How To Analyze And Identify Ways To Improve Existing Retail Financial Operations

Introduction

Online retail businesses have to a lot to worry about and fight against but perhaps nothing quite screams danger as the financial aspect. Shallow pockets and thin resources, overwhelming competition from both big brand-name businesses and and smaller online retailers, declining sales and so on – these are just some of the challenges faced on a regular basis. Thus, it’s only natural to try and squeeze an extra dollar here and there out of the existing financial operations. Naturally, there are some quick fixes that turn things around but these are all short-sighted solutions. Any online retail store built on a sound financial basis knows better than this but not every business has the benefit of that insight.

So, what can you do?

With growing pressure to generate better sales and minimize costs to increase profits, you must center on creating more revenue from your existing operations while continuing to add new ones to the fold. Easier said than done, right? Not necessarily as there are some things to consider in order to improve your retail store’s financial operations. Don’t worry, we’ll let you in on what you need to do so you can do right by yourself. Ready? Let’s go.

  1. Forecast your future

To get a good sense of how your money is flowing around and what the future holds in that regard, what you need is a financial forecast. Being prepared for the future endeavors, especially in the case of growing businesses, allows the power of foresight to know what to expect and how to deal with unfavorable movements, which are all but bound to happen in the tense retail market. A financial forecast is one of the best practices for small and medium retail online businesses to gain meaningful insights on both a monthly or weekly basis. It will allow them to identify peaks in expenses in time of their most selling periods and show where income will be the highest. There is a good, accurate and fast way to do it, which brings us to our next point…

  1. Leverage technology by using retail analytics

If there is one thing that makes life on this planet much easier, it’s technology. Running your financial operations can also be much easier if you utilize it the right way. In the case of the aforementioned forecast, the process itself could be as simple as paper and pencil or a digitized version of it in the form of an Excel sheet. Or, you can opt for retail analytics software to get a more formal and accurate result. Naturally, two of the three methods are time-consuming and largely inefficient but are also deemed as more financially acceptable solutions. Looking long-term, they are also not sustainable, something that modern tech puts maximum effort in.

On its own, technology is an investment with significant proportions. However, what you get in return far surpasses the investment-to-benefit ratio. For instance, transferring your modus operandi on cloud simplifies and streamlines the whole business operation and puts in on a higher level. By “upgrading” to cloud technology in the form of retail analytics, you make your data open for multiple users from different locations to access the data and work on it. The software helps minimize the risks of human assumptions that can trigger margin loss, overstock situations, and missing the boat on market trends. That directly impacts the efficiency while reducing labor costs. And that’s just one example out of the many features retail analytics software possesses..

In retail, it’s imperative to know as much about the market as possible. In that regard, you can leverage technology to use data analytics to improve operational performance across all channels. Having insights into store-level demands in real time makes sure your bestselling items remain in stock. Optimize your pricing by keeping a close eye on competitive pricing and discount strategies. From the marketing standpoint, gaining visibility into promotional performance can help you adapt your strategy, while also benefiting your forecasting and recognizing various market movements like seasonal trends, hot items and different opportunities to maximize revenue.

Ultimately, this translates to a win-win scenario – more satisfied customers and reduced cost for you. The bottom line here is that using technology can help your retail store in a variety of ways, from improving productivity by automating a bunch of manual tasks to helping you better oversee your inventories and everything in between. Speaking of inventory…

  1. Perform inventory segmentation

Because of the large scope and competitiveness of the retail market, a business is better off segmenting its inventory. Why? Because an inventory is not just a statistical overview. Looking at it, you want to gain insights into your sales. Does your cash flow revolve around products that don’t sell on a regular basis? Can you use that money to create better profits through other better-selling items? There could be lots of money tied up in inventory without actual good reason. It’s all about meeting customers’ demand and needs.

Because the way online stores function, much of their data insights are broken into pieces, spread across the organization. Collecting that data into a single, comprehensive view allows better financial results because you get a scoop on things like growth, consumer trends and else. By uniting and integrating all of its data into a single source, an online retailer is set to reap the benefits of knowing its most important competitive performance metrics, as well as make better overall business decisions. And faster, too, as nothing beats on-the-spot insights.

inventory management in retail store

An example of inventory management in a retail store

Source: LinkedIn 

Conclusion

Retailing is as much about local mindset as it is about thinking globally, with the whole world as a selling stage. As such, it provides ample opportunity and company, which is where handling of your financial operations comes into play. A retail business simply must understand its financial numbers and what they are saying about the state of the business. Along with financial statements, business analysis and intelligence are key to making that happen. Going the modern tech route allows you the dissect all the financial angles of your operations, while also providing you with the benefit of time to have other bright ideas that can improve your business’ standing. That way, you will be able to devise an accurate business plan and hit all the right spots.

