It doesn’t matter whether you’re a hardline or softline retailer. You’re already aware of the benefits of good inventory management. Quality customer service, theft protection, purchasing and replenishment control... And the list goes on and on...
Today I want to share with you an article on how to prepare your inventory for fluent daily product management and efficient price optimization as well.
Check Up On if Your Inventory Management is Ok
Before we start, let’s check whether you’re managing your inventory on 200%.
Revise Your Items’ Descriptions
We won’t even mention a need to add items’ numbers here. However, if you ask ten retailers about how they called their items, you’ll see that meaningful naming is so obviously important.
Items' names should be meaningful, unique, easy to search and user-friendly, i.e. simple to understand. By the way, here is a link to a free customizable inventory template, if you need one.
As you know, it can be a good practice to name items not unlike we do in real life, e.g. Monstrous Fast and Furious Radio Controlled Car but by their type, e.g. Car, Radio Controlled, Large Size, Fast and Furious... It helps manage items with similar properties within huge lists much easier.
Of course, for a store’s virtual shelves, i.e. product card, names like Monstrous Fast and Furious Radio Controlled Car might be a bit more appropriate, but we’re talking about your back-end management here, right?
Check Over Inventory Units and Their Additional Properties
There are only two major rules for adding measured units to your inventory:
1. Keep it simple. 2. Be consistent.
You need to give meaning to quantities, not confuse your managers or ERP-system. It’s all about unity.
Use the same units’ style throughout all the inventory. If you decided to use lower cases or camel Cases, or all CAPS, stick to it. If you called your items ‘pc’ for pieces once for a particular product category, keep the same system for all categories of your shop.
Align Inventory Replenishment to Sales History and Customer Demand
I have a statement you probably would take for granted:
To categorize inventory and manage it wisely, you need to avoid stock excesses and, therefore binding of working capital.
To achieve this goal, and keep business’s profitability, you’ll want to divide the inventory categories-by-product turnover speed.
Think of this as an ABC-analysis applied especially for inventory.
The Second Step for Preparing Your Inventory for Price Optimization
Your inventory now has meaningful descriptions, unified properties and is clearly categorized. The next step is to align your stocks to competitive ones.
But before you jump to price optimization jungles, we need to figure out what’s going on in the market and decide how you’ll react to changes.
Switch Off Blind Mode: Why Do You Need to Know All the Price Makers In Your Competitive Market
Depending on your business strategy, you’re either a price taker or price maker. However, no matter what your pricing behavior looks like, you need to know your competitors’ pricing approach.
Without this information, you won’t be able to set the correct prices for your products.
Well, sure zyou can, but with no competitors’ data, the process will look more like a guessing game than real business flow.
With no competitors’ data, you’re just playing a guessing game.
So before you start to optimize your pricing, inquire about your competitors first. Info on their prices, promotions, discounts and stocks will help you build your processes at an epic level.
How to Set Up the Required Pricing Rules and Simply Double Check Them
As a retailer, you’re always balancing between three major forces: customer demand, competitor behavior, and supplier rules, also known as minimum advertised prices, or MAP. To outperform this equilibristic alliance, you need to define pricing rules that will automatically change prices on your products. Don’t forget to re-check new prices before publishing them on the website.
You probably thinking that it’s an essential move every retailer does in the beginning of its journey. Believe me, it’s not. Companies often are setting just a couple of basic rules without checking. That’s why we added a good example below.
Here it is:
A price setting flow with a simple re-check might look like this:
Step 1. You’ve set the next rule for the key value items of your shop: Price should be lower than the price of my TOP-3 competitors’.Step 2. On the second step, you should check whether this new price suits the vendor’s MAP.Step 3. If a new price fits previous rules, it might be a good idea to check whether the final price under or overperforms the desirable profit.
Now You Are Ready for Price Optimization and Competitive Outperforming
As you can see, this task to prepare your inventory for price optimization correctly is easy and complex at the same time.
The correct pricing requires a lot of qualitative and systematic work. You need to manage your own products list, analyze reliable market intelligence competitors’ data, set and re-check prices daily.
It may sound complex, but it’s really not.
In the real world, you wouldn’t do all these things manually.
An enterprise resource planning system will help your managers add descriptions and correct units; the pricing platform will deliver competitive data, apply pricing strategiesand set pricing rules with alerts on market changes.
However, you still need to keep this in mind:
An era of self-driving cars is much closer than an age of self-driving shops. So no matter how smart your system is, it needs you, the decision-maker.