Dynamic pricing is often touted as a must have for all retailers, but if all products were priced this way the race to the bottom would leave very few winners. Except perhaps Amazon.
Results from IRI, (a market research company which provides shopper and retail market intelligence), shows that shoppers don’t respond to price changes in the same way for all products. For many products shoppers will not be driven to buy significantly more as a result of price reductions. So it’s important not to give away margin by reducing prices on products that will not result in a significant increase in sales. More promotional effort can then be focused on the products that have high price elasticity where changes in price have a relatively large effect on increasing sales.
So which product have high price elasticity?
As a general rule IRI discovered that faster moving items are more price elastic than slower moving items. This is true for both food and non-food. For example beer, bottled water and toilet tissue are highly elastic but spices and skin care products are comparatively inelastic.
Within a category, perceived luxury brands are often far less elastic than high volume common brands. Even in mustard. Grey Poupon for example is quite inelastic, likely a result of decades building a brand image of an affordable luxury item. Private or own labels also tend to be less elastic than other manufacturers within many categories.
Getting a better handle on price elasticity
In the search for better margins a number of our customers are testing price elasticity in their stores. With our NetTickIT software they can produce new or updated promotions tickets and point of sale materials in minutes and have them in all stores within an hour. The flexibility to change or withdraw promotions quickly on a per store basis enables them to also test if price elasticity is the same in all stores. It’s a very useful way to ensure that profitability is being maximised and dynamic pricing is only used where it makes commercial sense.
Do you find this interesting?
A lot of time and money is spent calculatingContact us