Inventory Management Software
Published July 28th, 2017 by

Retail Pricing Strategies: Using Inventory and Sales Data

More and more, small retail businesses are using the data from their point of sale and inventory management software to determine the best pricing on all of their products. Without that data, they are playing a guessing game.

Everyone knows how the Internet has changed consumers’ purchasing habits. They have a choice of online or brick-and-mortar stores, often referred to as the omnichannel shopping experience. The omnichannel has created more opportunities for the retail industry to attract new customers.

Technology, transportation, and communication continue to be the primary forces opening new markets for growth and efficiency. One of the biggest examples of this is online shopping. In recent years, it has disrupted the retail market, but it’s not the first time this industry has evolved new ways of meeting consumer demands.

Evolution of Retail

Historically, retailers have experienced one type of disruption or another. These events created major changes in the way this industry does business. Over a century ago, railroads and mass production allowed department stores to flourish in the big cities. Then, as the suburbs grew, shopping malls and specialty retailers sprouted up to serve customers unable to go downtown on a regular basis. Political deals in the ‘80s and ‘90s opened new markets and cheaper manufacturing, bringing lower pricing and a larger selection for big box stores that became the one-stop shop in the suburbs and rural areas.

Small retailers have always had their challenges when adapting to new market conditions. Many stores grapple with expanding their online presence or adopting a more cautious approach. Why aren’t they following the trend to online shopping? Mostly because, they are using their point of sale and marketing data to influence their pricing and sales strategies.

In-Store Versus Online

The battle between brick-and-mortar and virtual stores seems to be tilting in favor of online shopping. Digital commerce grew almost 15% between 2016 and 2017. There were $105 billion in sales in the first quarter of this year alone, which is typically a slow time for retail.

Looking at total retail sales in 2016, only 8.5% was attributed to e-commerce. This has been a steady trend since 2007, slowly taking 1/2 a percentage point in total retail sales every year. Yet many department and specialty stores have opted to close their physical presence on main street and focus more of their business to online sales.

While brick-and-mortal accounts for more than 90% of all retail purchases, consumers use online shopping to research product info and deals before going in-store to purchase their goods. The importance of a physical presence continues to be the key to reaching customers. There is no denying that small retailers need to address their future plans with online shopping—engaging with the omnichannel. A good place for retailers to start investigating whether an online presence is viable or not is to examine their inventory. They may find an online catalog is better than a store.

Inventory Turnover Rates

It doesn’t take a CPA to figure out inventory turnover. Most retail management and point of sale software can quickly produce data on annual net sales, beginning inventory, and ending inventory. A low turnover ratio may indicate changes in buying trends and product life cycle. It may also indicate a need for more competitive pricing.

The costs associated with slow turnover and dead inventory make a good case for entering the online world. This opens a new market and possible demand for products that are eating away at profits. Or, the holding costs, delivery and marketing associated with online sales may be more detrimental to the bottom line. Retailers will learn a lot more about their business when they truly examine their inventory.

Should In-Store Prices Differ from Online

In the age of Amazon, retailers have to be more conscious of pricing and vigilant about competition. Amazon recently announced the acquisition of Whole Foods, a nationally recognized high-end grocery chain. Their modus operandi has focused on taking risks and succeeding. They continually expand their reach into markets where others have failed.

Small retailers don’t have the deep pockets that an enormous multinational company has, so they need to be more attuned to pricing and sales trends. Their pricing structure needs to be competitive with others online, while reflecting those same prices in their stores. One big box chain learned in 2012 that setting prices too low hurt their revenue and profits. They offered to meet-or-beat competitor pricing. This pricing strategy worked against them, because little value or quality was seen in rock-bottom pricing, and lower profits hurt the corporation.

The Omnichannel Shift for Brick-and-Mortar Sales

Consumers typically reserve online purchases for familiar products, usually knowing what to expect “sight-unseen” and frequently buying them. They are more comfortable with these purchases, as opposed to unfamiliar products that may need to be returned.

Smartphones have made it even easier to research product information and reviews from the comfort of their home or at work. Consumers can reserve or buy and pick up their purchases at a local store. Shopping made easy, because they simply stop in the store on their way home from work or while doing errands.

