Centralized Pricing: A Challenge That Awaits Retailers
In our consulting practice, we speak to many different retailers about their pricing needs. For many years across all industries the trend has been moving towards specialized services, and we seem to have hit that point with pricing in retail.
At retailers, we often see three systems working in conjunction to deliver prices to customers: ERP (Host Merchandising), POS and eCommerce. Prices come from downstream, are aggregated or augmented in the ERP system and are sent out to POS and e-commerce separately. What retailers have found is that the ERP isn’t a very effective tool for managing prices, so they end up externalizing the pricing process in spreadsheets or custom systems.
This is because pricing sits in the void between e-commerce, POS, and ERP / Host Merchandising. Many off-the-shelf and homegrown e-commerce solutions struggle to handle the volume of data associated with the permutations between channel and location. POS is typically segmented for a single store, and ERPs struggle to handle the transaction speed necessary for supporting real-time or mass calculations in a timely manner. This leaves enterprise retail pricing out in the cold with a hodgepodge of spreadsheets and custom solutions.
What’s driving the need for a centralized pricing service?
Consistent pricing. For many retailers, the eCommerce and POS are typically two disparate systems, often with different functionality. Maintaining consistency becomes an exercise in custom code or manual processes that break down. Customers don’t really care what your internal issues are, they just want to be able to go online, see a price, then go into a store and get the same price. And if they have a special deal because they’re a loyal customer, they want to get that same price in the store that they would receive online. It’s not a new or unusual request and it’s been an issue in retail for years. Customers are now getting frustrated and expect it.
Amazon. Amazon has been dabbling in grocery and fashion for years now. Then, they bought Whole Foods and are smack dab in the middle of grocery. At the 2018 SXSW I was in a session where the CTO of Amazon Fashion stood up and questioned a leading fashion retailer. They’re watching, learning and getting better. It’s inevitable that they will figure it out and retailers need to be prepared. Of course, it’s not just Amazon, grocery and fashion have always had competitive threats. It’s just more pronounced with Amazon encroaching. Competitive and consistent pricing is one way to combat this threat.
Hyper-personalized offers. As competition closes in, another tool to entice customers to continue shopping with you is personalized offers. In the past, retailers could offer location based or general coupons for customers. Entrepreneurial affiliates on the internet have rendered general coupons a shared secret that serve to simply lower margins rather than inspire loyalty. Retailers have since turned to coupons or offers that are tied to a particular customer. On top of that, hyper personalized offers push existing systems to their breaking point.
These are just three of the most prominent complexities that are difficult to address with current solutions. So, what do you need from a centralized pricing service?
Fast. If you’re generating files for POS, then a pricing service has to calculate potentially millions of price changes quickly, and if you’re servicing internet requests, it needs to have fast response time.
Whether you are enabling real time connections to your POS or generating files that will be distributed to your POS, a centralized pricing solution needs to be fast. Retailers that have hundreds of stores with localized prices can easily scale to millions of calculations. The system needs to be fast so you’re not waiting hours to get your prices out. Without a pricing service, ERP typically shoulders that burden and given the number of calculations needed would take hours to process rendering the ERP unusable during that time.
Real time and batch interfaces. To serve different channel needs, the system needs to allow real time or batch interfaces. In some cases, retailers are seriously considering real-time interfaces from the POS which would negate the need for batch.
A centralized pricing service would be used for POS, e-commerce and funneling prices back into your ERP or Host Merchandising system for financial calculations. If your infrastructure can handle it, real time interfaces are the best way to go because then you have the right price from your pricing system of record.
Pricing system of record. A centralized pricing service needs to be the pricing system of record including day to day pricing, mark downs, promotions, coupons, contracts and all the history. This includes day-to-day pricing in grocery, regular price in fashion, hard marks, promotions and coupons. Each of these are different events that change the price. They need to be tracked and historical records kept so that you can reconstruct the price at any point in time. In addition, some retailers have B2B contracts with customers, so the system needs to handle customer pricing for individual products or groups of products.
In conclusion, if you’re finding pricing is spread across several different systems – if you’re having to piece everything together, and you aren’t sure if your POS prices match your e-commerce prices – it might be time to consider a centralized pricing service. Leading retailers are trending in this direction, and the flexibility a pricing service offers is tantamount to their success.
Ryan Kinzy is a managing partner of DoubleBlaze Consulting, a JDA partner that focuses on lifecycle pricing. DoubleBlaze works with many retailers to improve their pricing processes, ultimately leading to increased profits.