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This is how you create harmony instead of price wars

This article was also published in Market magazine on June 30, 2021.

In line with increasing transparency and the growing importance of customer reviews, pricing is becoming increasingly important. Dynamic prices that are harmonized with e-commerce will also become the norm in physical stores, predicts Martin Granberg, chief strategist officer at Priceindx.

Many retailers have experience of customers coming in with their mobile phone in hand and questioning why the price in the physical store is different from the e-commerce.

- The fact that you had different prices is because the technology set limitations. But with the help of dynamic pricing, this source of frustration can be removed, and you can harmonize prices if you choose that strategy, says Martin Granberg.

In e-commerce, internal data has long been looked at. Only in recent years have people really begun to understand the importance of also analyzing competitors' data, he explains. As one of Sweden's first so-called price-tech companies, Priceindx was founded in 2006 and today helps around 70 customers collect and analyze external data - often in combination with the customers' own internal data. Martin Granberg calls the development in trade asynchronous.

- E-commerce is changing much faster than physical stores are adopting new technology. But now even the physical stores are starting to be able to use the external data available in e-commerce. A proof of this is that more and more physical stores are starting with digital shelf edge labels.

- This means that you do not need to sell products, but can lower prices gradually and by having control follow a fixed price strategy.

Increased access to data about the competitors also means that you can understand which products you should and should not highlight.

- Why should you expose products that don't fit well?

Before, it was believed that so-called price robots would lower prices in general. However, that is not the case, says Martin Granberg.

- It's about having the right price for you and the right price is not the same for different chains. For example, the right price might be one if your strategy is to gain market share and another if your strategy is to maximize profits.

- This trick has been adopted by those who are good at it. Everything is unique and depends on which customer it is.

According to Martin Granberg, pretty much everyone will be using dynamic pricing within a few years.

- If one or a few actors have started using dynamic pricing, it is difficult not to have it.

He believes that e-tailers often have the understanding of dynamic pricing with them "since birth", while those who come from the store level have a slightly longer starting distance.

- They are used to handling pricing with a bit of gut feeling and are not as data-driven.

Martin explains: Dynamic pricing in four steps

  • The first thing you usually start with is the easiest. To look at some competitors and see how you stack up.
  • The next step is to apply a rule system that takes into account one's strategy and look at it manually.
  • In the next step, some customers choose to apply a fully automated rule system.
  • Then there is the AI price generator, which is a self-regulating system where the rules are set based on history and trends, among other things.

In webshops where you sell a lot of external brands, it is more used than where you sell your own brands because it is easier to compare brands that several people sell.

- The well-known and well-established brands have an advantage with higher price elasticity, and that is where they make their money. But with increasing transparency and the growing importance of customer reviews, this idea is being challenged.

- Does a cheap product have the same function as an expensive brand and the customer reviews say that the products are equivalent, expensive brands fall in perceived value. Because of the transparency, brands must really stand out in order to maintain their perceived value. And that doesn't just apply to product quality and price, but to the entire customer journey, he says.

Price comparisons can be made regardless of which product it is about and which players the customer wants to compare with. After Amazon's entry, for example, more people want to compare themselves to them, says Martin Granberg.

The price is not the only parameter that comes into play in the comparison, but all the information that is exposed on different pages.

- It's about everything from stock status to different markings.

According to Martin Granberg, both interest in the services and use among those who already have them have increased during the pandemic.

- The pandemic has been the catalyst for something that has already been on its way. Those who have had their tools in place have gained an advantage while those who have not had to adopt the technology very quickly.

Going forward, he believes that development will roll on at an increasingly faster pace. He believes that the different starting points for e-commerce and physical commerce will even out.

- Chains are solution-oriented and have a lot of capital, and I think they will succeed well.

5 areas where data will drive commerce forward

01. Self-adjusting prices based on machine learning that are optimized for different purposes, for example to maximize margin or volume or empty stock by specific dates.

02. Dynamic pricing will be a must to keep up in an industry where one or more players already have it. Prices that change on a daily basis will become the norm even in physical stores, harmonizing prices between digital and physical commerce.

03. Using data to selectively choose to market products with regard to popularity, competitive advantages, margins and good customer reviews. This is to create the greatest chance for conversion with a good margin while giving the customer a good product experience.

04. Customer and product reviews collected online will become increasingly important. Together with prices, they take the step into physical trade and influence what is chosen to be displayed in stores.

05. Collecting and analyzing data creates new conditions for the valuation of companies during acquisitions, but also when penetrating new markets or segments, where there is a lot of data to collect.

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