ahead than your retail pricing strategies for 2022.
For example, in the last 18-to-24 months, more-and-more sales have been made online due to shifting market forces created by CoVid-19, logistics and supply chain issues. You may have potentially seen your percentage of sales for products for free shipping rise from 10% of your total sales volume to as much as 50%. Shoppers are not visiting your stores, but they are buying online and taking advantage of your attractive free shipping offer. But now, the extra costs involved are eating into your profit margin, and it looks like it’s time to be proactive and raise your prices to cover the free shipping costs. By failing to react quickly to the rapid retail industry changes currently at play, the risk of leaving profit at the checkout grows.
At Pricefx, we have been analyzing retail sales data and setting automated pricing processes for our retail clients over the last 10 years in facilitating real-time price changes, to remain ‘pricing nimble’ and proactive in protecting profit.
In this article, we examine staying on top of your company’s pricing game in 2022, retail pricing trends for the year, and sharpening what you do by implementing the top retail pricing strategies for 2022.
The Retail Industry Strategic Price Planning Process
The pricing strategy in any retail business will essentially be an off-shoot from your overall business strategy. Whether your business adopts a Walmart-or-Target-like ‘everyday low price pricing strategy’ (EDLP) or a high low retail pricing strategy as employed by mid-range sports apparel retailers like Nike or Adidas stores, the chances are that strategy reflects your chosen business model and what your organization is good at. Strategies can also differ by location, online or brick-and-mortar stores, concentrated in rural areas or located in the downtown central business districts of large cities.
What is most important to the 2022 success of your retail company’s overall business strategy (and therefore its pricing strategy) of your company is that;
A) You have one.
B) You can freely talk about what the strategy is within your organization.
C) You have a company culture in place that allows for Executives, C-Level Managers, buyers, pricing teams, sales teams, stores, and customers to all be able to clearly articulate what your retail company stands for. If that is clear to all, whether it is outlined openly as a strategy or not, you have an overall business strategy. Your pricing strategy will evolve naturally from there.
D) In the current dynamic retail sales industry, it’s essential that you stick to the guns of your core business and pricing strategies.
As we saw play out in 2020-21 and looking forward to 2022, while remaining true to your company outlook and your business strategy will be crucial, it is also essential that your pricing strategy will need to become more focused, flexible, proactive, and agile than ever.
It is worthwhile to remember, pricing is not a ‘set and forget.’
Pricing is an evolving, living, and breathing entity and will need to be continually revisited and reimagined, as the rate of change and uncertainty doesn’t look like slowing down any time soon.
Important Retail Industry Pricing Metrics to Track in 2022
Like always, there are a range of pricing metrics to track in order to remain effective in setting your prices in 2022 and they mostly remain unchanged, such as;
Trip counts – the number of times any customer visits your brick-and-mortar or online store.
Average basket sizes – how much of your product is purchased per visit to a store (online or in-house)
Online Sales vs Brick-and-Mortar Store Sales
Comparable Stores Sales – how your sales number compare in similar stores you may have in comparable regions or store sizes or comparing a specific stores’ sales compares over a distinct timeframe (e.g., How does the December 2019 sales number for a store compare to numbers for the same store for December 2020?).
Unit volume, Average Price, Gross Margin, Revenue – Numbers Increased or decreased year-on-year, store-by-store etc?
Free Shipping Costs
Paid Shipping Costs
While all the above are all important, pay particular attention to those metrics that have changed over time, and you are beginning to identify as a trend. For example, depending on the nature of your retail business, free shipping might be seen as a growing trend that may affect your pricing for 2022.
As many businesses have reported in the last 12-to-18 months, increased e-commerce numbers and growing free shipping costs are eating into profit. Many businesses have reported the need to raise prices or cut discounts on products subject to free shipping.
Likewise, if you anticipate being unable to regularly source a particular item on your product list in 2022, you might want to consider dropping any discounts on that product. Applying ‘value-based pricing’ to those products subject to the ravages of bottlenecks in the supply chain could be something to consider for your business, particularly if supply is not likely to meet demand.