Little Known Ways To Decide Your Pricing Objectives

Pricing objective is a goal that a company sets in order to determine the cost of its product or service. Objectives are usually related to four major groups:

  • profitability
  • sales volume
  • market shares
  • competition

Pricing objectives follow the overall pricing process that reflects the marketing strategy, the attributes of the product or service, as well as customer expectations in terms of price, availability, and quality. Each pricing objective has different incorporated pricing strategies that aim at achieving set business goals.

There are many factors that can ultimately affect the shape of your pricing objectives. For this post, we’ll highlight the ones we feel are more on the sidelines in today’s business game. These are:

  • positioning
  • marketing
  • customer demand

1. Positioning

On its own, positioning is a form of strategy that aims at placing your business in the mind of your customers. The end goal of positioning is to create a special (unique, if you will) impression in the minds of your customers so that they associate something distinct and desirable with your image that differs from rest of the marketplace.

pricing methods graphic

The anatomy of brand positioning

With that retrospect, positioning can help a business establish products or services in the market. For example, your business might try to compete on price or sell high-end products or get into the budget level market. In either case, the price can indicate a level of quality which is why it’s so important that the price you set for your products or services compliments your overall brand.

Another important reason why positioning is important is rather simple. It occurs unrelated to company’s streamlined efforts (a proactive approach) in developing a position. Do little or nothing and your company will still be positioned on the market, albeit unfavorably. Still, if a company takes a forward-looking approach, it can positively influence its brand positioning in the eyes of its target customers and achieve its pricing objective.

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2. Marketing

We have already established that the price you assign must be in line with your other marketing strategies and the product attributes. From the marketing standpoint, it doesn’t really matter if you have an existing marketing agenda or formally plan to do so because you need the facts to base it on and the facts say – research. Performing at least some part of the research is simply necessary for a marketing plan that will be used to determine the pricing strategies you plan to implement at the end. The knowledge attained from the research will help you identify the key marketing trends among your target audience.

So, whether you use your marketing to determine:

  • the amount of expected income based on your promotional strategy;  
  • how much of the market you wish to gain;
  • the desired level of product or service awareness;

or something else, setting appropriate prices (those that best reflect the quality and attributes of your goods) to your products or services is key. Both your marketing goals and knowledge and expertise of the industry, competition, and the market are crucial.  

3. Customer demand

If there is one thing that a business needs to understand in a blink of an eye, it’s the impact of its pricing on sales. That is the fine line between success and failure. Of course, it stands to reason there is very little margin for error which is why a business should evaluate how customer demand might fluctuate with price changes. And how to do this? If your answer was research, you’re on the right track.

For existing products or services, a business is free to experiment with prices both above and below the current price so it could determine the impact of pricing on customer demand. If the demand for your offerings does not significantly decrease with raising the price, this is a good indication that taking price increase is realistic. Let’s see how Nike managed that particular situation.

In 2014, the footwear and apparel giant went with a new pricing strategy. The company gathered from a market analysis (smart people) that its customers first and foremost appreciated the value that the brand was providing. This, in turn, meant that Nike could charge a higher price for its products and began to do so by raising its prices four to five percent a year. In the end, the company’s understanding of customer demand and value enabled it to increase U.S. athletic footwear sales by $168 million in one year alone.

The bottom line is when there are high levels of demand, there is more flexibility in choosing pricing objectives and strategies because customers are less likely to be concerned with the price tag since they really want your goods.

Additional tips

Because we are so super, here are two additional tips.

First, check if there are entities such as the government that might dictate the price range for your goods. There are some products like milk and services like electricity that have government-imposed regulations limiting the price that can be charged. This principle is known as price control and is not a common occurrence, but still, can happen so it’s best to check for any pricing regulations that apply to your industry or goods.

Secondly, the antitrust laws, especially in the US, require that each company establishes prices and other terms (shipping fees, warranties, discount programs, etc.) on its own, without any agreement with a competitor. This type of collaboration is called price fixing and all you need to know further is that it is illegal and subject to criminal prosecution. Move along, nothing to see here.

Conclusion

When it comes to choosing a pricing objective and related pricing strategies, a careful consideration of business and financial goals is in order, as well as the state of the market and your competition. You want to select pricing objectives that will place your offering and business for success. With that in mind, hopefully this post showed you three little known ways that can help you decide your pricing objectives. Each have their role – from placing your brand into consumer consciousness to effectively marketing it to addressing customer demand. From there on, you can choose pricing objectives and strategies that are appropriate for

your business at the current time. Just remember you are not limited to these three ways nor should they prevent you from changing objectives or using different strategies as your business evolves or changes.

