In a tough economy where rising costs and fears over unemployment are battering consumer confidence, it is inevitable that retailers will put price to the fore in their propositions.

In a tough economy where rising costs and fears over unemployment are battering consumer confidence, it is inevitable that retailers will put price to the fore in their propositions. However, some risk becoming so obsessed with competing with their rivals, that they can lose sight of the main objective – to make a profit.

In other countries in Europe, in some sectors such as grocery, the single focus on price has destroyed value in the entire sector, and none of the players can expect to make net margins of much over 1%. For them, there may be no way back because they have educated their customers to expect low and lower prices all the time, sensitising them to price to the extent that any rise in prices is immediately noticed.

And this has been going on in certain retail sectors in the UK for many years, with the situation worsening ever since the banking crisis of 2008. While there is some recent evidence of price inflation in some sectors as retailers recognise that they may have hit rock bottom on prices, the road back for some is long and hard while for others, it may already be too late. And it takes a brave operator to break ranks.

Meanwhile, it looks like the current situation will continue for another three to five years, so retailers need to rethink as the continued highly reactive nature of most retailers’ strategies is unsustainable. Constantly doing deals, launching promotions and trying to react to the results, is time-consuming and happens so fast that too many decisions are based on guesswork. Existing data is not being properly analysed and new valuable data such as web click-throughs, is often being ignored altogether.

Striking a balance is harder than ever, because there are so many variables, all of which have to be got right in relation to all the others. Technology has a key role to play here, in intelligently processing the mass of data that retail generates, and finding the data that is most relevant.

My top tips include: Choose your battles. It makes no sense to compete with everyone in your sector on price, because there can never be a winner. Better to choose one or two rivals, as the grocers have done, and at least match against them.

Design a promotions strategy that rewards loyal, valuable customers and discourages cherry pickers. The loyal customers will then come for the whole shopping experience. Of course, this requires understanding who they are which makes a direct link between buying, merchandising and marketing – a link that in many retail businesses simply does not currently exist.

Respond to what works and what doesn’t. An obvious statement perhaps, but promotions are often based on the latest good deal the buying department has done, rather than on what customers actually want. Again, a close link between buying and marketing is required here to ensure that promotions are increasingly driven by the customer not the deal maker.

Ensure your systems give you instant visibility into the profit implications of anything you do with price and promotions. The ‘Monday morning meeting’ is notorious for figure fudging and creates an adversarial rather than collaborative atmosphere. In future, meetings should be based on shared projects and shared figures so that the whole business is responsible for making things work.

Use loyalty card data. Interestingly, some of the largest UK schemes do not actually use the data they are gathering, other than to make more offers and therefore give away more margin. They have therefore become part of the price cutting strategy, rather than a source of rich insight that can be applied to store planning, assortment, merchandising, pricing, promotions – in short, the whole customer experience.

  • Howard Langer, head of pricing and promotions, Itim