In years past, many merchandising decisions regarding assortment, promotions, and sometimes even pricing were made based on little more than the gut feelings of store managers and category managers. But the environment today has become far too complex to rely on hunches. Merchandising excellence depends on fact-based decision logic, which in turn requires data and analytics in areas such as consumer buying behavior, promotional pricing, and competitive responses.
In regard to pricing, key questions include the following: Should I adjust pricing on products with low or negative margins? Can I adjust the prices of products to steer customers toward a more profitable margin mix? And how much can I change product prices before eliciting a competitive response?
For example, the margins might be higher on a store’s private-label product than on the premium brand. With this in mind, a grocery retailer could decide to increase the price gap slightly, lowering the price of the private label and increasing the price of the premium brand. The idea is to entice more customers to shift from the name brand to the private label. The customer spends less money on the product, but the store benefits from the higher margins on those sales. Done right, this can improve total gross margins.