If you found this useful and you’d like to learn how to take your pricing strategy to the next level, we invite you to download our free 20 secrets to designing the best pricing strategy eBook. Click below to take advantage of this opportunity.

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It’s All About (the) Pricing Strategies

On its own, pricing is a complex subject that requires thorough understanding, yet it is massively important. If you set it right, the sales and profit will flow. Get it wrong and, well, you know, you’re doomed, to put it mildly. Your pricing affects everything, from profit margins and sales to brand positioning and market share. So, what’s the trick? How do you implement a pricing strategy that conveys everything you want to stand for as a company while bringing in profit in the process?

Businesses have the luxury to choose from a variety of pricing strategies, depending on the goals and objectives they set. Of course, none of those matter if they are not based on market research and customer demand. It is vital to understand who is your target audience and competition, only then will you be able to utilize an effective pricing strategy. Not every price you determine needs to produce maximum profit margins.

Without further ado, here are some of the pricing strategies that businesses often employ in order to determine the prices on their products and/or services.

1. Premium pricing

Premium pricing strategy allows business to set their prices higher than the competition. It’s great for a small business whose niche is selling unique goods, as well as for the times when you are first in placing a product on the market that has a specific competitive advantage. Premium pricing strategy can be a good choice for businesses entering a new market and trying to cash in the early days of a product’s life cycle.

In order to justify the premium price, a company must create a perceived value of its product or service. Every aspect needs to support the notion of the premium price, including packaging and marketing efforts in order for the customers to perceive the product as worth its prices.

2. Penetration pricing

In the instance of penetration pricing strategy, a company is looking to establish its presence by entering the market and offering lower prices (sometimes at a steep discount)  than their competitors. The reason why is to attract customers away from the competition, which often results as an initial, albeit calculated income loss.

The point of penetration pricing is to raise brand awareness and brand loyalty in the crowded market and stand out so that in the long run, a company can effectively raise its prices that actually reflect their true market positioning.

3. Price skimming or milking

In the third P of pricing strategies, price skimming acts as a way for a business to leverage their competitive advantage and maximize their sales on new products and services. Contrary to penetration pricing, a company initially sets a higher price, then gradually lowers it as competition begins to catch on and offer similar products or alternatives.

The primary benefit of price skimming is a strategic approach to gain maximum revenue advantage on early adopters until it lowers prices to cater to more price-sensitive groups. It can be highly useful for smaller businesses who can cover the developments cost of their unique product, all the reaping the benefits of perceived exclusivity in the early stages.

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4. Psychological pricing

Psychological pricing strategy is more of a technique that plays on the customer’s emotional perception (thus the name) of the price, down to the small details that can make a difference. It’s a widely used strategy that is one of the favorites by many marketers.

As an ever-present example, a product with a $99 price tag is cheaper that a product of $100. That is clear as a sunny day but in the mind of a buyer, $99 is psychologically “less” than $100, possibly due to the fact it has one less digit (as in our example) or that consumers have a tendency to pay more attention to the first number on a price tag than the last. In essence, you are creating an illusion of enhanced value (cheaper price) for the consumer.

5. Economy pricing

Finally, something that doesn’t start with a p. Economy pricing is often used by large companies, especially in the food market, like Wal-Mart and Target, as it aims to attract a particular segment of the market – the price-sensitive buyers. In this case, companies reduce their marketing and production costs to a bare minimum in order to maintain low prices.

This strategy is not suitable for businesses that lack the large sales volumes which are needed to stay profitable with low prices. Instead, they can opt for discounts tailored to most loyal customers to cement their patronage long-term.

price strategies

The balance of price and quality in pricing strategies (image source: SlideShare)

6. Bundle pricing

Bundle pricing is a great way for small businesses to sell multiple products for a slightly lower rate, convincing buyers that they are getting a bargain as compared to purchasing each item individually. The main point of bundle pricing strategy is that it increases the customer perceived value while also providing an effective way of selling unsold items that are stored for far too long.

The strategy is most effective for businesses that sell complementary products, that actually have something to bundle. It makes the entire shopping process a bit easier by bundling similar items together (although, when was shopping ever anything but easy?). However, it’s very important to remember that the profits earned on the higher-value items must cover the losses you take on the lower-value product. Otherwise, it’s all for naught.

Honorable mentions:

  • Optional pricing – offering optional extras together with the initial product to maximize revenue. For instance, an airline company will offer an optional extra such as a window seat or a printer company will offer extra ink cartridges with it.
  • Product line pricing – different products within the same product line have different price points. An example would be a smartphone company offering different models within the same product line but with different features (bigger, thinner, sturdier, etc) or a same room type in a hotel having different rates due to amenities and facilities.

