Strategic price changes: Turn adjustments into profit with data-driven decisions

There is no escaping the reality of price changes in the retail industry. But they don’t have to be a sign of failure if you have control of planning. In fact, price changes can be turned into an opportunity to maximize profits through the lifecycle of a product. In this blog we’ll explore how merchandise financial planning (MFP) can make this possible.

As a retailer currently being hit from all sides by supply, economic and geo-political issues, you need to do more to survive in an environment that has always been challenging. You need to understand consumer demand better to adjust prices strategically and realize your profit potential.

When you can’t anticipate consumer demand fluctuations it can lead to stockouts, excess inventory, or missed sales opportunities, impacting both revenue and customer satisfaction.

This is particularly challenging because the variables you encounter are shifting faster than ever, making it increasingly difficult to plan inventory. Let’s look at the variables that you must now take into account when planning inventory and pricing.

• Rising inflation makes consumers reassess their purchasing decisions while also affecting supply chain costs, further complicating pricing decisions, and potentially squeezing profit margins.
• Unforeseen shifts in consumer preferences, seasonal trends, and economic conditions contribute to unpredictable demand patterns.
• A skills shortage has created gaps in areas such as customer service, digital commerce, and data analytics.
• The rise of e-commerce, social media influence, personalized experiences, and sustainability concerns mean you must continually adapt your product offerings, marketing strategies, and customer experiences to remain competitive.

To tackle these pressures, you must understand demand patterns and build your plans about how you go to market around these fluctuations.

Data is the key

Understanding demand allows you to line up multiple functions including workforce planning, promotions, sales and marketing, and financial planning, so you can maintain the profitability of your products.

For this, you need visibility among all stakeholders, not just on the supply and merchandising side but across other functions such as finance and HR. The greater visibility there is amongst all stakeholders, the faster you can act.

By gaining control of relevant data sources, such as sales data, inventory levels, customer behavior, and market trends, you can analyze patterns and trends to anticipate changes in demand and adjust pricing strategies accordingly.

To achieve this, you must invest in core capabilities that enable you to manage information effectively, conduct statistical modeling, and engage in scenario planning.

Let’s examine these four capabilities in more detail.

1. Management of information across disparate legacy systems

Information scattered across legacy systems for inventory, sales, customer data, and supply chain operations, creates a barrier to effective planning. By consolidating data sources you can gain a comprehensive view of operations, enabling better forecasting, inventory management, and pricing strategies.

2. Statistical modelling and analysis

By leveraging advanced analytics techniques, you can identify patterns, correlations, and trends within data to inform strategic decision-making. Statistical modeling allows you to forecast demand more accurately, optimize pricing strategies, and identify opportunities for cost savings and revenue growth.

3. Scenario planning

Creating hypothetical scenarios based on different market conditions, consumer trends, and external factors allows you to model potential impact of each scenario on business performance. From here, you can develop contingency plans, assess risk exposure, and make proactive decisions to mitigate potential disruptions. This becomes particularly critical when historical data becomes less reliable due to significant market shifts or unforeseen events.

4. Accessible systems

Missed revenue and profit opportunities arise when the planning cycle takes up too much time. To be successful, end users must be able to access data and be able to pivot as fast as possible. Systems must allow users to make timely updates to pricing, inventory levels, promotions, and other critical aspects of retail operations.

Data-driven forecasting: The business outcomes

A data-driven analysis of future trends and a platform that facilitates strategic decision-making gives you the predictability and visibility that allow you to turn pricing strategies into profit-makers. Here are three ways your business will benefit.

The ability to turn stock faster

Data-driven pricing strategies help you understand customer demand patterns, preferences, and buying behaviors more accurately and adjust prices dynamically to match demand levels. This proactive approach ensures that products are priced competitively, leading to increased sales velocity and faster turnover of inventory. You can minimize excess inventory and avoid stockouts, leading to improved inventory management and cash flow.

A reduction in stock-outs

By identifying patterns and trends in customer behavior, you can anticipate when certain products are likely to run out of stock and take pre-emptive measures to replenish inventory or adjust pricing to stimulate demand. This proactive approach helps you minimize the risk of stockouts, improve customer satisfaction, and maximize sales opportunities.

Improved gross margins

Data-driven pricing strategies enable you to optimize pricing decisions based on factors such as product profitability, competitive landscape, and customer willingness to pay. By analyzing data on product costs, sales volumes, and market conditions, you can identify pricing opportunities that maximize gross margins without sacrificing sales volume.

The right tools for the job

To achieve successful demand forecasting, you need a platform that allows for agile action, quick recalibration, and the incorporation of various scenarios. Anaplan's Merchandise Financial Planning (MFP) solution empowers you to integrate data from across your business, enabling informed decision-making and maximizing profit potential.

Strategic pricing adjustments, based on comprehensive data analysis and scenario planning, allow you to navigate uncertainty and steer your businesses ahead of the curve.

Learn how to adjust your merchandising strategy to grow profits with Merchandise Financial Planning from Anaplan.