While eroding prices of technical consumer goods may excite the increasingly savvy and deal seeking Connected Consumer, they can be a big problem for product manufacturers and their retailers.
Lower prices mean lower margins, and in today’s evolving omnichannel environment, it’s important to understand which promotions with which retailers bring back the highest ROI, as well as the impact retail promotions have on sales and margin.
For example, in the durable goods market, a 10% cut in price could mean a 25 – 30% loss in margin for the retailer. This is a big challenge if manufacturers have hundreds or even thousands of units in stores and distribution centers.
Often a price drop starts with a single retailer, which can be due to a consumer price promise, pricing policies, or pressure from their competitors. It’s important for the manufacturer to be able to spot price erosion early and act quickly before the price becomes set at that level.
Does offline pricing on promotions drive down online pricing?
It is easy to assume that online retail activity is responsible for driving pricing down since online sales continue to draw consumers away from traditional brick and mortar stores, and there are countless examples everyday of where this is happening, but is this the full story?
In the below example which shows price erosion after the launch of a new TV set, we see that indeed an online retailer initiates the first drop (green circle), however, this is not the complete picture. Looking at the development of online and offline retailers, a far bigger impact on price was a promotion flyer published by an offline retailer.
To get a complete picture of the market and how to react, brands and retailers benefit from being able to see both offline and online pricing so that they react to the correct market activity.