Advanced Retail Pricing Strategy: Unifying PPMO (2022)

Advanced Retail Pricing
Strategy: Unifying PPMO (2022)

A good retail pricing strategy is integral – but is it enough?

Setting an optimal product price can be a challenging task in today’s dynamic and data-driven retail environment.

Missing the mark when setting prices can have a drastic effect on sales and the overall profitability of a retail business.

Granted, many retailers have developed pricing strategies that account for multiple factors affecting product price, such as;

 

  • Production and distribution costs
  • Competitor pricing
  • Revenue goals

Although these pricing strategies are integral for retail success, many are incapable of adapting to the speed and changes taking place within the retail industry – leaving retailers vulnerable.

This is one of the main reasons why leading retailers are bolstering their retail pricing strategy by investing in UPPMO (Unified Price, Promotion, and Markdown) solutions.

So what exactly is UPPMO and how can it complement your pricing strategies to drive results and profitability?

Let’s find out.

 

A retailers pricing strategy can’t be one-dimensional

Pricing is the number one most impactful lever a retailer has to affect GMROI (gross margin return on investment). 

Retailers use pricing strategy to control demand, profitability, brand image, and gain a competitive edge. 

An ineffective strategy can be devastating; resulting in lost sales, unsold inventory, and damage to the brand image. 

Today, the complexity of omnichannel shopping coupled with the ease of price matching necessitates a pricing solution that can keep up with the speed, information, and accuracy just to stay competitive. 

So, it came as no surprise when Gartner reported an increasing number of retailers are looking to invest in price management analytics solutions. 

 

A graph by Gartner displaying the different areas within retail pricing in which retailers are planning to upgrade. Represented using percentages.

 

Why is developing a strategy for pricing retail such a hurdle?

What makes setting retail prices so complicated?

The short answer is too many factors. Introducing a new retail channel, or even a new product, exponentially increases the number of factors to be considered.

The slightly longer answer: a successful price architecture needs a unified pricing strategy to achieve the best results—one that can support a multichannel approach to pricing retail.

 In other words, you need to know what is going on in each channel you use to sell your products. 

On top of having visibility across the business, retailers also need to account for all internal and external factors that affect pricing and demand. 

The complexity of pricing can be visualized as a web, in which changes in a single factor affect numerous others. 

For instance, introducing a new shampoo using a lower price promotion might cannibalize sales from shampoo inventory already on the shelf.

Some relevant considerations include:

 

There are a number of different considerations retailers must take into account when developing their retail pricing strategy.

It becomes clear that determining prices using past sales history in a spreadsheet is cumbersome and simply ineffective.

 Doing so costs time and money, results in inaccuracies, and is very difficult to scale. 

 

Are you using a unified approach to pricing?

Uncover how price management software accomplishes this in order to maximize profits.

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How are industry leaders setting retail prices?

Leading retailers are leveraging AI-driven pricing analytics to develop a more effective pricing architecture. 

Retailing has evolved and today omnichannel retailing is the standard.

 

 

As such, retailers are moved to use relevant innovations capable of handling all the complexities that come with modern retail pricing.

Top retailers achieve smooth cross-channel operations with the use of  Unified Pricing, Promotion, and Markdown Optimizations solutions.

These UPPMO solutions enable retailers to develop pricing strategies across all channels, store types, and locations; seamlessly accounting for all relevant factors.  

Fact is, industry leaders have been shouting from the rooftops for years about the value of UPPMO.

In fact, a consensus among modern retail successes has been their shift to unified advanced analytics throughout their business operations starting with optimized demand forecasting.

 

Gartner predicted today’s approach to pricing architecture in 2017

Gartner has been tracking pricing applications in the industry for many years.

In 2017 Gartner put out a prediction based on their Hype-Cycle, that in 2 – 5 years large retailers will be solving their pricing strategy issues with UPPMO (Unified Price, Promotion, and Markdown Optimizations) applications.

At that time Gartner expressed that retailers were struggling to reach the 4th and 5th tier of the Slope of Enlightenment shown below:

 

A Gartner graph displaying the development of retail pricing methods, also referred to as the "slope of enlightenment".

Gartner’s prediction was on point. Today, 5 years later,  most industry leaders are either using AI solutions in their retail pricing strategies or are in the process of vetting the right solution for their business. 

What Gartner and top industry retailers have understood by now is that manual pricing is:

 

  • Antiquated
  • Ineffective
  • Costly
  • Time-consuming, and
  • Riddled with errors

More importantly, they understood the value of UPPMO as a retail pricing method. 

 

What is the UPPMO retail pricing method?

UPPMO, (Unified Pricing, Promotions, and Markdown Optimization) is a dynamic pricing method that uses sales data from every channel and business unit to set prices across the entire life-cycle of a product to achieve the highest margins possible.

This can be achieved with the use of unified pricing software allowing retailers to:

 

  • Enable clear visibility across the business
  • Follow individual SKUs throughout their entire product life-cycle
  • Account for all relevant internal and external factors
  • Provide optimized recommendations based on business-specific goals and limits
  • Allow for risk-free scenario building within the software
  • Give control back to the retailer

 

Are you still using Excel for price management?

Discover how top retailers evaluate and choose price management software.

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Gartner continues to recommend UPPMO for developing a price architecture in 2022

“UPPMO is a critical building block for delivery of unified retail commerce. Merchandising and marketing are core retail processes where technology must be deployed to leverage advanced analytics and algorithms that enable unified retail commerce.” – Gartner

In their report Gartner stresses, the following as key to successful pricing strategy:

 

  1. The consideration of every channel, category, and pricing type must be optimized using advanced analytics and AI technology.
  2.  Retailers must seek out agreement across all business units when implementing UPPMO
  3. Retailers need to collect relevant and clean data to be ready for UPPMO applications

Gartner’s UPPMO value map illustrates the impact of using algorithms (advanced analytics) on pricing strategy.

 

A Gartner UPPMO value map displaying the impact advanced analytics has on the retail pricing architecture.

 

The optimal approach among retail pricing strategies is out there.

The right solution will meet the needs of your business. 

While a small retailer can manage setting prices manually using spreadsheets, a growing retailer will find it difficult to scale without the right tools. 

With thousands of products across hundreds of brick and mortar locations and online stores, larger retailers need to leverage dynamic and unified AI-driven solutions. 

An optimal software, like Retalon’s Pricing and Promotions solution, uses advanced analytics and AI to optimize cross-channel pricing, predict up-lift in demand and suggest the future course of action.

Creating a unified and transparent product life-cycle pricing strategy that can easily be implemented at store level, category level, and even SKU level.

Discover the effect a UPPMO solution will have on your GMROI connect with our team for a free demo.