Zones Mean Dollars in an Omnichannel World

In order for retailers to sustain financial performance, it's critical to know when — and where — opportunities exist to increase margin and revenue. For many omnichannel and online retailers, one of the largest untapped sources of both of these is zone pricing. Zone or regional pricing is a well-established retail pricing strategy dating from the glory days of brick-and-mortar, and it's still used in-store and online in categories such as automotive, grocery, home renovation, among others.

While many analysts and retail pundits predicted that e-commerce would be the death knell for zone pricing, leading to the establishment of a national online price, quite the opposite is true. To paraphrase Mark Twain, "reports of the death of zone pricing have been greatly exaggerated." E-commerce sales continue to increase year-over-year, yet many successful retailers continue to rely on zone pricing as a pillar of their pricing strategy. In Retail Systems Research's 2014 Pricing Benchmark study, for example, only 15 percent of retail winners said that online shopping had compromised their zone pricing plans.

Zone pricing is here to stay, and it's time for price intelligence systems to reflect that reality. After all, pricing to reflect the local competitive landscape and shopper demographics can only help maximize margins and sell-through.

Zone pricing can be the missing link between e-commerce sites and brick-and-mortar stores. Retailers need the benefit of regional pricing intelligence to compete more effectively on a local basis. If retailers elect not to employ zone pricing, they need to consider that many of their competitors do — compromising their own margins and conversion rates.

What are the benefits that zone pricing can provide, supported by regional pricing intelligence? Here are just a few:

• Identify and seize margin and sales opportunities in regional markets. Real-time regional pricing insights can help retailers move quickly to adjust pricing when their products are overpriced or underpriced in key geographical areas. This in turn allows them to compete more effectively against both online and brick-and-mortar competitors in their region.
• Improve conversion rates and margins. With timely access to accurate and complete competitive pricing data on a regional basis, retailers get the complete picture down to the local level rather than relying on artificial national averages. This data can help retailers significantly improve conversions and margin.
• Increase customer satisfaction and loyalty. Zone pricing helps retailers deliver the kind of pricing that best reflects their brand proposition, whether it's based on everyday low prices or a combination of convenience, price and customer service. By fulfilling their brand promise, retailers improve customer trust and loyalty.

Retailers can take zone pricing a step further by analyzing individual customer behavior as an additional data set in establishing pricing zones. Boston Consulting Group suggests that "rich transactional data from loyalty programs and credit cards across thousands of stores can be used to understand where individual customers tend to shop. That data can be layered onto an analysis of current store locations and pricing zones. All this information can be combined, analyzed and mapped to show geographic clusters of price awareness based on observed shopping behavior rather than artificially set boundaries."

It's a tantalizing prospect, and one that underscores the power of data in setting zone pricing strategies. Armed with insights that include real-time pricing data at the local level, retailers can have the information they need to win, not just during peak selling seasons but on a daily basis.

Jenn Markey is the vice president of marketing at 360pi, a provider of price intelligence solutions that enable retailers to optimize sales and margins.