Michael Lukianoff

For Brick & Mortar retailers - when considering market conditions for price changes it isn't enough to look at the macro environment anymore. There is enormous variation in economic strength and consumer buying power by geography, even across trade-areas within the same markets. It's never been more important to have a localized price and promotion strategy in order to balance consumer purchasing power with price & product offering by each retail outlet.

Too many companies use price as a tactic to solve a problem instead of a strategic lever. Increasing price to cover cost increases or discounting to make up for customer traffic declines. But Price is one of every brand's most important strategic levers because it is at the center of profitability, brand perception and competitive positioning. It's important to understand the financial and competitive advantages that can be gained at any time from different pricing tactics, but companies should not employ tactics that are counter to their brand positioning -- unless they are making a conscious decision to change their brand strategy.

Pre-setting discount breakeven hurdles & specific goals is essential in managing discounts & bundles. For instance, when a brand discounts a particular product by x% it needs to know how many incremental customers that discount needs to attract in order to pay for the price-off that the discount gave to customers who would have paid full-price. Plus, you need to add the cost of the campaign. Together that’s the discount break-even point. The value of the new customers should exceed the total investment (discount & campaign cost). Similarly, a bundle can be created with or without a discount. It’s not worth applying a bundle discount if customers would have created the same bundle themselves through a la carte purchases without a discount.

As inflation has made frequent price increases a necessity for many businesses over the past few years, the use of fees and surcharges has emerged to avoid overtly increasing prices. Often the logic for the fees is to show the customer that the additional cost is coming from 'outside forces' so the products don't appear overpriced. Even sympathetic consumers don't want to hear about the economics of your business or how much the government forced you to pay your employees or how much gas your delivery drivers use. They are also likely to see the surcharges as a deceptive way to stick them with extra charges you think they won't notice. When you've decided to raise prices be transparent. Don't announce it, but don't hide it either.

Price testing is essential, but project-based a/b price test approach is slow & outdated. In a rapidly moving & complex world prices need to be evaluated quickly through ongoing data streams, planned processes, and multivariate methods. Pricing should be part of a comprehensive decision intelligence program that generates continuous learning about price as a strategic lever, not a tactical reaction to cost increases. Price is inextricably linked to customer experience, marketing, profit, competitive positioning & the economic environment. A well built pricing program, is really a comprehensive model of a business’ fundamental demand dynamics and can be used as a basis for more than price optimization. .

I find that many business leaders will use the word "Value" as a synonym for low prices, but consumers process a wide variety of the intrinsic and intangible attributes of a product and weigh all of those against price. Often subconsciously, sometimes overtly focusing on certain attributes that will catalyze the purchase decision for them. Identifying those attributes as differentiators and emphasizing them elevates value perception as much lowering the price, and more profitably. The trouble is, improving value perception through differentiation is harder to execute. The danger inherent in raising value perception through discounting is that it can de-value a brand or product - potentially resetting value perception at a lower price point.