In my opinion: the role of price shielding and how to implement a pricing strategy that still delivers margins

By John Moss, CEO of Flintfox, a global intelligent pricing platform

Moss: to implement dynamic pricing rules without compromising margin, it’s time for retailers to embrace digital tools

As inflation hits record highs across the world, few retailers or manufacturers are immune to the impact hitting their bottom line. The level of economic shock has taken most businesses beyond the point of being able to offset with efficiency savings and price rises have been coming thick and fast. 

Despite the fact price rises are the most effective way to improve margins, retailers are announcing their changes with a degree of trepidation. Set against the backdrop of the cost of living crisis, the risk of reputational damage, losing customer loyalty or a drop in sales means that this is not a straight forward fix. 

Scrutiny of price has never been greater. Dried pasta and tinned tomatoes are hitting the headlines for their inflation leaping up 50% and the stories of what this means for people on the lowest incomes. It’s no wonder retailers and manufacturers have been approaching price rises with more caution and sensitivity. 

One approach has been to implement price shielding or price locking on high revenue SKUs. This is an opportunity to protect consumers, enhance the reputation of the brand as one that’s not trying to cash in on market conditions and adopt a more nuanced pricing strategy that maximises both revenue and margins. 

According to government figures, some businesses are already attempting to shield customers from price hikes. More than a third absorbed costs because of recent price rises according to Office of National Statistics (ONS). The concern here is the idea that businesses are simply absorbing these costs which isn’t a viable solution if inflation continues at the level we’re seeing and if supply chain disruption continues. 

Price shielding certain products is a strategy that supermarkets have excelled at throughout good and bad times, but as price scrutiny intensifies and pressure on wallets deepens, it’s one that more retailers are adopting. Superdrug and Boots are the latest to announce price lock programmes and its likely others will follow-suit. 

The challenge for retailers and manufacturers is getting pricing right without sacrificing already thin margins. 

The need for reliable and current data 

The biggest challenge for retailers reviewing their pricing strategy is not having a reliable and current view of input costs and therefore margins. Despite leaps in digital transformation and the explosion of data, pricing is still extremely manual – often a collection of spreadsheets which require days to collate and analyse. 

As global supply chains have become more complex, legacy systems and processes are no longer fit for purpose. Retailers report spending an average of 71 hours a day processing data. The time it takes to access and input all the cost data points means that teams can only review pricing on a quarter or month end basis. As well as being heavily time consuming it’s also highly error prone. Our in-depth research in partnership with Forrester, revealed that 60% of businesses felt that poor data quality was hampering their ability to keep on top of market fluctuations and remain competitive. 

Actual vs target margin 

This lack of visibility will make it near impossible for retailers to implement a pricing strategy that includes price shielding in a way that achieves the overall margins they need. 

To implement sophisticated and dynamic pricing rules without compromising margin, it’s time for retailers to embrace the digital tools available. 

Automated, intelligent pricing enables businesses to access real-time data, giving them visibility of their total costs and the ability to generate thousands of sophisticated prices in seconds. They can see which products and lines can absorb cost changes, which should be shielded to protect market share, and where marginal gains can be achieved to compensate. Through pricing automation, businesses can identify nuanced adjustments and hidden growth opportunities that are often missed through manual analysis. 

Using legacy processes, pricing rules are hard to adjust quickly in response to market changes, buying patterns, inventory levels or other factors, but a pricing engine allows for dynamic changes across all channels. 

As well as giving visibility of actual vs forecast margins across an entire range, intelligent automated pricing allows for price experimentation. In such an unpredictable time, this can be an invaluable tool.   

In addition, an intelligent pricing engine can provide better control of promotions, ensuring rebates are charged out and paid correctly. 59% of retailers say they find it hard to manage complex promotional offers resulting in money falling between the cracks from unclaimed, inaccurate, forgotten rebates, claims and promotional roll backs. With the entire retail industry feeling the pressure, no one can afford this kind of waste.

With only a few months left before the sales season hits, smart retailers will be exploring a range of ways to maintain customer loyalty and stay competitive but striking a balance between being competitive and profitable will only be achieved with access to good data and the ability to execute smart pricing with confidence.