Price Sensitivity
One of the most common problems within the retail sector is pricing a product—not only initial pricing, but more importantly making the proper pricing decisions on an ongoing basis. Proper management of markdowns alone can contribute millions to a retailer’s bottom line. There are numerous similar products sitting on the shelves that are at different life stages and have complex interrelationships with other products and customers. Providing an optimal price of a SKU in order to extract maximum customer response is a challenge in itself. Virtually every retailer is running sales every week.
Usually each merchant looks at his or her business and decides what will be on sale. Yet the merchants typically do not know what customers will buy at full price and which will only buy on sale. If you could analyze the price sensitivity of each customer, you would find opportunities to significantly reduce your markdowns. Our Ergenomics Price Index is a unique method for modeling merchandise, customers and prices to help you index your customers’ price sensitivity. Some customers are so- called “cherry pickers” and will only buy an item when it is on sale. At the opposite end of the spectrum are non-price sensitive customers, who will just buy something because they want it or need it and do not care about the price. Imagine the benefit of understanding price sensitivity at the individual customer level. What a powerful tool to use to reduce markdowns and to beat your competitors at the price game.
We calculate the price elasticity for products and accessories that have extremely high or extremely low elasticity along with reasonable business impact (sales volume, margins, or life stage). These accessories are picked for analysis. By using gross margins, we can come up with the best price change for such accessories.
Likewise, a basic market basket analysis can help find products that customers like to buy together. However, bundling needs to be evaluated for elasticity as well as likelihood of success before taking it to the customer. In order to increase the sale of some of the underperforming accessories, such accessories can be strategically bundled with highly elastic products. Similarly, a company will want to know the primary and secondary driver relationship qualities of each product (i.e., which product is the one that really makes people come to the stores). The gross margin of the bundle can be used for driving the price of the bundle.
Several things differentiate Ergenomics. Our commitment to an enterprise (not business or product-line) perspective is paramount in truly gaining intelligence that drives the entire company forwards—not just a certain product. Given this, our recommendations and results will provide a true and absolute baseline for executive leadership to compare numbers across the entire company (apples-to-apples, if you will).
Our staff may be one of the most experienced you will see—PhD economists and C-level business executives with top-rate support personnel to tailor a specific solution based on years of industry experience. And finally, we produce deliverables that will stand the test of time relative to their existence; not something that will be outdated after the initial run or implementation. Ergenomics will provide the client with true go-forward business intelligence.