Another strong indicator of this behavior comes from online shopping cart abandonment. When browsing online, consumers leave their shopping carts 75% of the time. That’s 3 out of every 4 shoppers! There are many reasons for this common occurrence, such as daily interruptions and information overload, which leaves the door open for brick-and-mortar stores.

In-store purchases are still the driving force behind all retail sales. The biggest reason for this is because consumers feel in control of what they are getting and where they bought it from. They want to be able to touch and test products before purchasing them. They also want their questions answered by someone friendly and knowledgeable.

Transforming the Customer Experience

Having an online presence needs to be thoughtfully planned and complement the in-store experience. According to a recent article in the Harvard Business Review, retailers need to understand how online and in-store are different channels, “unique services” with separate pricing options. In-store prices should reflect customer service and convenience charges, while online can compete with other low-cost retailers. A small business has the advantage of creating the best customer experience, so customers need to find value beyond pricing.

Price matching, discounts, and coupons may drive sales and capture new business, but retailers need to focus on the differentiators within their business. Is it location? Selection? Or service after the sale? These are only a few questions they should ask themselves, then reflect upon the answers to give a basis for their strategic plans.

The customer should also always find what they are looking for. They will have a negative experience when they can’t find what they are looking for. Retailers need to meet their expectations or suffer a negative experience. With an automated inventory management system, retailers can create purchase orders when stock is low to avoid this situation.

Examining buying trends through sales data is another way to keep the shelves stocked. Using reports and financials pulled from point of sale software can provide a lot of customer info, yet they don’t talk about the positive interactions—the comfortable feeling—when shopping. If retailers make their customers’ experience more personable, then they will be rewarded with return business.

The Savvy Consumer

The Internet has changed the way people purchase goods and services, allowing them to find that perfect present for their friend’s birthday or parent’s anniversary. More information reduces the chances of being disappointed, which often happens when ordering online. To avoid this feeling, consumers are willing to do the research at home, then go into the store to buy it, sometimes paying more for the convenience.

Their ability to research product information and reviews by others, who have tested and used those products, has changed the in-store customer experience from a couple decades ago. They go to the store to build an emotional connection with their purchase. Positive experiences lead to more spontaneous, in-store purchases, too. Today’s retailers need to adjust their marketing and sales approach to accommodate for the savvy consumer.

Does Price Matter?

Before answering this important question, small retailers need to realize what the big box stores already know: consumers need to have an emotional connection to make their purchase. No connection? No purchase. A rude salesperson can chase them away. In-store return policies and lack of warrantee information may cause a disconnect.

Low prices for some products does matter. These tend to be frequent purchases on everyday items, something the consumer is very familiar with and knows exactly what they are getting. However, Apple’s phones, laptops, computers, and tablets are a great example of consumers purchasing with emotion and ignoring the price. Apple products tend to be 50% or more than its competitors, but they’ve generated such a buzz that people are willing to pay more for them.

Small retailers can do the same by creating a buzz around their products. They may not see the direct benefits of having a strong online presence, but they will be able to capitalize on the omnichannel and modern consumer habits. Why? Because, their customers still want to make in-store purchases. Yet, they also want to have the convenience online shopping provides.

People Will Pay for a Great Consumer Experience

Retailers need to be on top of what their customers are looking for, and have a system in place to keep those items in stock. It’s almost certain what will happen if they don’t. They also need to continuously research what the competition is doing. These are major components of setting a good pricing strategy, while remembering where the products are in the life cycle.

Small retailers need to know what differentiates them from their competition. This creates value in every transaction, especially for gift and specialty item stores. Creating value is the key to consumers spending an extra dime. When retailers establish a connection with their customers, that connection forms a personal relationship. These customers become repeat business, which drives down operating costs and increasing profitability.

Michael Premo
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Michael Premo

Writer at Smartwerks
Michael collaborates with internal and external clients to design targeted brand messaging and content management strategies for small and medium-sized companies. His marketing experience has deep roots in the tech sector, working with both sides of the channel and managed service providers. Smartwerks has been witness to more than 30 years of experience in the point of sale market, software development, and managed services. Over that time, the software and retail industry have experienced some dramatic changes, and Smartwerks continues it’s unwavering goal of providing software solutions for a range of small and medium-sized businesses.
Michael Premo
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