4 Factors to Avoid When Creating Your Retail Pricing Strategy for 2022
Of course, another element in putting together a pricing strategy is knowing what to avoid. The following four factors will make sure that you put together a strategy that can withstand almost any crisis.
1. Price Strategy Stagnation:Companies that fail to stay current with their pricing policies risk missing out on sales. As mentioned above, the rate of change in the retail business industry is not expected to slow down any time soon. Quite literally, if your pricing strategy snoozes, your business risks losing.
2. Revenue goals do not deliver profits:Firms do not live off revenue, they live off profits. While top-of-the-line revenue numbers are great, profits and profit-based incentives are necessary for creating a sustainable firm. Companies may need to create profit-based incentives for staff rather than revenue-based incentives.
3. Avoid oversimplified margins: Often, companies have a plan for all products achieving a certain and simplified high margin figure. Having a high overarching margin target such as 60% or higher may seem like a promising idea. However, it can risk retail businesses underpricing some products, leaving money on the table, or overpricing others, missing the sale altogether in the first place. Pricing software can allow businesses to understand the value of their products compared to others, and then price according to that value.
4. Bad customers equal Bad Pricing: Just because a person or business is a potential customer for you, don’t feel compelled to serve them. Not everyone that could use your valuable products may be willing to pay for them. Focus on serving customers that are willing to pay for your products and that they pay you what you know them to be worth.
6 Retail Pricing Strategy Trends to Watch in 2022
Of course, all the best planning and metrics can only take you so far, if you’re not looking over the horizon at potential trends that can affect your business in the long run.
1. Retail businesses to continue to react to supply chain bottlenecks: Prices will continue to be offset by issues and product delivery delays in supply chains in order to protect profits and margins.
2. Workforces and Labor Costs to Drive Price Increases: Retailers worldwide are struggling to find workers to staff their warehouses, stores and drive their trucks. Prices may be set to rise with many retailers in 2022 to offset the higher wages required to attract workers.
3. Multi-product one-stop shops in standalone locations to continue their pandemic boom: Expect multi-product one-stop shops (Target, Walmart, Kmart, etc. – carrying grocery in combination with household and other products) to continue to use their prices as leverage to drive unprecedented profit growth.
4. Outdoor goods and Home Gym Equipment stores to build on their good pandemic positions: Similar to the boom of multi-product one-stop shops mentioned above, expect outdoor and home gym equipment stores like Dicks, Bass Pro and Academy Sports & Outdoors etc. to have a good year in 2022 as they use their excellent market positions to their advantage in increasing prices.
5. Malls to bounce back in 2022:This one may depend on how the pandemic plays out. If consumer buying patterns change and customers go out shopping again and re-populate the much-neglected malls of 2020-21, expect retailers to examine value-based pricing over discounting.
6. Tracking Competitors to be a 2022 feature:Matching, beating, or pricing above your competition will continue to be a part of most retail business strategies (your price moves to be dependent on your retail business model, store locations, product types etc.). Given the expected inflationary conditions in 2022, as a general rule-of-thumb, prices are set to increase in retail worldwide as discounts, rebates and promotions decrease.
Implementing Your Retail Pricing Strategy for 2022
Now you have seen the results of our gaze into the pricing crystal ball for 2022, you are no doubt wondering how best to leverage the use of the above-mentioned data metrics to optimize your pricing outcomes in 2022.
Using data analytics tools like pricing software to analyze and optimize your price setting in 2022 will be critical to staying nimble, focused, and enhancing retail opportunities. Who wants to get caught again with rising fuel costs and free shipping increases eating into profits?
If you would like to learn more on how to cope with some of the supply chain issues and price fluctuation issues mentioned above across a number of industries, (including retail), check out our recent blog article:
John Gilbo is an enterprise account executive at Pricefx, where he puts into practice his deep experience in pricing strategy, client account management, software procurement & implementation and financial analysis. He formerly led pricing strategy at Kirkland’s, Academy Sports + Outdoors, and Safeway, where he was hands on with AI-based analytical tools, retail strategy and change management. John is also an avid marathon runner and triathlete.