4 Pricing Strategies to Help You Beat Amazon This Holiday Season

With the holiday season upon us, it figures to be a busy time for retailers. According to the National Retail Federation's (NRF) October Consumer Survey, consumers spend this holiday season 3.6 percent to 4 percent more than last year, or $678.75 billion to $682 billion. Furthermore, 59 percent of shopping will be done online, the most popular of which will be Amazon.com.

This year, retailers that come to the game fully prepared to win are adopting four key strategies to compete against Amazon to get their fair share of holiday shoppers’ wallets.

Strategy No. 1: Know Your Shoppers and Reach Them in All the Right Places

• Know your shoppers. Today’s shoppers are highly price sensitive, expect fair prices, rarely accept the first price they see and consistently expect discounts. NRF found shoppers ranked discounts as the most important factor driving their purchase decisions. In addition, a recent Forrester global shoppers study commissioned by Revionics revealed only 5 percent of shoppers accept the first price they see.
• Don’t price match. Retailers that rely on price matching strategies should think again. The Forrester study also revealed that only 17 percent of shoppers respond to price matching policies.

Strategy No. 2: Amazon Uses Science — Don’t Come to a Gun Fight With a Knife

• Use machine-learning science. Amazon doesn’t repeat last year’s failed promotions or go by instinct to determine price and promotions. It uses data science. Retailers have also armed themselves and are combining strategies, business rules and big data with artificial intelligence/machine learning science to identify shoppers’ price sensitivities across assortment, channels and promotional vehicles to determine optimal prices and promotions. The science creates a win/win providing optimal pricing for customers while also protecting retailers’ margins.
• Shoppers trust data science. Retailers worried that shoppers will react negatively to using data science to determine price and promotions should worry no more. The Forrester study debunked that myth, revealing that 78 percent of shoppers trust data science to provide fair pricing.
• Know where Amazon fits competitively. One mistake retail winners don’t make is assuming they have a larger group of competitors and unnecessarily adjusting pricing. With advanced price optimization science, they measure competitive response and target those competitors they know impact their demand.

Strategy No. 3: Don’t Repeat the Same Mistakes … There Are Better Options

Don’t repeat last year’s failed promotions. All too often, retailers promote just to promote, repeating last year’s promotions with very little insight into the impact. Sometimes, the low-hanging fruit is knowing what not to do. At a major specialty retailer, our analysis showed it could save $60 million simply by avoiding certain unprofitable promotions. Retailers now take advantage of machine learning science to effectively measure promotions and avoid yesterday’s margin-eroding mistakes.

Strategy No. 4: Amazon Can Run; You Can’t Afford to Crawl

• Adopt dynamic price optimization. Amazon was the first retailer to extensively use dynamic pricing, adjusting prices at high frequency intra-day. However, this is no longer a differentiator for Amazon. Many retailers are now using dynamic price optimization solutions that are far superior to the techniques of Amazon, moving beyond just price matching the lowest competitor. With advanced price optimization, retailers have gained trust and now monitor market shifts in consumer behavior and price sensitivity, plus competitive response, dynamically adjusting prices — and at higher frequencies. These solutions can run unattended within pre-defined thresholds while employing exception management when necessary.
• It’s not about the lowest price. It’s important to understand that pricing isn't about having the lowest price, but rather optimal prices that shoppers view as fair and are willing to pay while also protecting margins. In fact, the Forrester study revealed that only 17 percent of global shoppers buy the lowest price.
• Don’t unnecessarily constrain your online pricing. One of many pricing myths is that retailers need to keep prices consistent across online and in-store channels. The Forrester study dispelled this myth, revealing that shoppers expect lower pricing online across all categories, except grocery, where shoppers expect it to be the same or slightly cheaper in-store.
• Understand what drives online loyalty. Shoppers are loyal to leading online retailers because they trust the prices and the speed of delivery. Ensure your pricing this season doesn’t appear arbitrary and you have the means to expedite delivery.
• Don’t raise prices based upon availability. A second Forrester study revealed that 59 percent of shoppers advised that they will either wait, not purchase at all or purchase from a competitor when retailers choose to raise prices due to competitive stock-outs.

There have been seismic shifts in retail, and the competitive landscape has never been more hostile. Amazon continues to grow as a threat to retailers online and now in stores. But it’s not all doom and gloom. Those retailers adopting the right strategies and showing up with more robust tools will be this season's winners.

Cheryl Sullivan is the chief strategy and marketing officer for Revionics, a provider of profit optimization services and solutions.