Implementing dynamic pricing in brick & mortar stores to enhance profitability and market share for a leading specialty retailer.

SITUATION

A Fortune 500 specialty retailer aimed to expand market share and profitability by introducing dynamic pricing in its nationwide brick-and-mortar (B&M) stores.

While adaptive pricing was successfully implemented online, the B&M channel, which accounted for 90% of sales, faced challenges and resistance.

The specialty retailer sought to leverage dynamic pricing to bolster its market share and profitability across its extensive network of brick-and-mortar stores.

Despite successfully implementing adaptive pricing in their e-commerce channel, transitioning this capability to physical stores proved difficult. This was particularly concerning as 90% of their sales were generated through B&M channels.

ACTION

We engaged with category executives, developed competitive price elasticity models, and created a Dynamic Price Optimization Matrix.

We launched a pilot program to assess the impact before a full-scale rollout.

To address these obstacles, we first engaged with category executives to understand their goals. We also invested in robust competitor price-scraping capabilities.

This allowed us to develop Competitive Price Index Elasticity models, providing insights into their products' sensitivity to competitor price changes.

Next, we segmented products into Key Anchor Items, Value Perception Items, Assortment-Perception Items, and Complementary Products. This segmentation enabled a more nuanced approach to dynamic pricing, tailored to each product's specific role in the assortment.

OBSTACLES

The company faced skepticism towards dynamic pricing in physical stores and needed an automated solution for a broad range of products.

The labor-intensive and costly process of changing price tags added to the complexity.

The initial reception of dynamic pricing in the e-commerce channel was positive, but the B&M channel met with considerable skepticism.

Stakeholders were hesitant to embrace adaptive pricing for physical stores, fearing potential customer backlash and the logistical challenges involved.

RESULTS

The dynamic pricing solution increased Gross Margin by 30 basis points in tested categories, was cost-effective, and facilitated full adoption by key stakeholders.

The dynamic pricing solution delivered significant results. A 30 basis point increase in Gross Margin was observed in 25 product categories through an A/B test. This improvement demonstrated the efficacy of the dynamic pricing strategy in enhancing profitability.

We successfully delivered the automated, dynamic pricing capability at just 25% of the cost and 50% of the time compared to solutions from large blue-chip consulting firms. This cost efficiency underscored the value of our tailored approach to dynamic pricing.