Today’s guest on the Pricing Heroes podcast is Oliver Banks. Banks is a global retail influencer, host of “The Retail Transformation Show,” and author of the soon-to-be-published book, Driving Retail Transformation: How to Navigate Disruption and Change, coming out in March 2024.
When he’s not creating content for retail professionals, Banks is consulting for global retail brands on their omnichannel operating models with the aim of helping them transform their customer experience and increase profitability.
Change management is a crucial aspect of pricing transformation. Can you explain why it's so important, and what are some best practices for implementing pricing changes successfully?
I think one of the challenges that many retailers, or any given company, comes up against when implementing major operational transformations is how to manage and communicate that change. We think a huge amount about the what of any given change or transformation, focusing on a particular system, this widget or whatever it is, but we generally don't think about the how. We don't lend ourselves to really understanding how to implement and deploy the what into our organization. As humans, we are hardwired to resist change and transformation. So, when we don't think about the how, we make mistakes.
If we think about our evolution, our ancestors long ago lived life in a very dangerous way; they had to hunt and gather for food and explore the wilderness. These survival practices forged in our headspace and mindset that still live on today. Despite living in a relatively safe environment today, we still react in similar ways because our brains have been trained over a long period of time. If we think about ancient history, our ancestors would go exploring in places such as dark caves, and they would make a judgment call in the moment whether it would be safe to go further, asking themselves, “Am I going to get eaten by a bear or a pack of wolves?” And they would often decide to hold back from going into the cave, preferring instead to explore somewhere else. We don't have to explore caves nowadays, but we still find ourselves in a similar place looking at the unknown.
That's exactly what change is; it's the unknown. The fear of change is a recognition that we understand what's happened in the past and where we are today, and we hope that the future stays the same because it's kept us alive so far. So, we've kind of evolved into this anti-change being, unfortunately, but it's something we've got to overcome; we've got to embrace change.
While we love to live in the status quo today, actually the status quo is a mirage hiding a dangerous downside. Consider, for example, the positive trends we see in the market. What actually happens over time is those positive trends level off and maybe even fade away. We've got competitors who are naturally evolving and catching up to us; maybe they're overtaking us or extending their lead, or perhaps our customers’ expectations are ever increasing. So, if we're remaining comfortable in the status quo, deciding never to explore new opportunities, given the commercial world that we live in today, we're in quite a dangerous atmosphere, despite thinking that we're safe.
In an ever-changing market, how can businesses adapt and stay competitive with their pricing strategies while ensuring profitability?
On the face of it, pricing is perhaps the most controllable lever out of all the variables that retailers have available. But actually, pricing is a lever retailers must pull and push in response to a huge number of other factors, some of which are partially in your control and others which are completely out of your control, such as competitors’ behavior. You can set a price at 24.99, but if your competitors set their price at 19.99, then that’s an external factor that impacts your strategy. We also need to factor in things like temporary promos, adjacency in terms of how the rest of the category is priced, trading conditions, seasonality and weather conditions, stock levels and rundown, future orders, and a huge number of different topics. So, actually, what might at first appear to be a very controllable, very precise lever that’s available to retailers, is actually a really difficult engine to run.
Retailers could make pricing a simple one-person job by setting the price once and calling it done. But unfortunately, the world that we live in today, driven by eCommerce and the huge visibility that we have as consumers across all brands — including competitors — means that setting the price once and leaving it may well result in leaving money on the table or allowing customers to shop around for better deals elsewhere.
What are some common challenges organizations face when it comes to pricing and margin management?
I would suggest the primary challenge retailers face around pricing is twofold: data quality and understanding the data. How do we get a read on all of those different performance metrics that influence the levers of pricing? Who are our competitors? How do we get a read on what our competitors are facing? Access to quality data and understanding it are really important. We can draw all sorts of insights from these different data sources.
But all this data invariably provides confusing and sometimes contradictory insights — whether we should increase or decrease the price. How do we know what to do with that information? How do we absorb all the data and derive actionable insights we can use to make decisions on the fly per SKU, product category, or even at the catalog level? Oh, and by the way, you're going to need to do it all again next week, tomorrow, or in the next hour, depending on what category you are working in, who your competitors are, and so on.
How can retailers enhance the capabilities of pricing experts and avoid the risks associated with performing manual work in today’s ever changing retail environment?
It's important to recognize that it’s a really complex job with an array of opportunities that retailers can approach at varying degrees. Unfortunately, we don't always have the luxury of doing every single piece of homework in order to get the perfect answer. So firstly, it's about getting a good enough answer while remaining dynamic. Secondly, it's also about helping the wider organization understand the processes, thinking, and strategy behind it. Because whether it is your product development team or it’s your operations departments, your decisions as leaders influence how your teams respond to changes such as pricing and the impacts it has on their roles.
For example, when I was at Tesco during the early days of my retail career, I was working in store operations, and every day we’d see hundreds of new pricing labels come down. One product had gone up by five pence, another had gone down by one, etc. On the face of it, it felt random and even somewhat questionable as to whether it is valuable to be putting in all of this effort that is happening at every single store to adjust prices up and down. At the time, I didn't get it. I saw it and was confused because I really didn't understand it then. Over time, I evolved and began to understand the intricacy of all of these different factors, and it changed my perception of its importance. As I said earlier, it’s the number one metric that customers are using to decide where to shop because it is so comparable. Here's this box of Legos in this store versus the same box of Legos in that other store. It's exactly the same product; what's the difference? It's the price.
And I think helping the wider organization understand that logic, the process, the thinking, and the tough decisions that you have to make as a retailer is a big opportunity.
How can retailers communicate their prices to the customers in a way that builds customer trust and loyalty?
This is a great question, particularly given the trends we’re seeing in the market right now pertaining to price increases due to inflation, or even the phenomenon called shrinkflation, which is when retailers provide the same product at the same price but reduce the quantity of the product. Right now, a lot of retailers are kind of using both strategies, price increases through inflation, but also shrinkflation, while hoping that customers don't notice.
I remember talking to a customer about a low-cost product that had gone up by one pence. And some customers may look at that and think it's the same price. But actually, to that one customer, that meant the world of difference because they're on such a tight budget. Retailers must recognize, particularly in grocery, that they have a whole range of different customers with different budgets to consider.
To think about the communication element, what retailers are doing that works really well is demonstrating those price changes. Tesco is a good example of this. They’re demonstrating those changes using a postcard prices initiative to tell their loyalty members that they’re going to significantly discount prices of certain products. It's almost replacing the traditional buy-one-get-one-free promotion. For the customer, it still feels great because they’re buying what they want and seeing the discount, but that loyalty price is still a very tightly engineered and controlled metric.
Lots of retailers are talking about big investments in pricing optimization. But they can’t say this to consumers, because it doesn't mean anything if at the end of the day it’s costing the customer 10% more than it did last year.
I also really like what Target started to do this last week. As Christmas starts to come around, they're providing customers with gift lists for popular toys, including low-budget options. That's a great way of helping your customer base explore the range and assortment while acknowledging that you understand that price is important for them, while at the same time saying if you do have more budget to spend, we've also got these more premium options as well.