Conclusion

Choosing a right pricing strategy for your goods can be a rough, often intimidating process without the right facts because so much depends on it. Hopefully, this post explained some of the most used strategies today and their effectiveness. The four P’s (premium, penetration, price skimming, and psychological pricing), along with the economy and bundle pricing each have an approach that suits particular companies. Pricing your product follows the overall strategy of your business. Performing market research and competitor analysis will help you find that pricing sweet spot and cater to the psychology of your customers.

If you found this useful and you’d like to learn how to take your pricing strategy to the next level, we invite you to download our free 20 secrets to designing the best pricing strategy eBook. Click below to take advantage of this opportunity.

I'd like a FREE copy

Spikes & Dips April 2016: State of E-commerce in the US

What is our Spikes & Dips Series?

Intelligence Node’s Spikes & Dips series tracks the retail price change of a basket of products spread across online retailers using our real-time retail analytics software. ‘Spikes & Dips’ covers the top 1000+ leading North American e-commerce retailers and is continuously monitored by proprietary market-monitoring algorithms. Intelligence Node’s algorithm processes approximately 750mn products daily and are taken from real-time, live data. All benchmark indexes are tracked in real-time, however, updates will be published in our monthly State of E-commerce newsletter.

Continue reading “Spikes & Dips April 2016: State of E-commerce in the US”

Spikes & Dips March 2016: State of E-commerce in the US

What is our Spikes & Dips Series?

Intelligence Node’s Spikes & Dips series tracks the retail price change of a basket of products spread across online retailers using our real-time retail analytics software. ‘Spikes & Dips’ covers the top 1000+ leading North American e-commerce retailers and is continuously monitored by proprietary market-monitoring algorithms. Intelligence Node’s algorithm processes approximately 750mn products daily and are taken from real-time, live data. All benchmark indexes are tracked in real-time, however, updates will be published in our monthly State of E-commerce newsletter.

Continue reading “Spikes & Dips March 2016: State of E-commerce in the US”

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Given that retail is India’s largest service sector, the future of this vital industry really matters. But how are we to work out what the best ways forward are? Should we listen to the pronouncements of entrepreneurs or designers, or the predictions of analysts or commentators?

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List price, the sales fatigued shopper and misleading deals

Before we dive into the subject, let’s establish what ‘list price’ is just so we are on the same page. In very simple terms, list price or manufacturer’s suggested retail price (MSRP) is the full price for which a business entity is willing to sell its products, without applying any discounts or special offers. While the manufacturing and distribution costs are taken into account for arriving at the list price for consumer goods, it’s the demand vs supply dynamics and level of competition which dictate how much profit margin can be applied.

Continue reading “List price, the sales fatigued shopper and misleading deals”

Spikes & Dips February 2016: State of E-commerce in the US

What is our Spikes & Dips Series?

Intelligence Node’s Spikes & Dips series tracks the retail price change of a basket of products spread across online retailers using our real-time retail analytics software.

‘Spikes & Dips’ covers the top 1000+ leading e-commerce retailers and is continuously monitored by proprietary market-monitoring algorithms. Intelligence Node’s algorithm processes approximately 750mn products daily and are taken from real-time, live data. All benchmark indexes are tracked in real-time, however, updates will be published in our monthly State of E-commerce newsletter. The goahttp://demo.firm.in/inode/wp-admin/post.php?post=152&action=edit#l of our Spikes and Dips series is to put online retail price movements in the context of macroeconomic factors thus enabling retailers to understand how these macroeconomic factors influence their day-to-day retail pricing strategies. Continue reading “Spikes & Dips February 2016: State of E-commerce in the US”

Analytics Is A Retailer Must-Have – But Only The Right Analytics

Cat’s out of the bag, analytics is steadily rising on top of every other retailer’s list of priorities, but are they going to maximize their opportunity here – or waste it?

 

Continue reading “Analytics Is A Retailer Must-Have – But Only The Right Analytics”

Spikes & Dips January 2016: State of E-commerce in the US

What is our Spikes & Dips Series?

Intelligence Node’s Spikes & Dips series tracks the retail price change of a basket of products spread across online retailers using our real-time retail analytics software.

‘Spikes & Dips’ covers the top 1000+ leading e-commerce retailers and is continuously monitored by proprietary market-monitoring algorithms. Intelligence Node’s algorithm processes approximately 750mn products daily and are taken from real-time, live data. All benchmark indexes are tracked in real-time, however, updates will be published in our monthly State of E-commerce newsletter. The goal of our Spikes and Dips series is to put online retail price movements in the context of macroeconomic factors thus enabling retailers to understand how these macroeconomic factors influence their day-to-day retail pricing strategies

Continue reading “Spikes & Dips January 2016: State of E-commerce in the US”