The Pricing Strategy Checklist: 5 Questions to Answer Before Launching Your New Collection
By Yi Jun
In today’s saturated retail market, it’s crucial to constantly update your assortment with new products. Regularly optimising your assortment attracts new customers, improves conversion rates and retains old ones, as it creates an exciting shopping experience for all types of visitors. Naturally, you too would want to launch your latest collections as soon as you can. However, participation in the market does not equate competitiveness and it is rudimental that each aspect of the entire process is executed well – especially when structuring pricing strategies in a price-sensitive segment.
Because of the landscape’s ever-changing nature, prices can significantly fluctuate according to market demand. Some hike up prices on specific products to garner a higher profit, not realising that it isn’t an in-demand product in the first place. On the other hand, some miss profitable opportunities by setting low margins on trending products. On the discounting side, most set high markdowns in a bid to beat their competitors, leading to short-term hikes in sales with long-term repercussions on brand image.
It’s important for you to price new products right to maintain competitiveness. How? Here are the 5 necessary questions to answer before launching your next release.
- What are the customers in my market buying?
- Am I releasing the right products at the right price?
- What are the price differences between subcategories?
- How are my competitors pricing their products?
- What’s the best discounting percentage?
#1 What are the consumers in my market buying?
Back when high fashion was still the king of the industry, what was offered in the market was mostly dictated by corporations. This all changed when fast fashion arrived, along with the widespread adoption of social media. The retail industry today is highly consumer-driven, which is why it’s essential that you first answer this question.
One way to find out what consumers in your target market are buying is to look for high sellout rates of new products at full price. Consumers’ willingness to pay the full amount for a particular item signifies a strong demand. Here, we use fast fashion retailers Topshop, Zara and H&M in Omnilytics’ Pricing Analysis tool as benchmarks.
The sellout performance table of H&M, Topshop and Zara by category
From the table above, you can immediately gauge the performance of new-ins for all three fast fashion retailers. Tops emerged as the lead category contributor with the best sell out rate. To drill down even further and determine exactly what your consumers are looking for, get a visual overview of the bestselling categories.
A visual overview of the bestselling Tops category from H&M, Topshop and Zara
With a clear understanding of what your consumers are looking for, you can now stock up on the right products. This leads us to question #2, where you will delve into product pricing.
#2 Am I releasing the right products at the right price?
With the right products at hand, the second question to consider is, “do I have the right price?” In other words, are your products priced accordingly to market expectations?
Aligning with market expectations maximises your margins. If you price significantly higher than the market rate, there is a high chance you will drive your consumers to your competitors instead. Price too low, on the other hand, and you lose out on a higher profit. The idea is to find the sweet spot that keeps you and your customer happy. Cross-analysing price spread with sellout performances of the same category at discounted price gives you an understanding of what your consumers are willing to spend on when the prices are reduced. In other words, you can easily identify if the category is under or overpriced.
An overview of the sellout performance by 6 categories at first-time discounts
Amongst all of the categories shown above, new-in Dresses that were discounted for the first time saw a high sellout rate at reduced prices, while new-in Outerwear had the highest sellout rate at full price.
Price summary by category, showing the median price range along with its price spread
Taking a look at the price summary across the three fast fashion retailers, you can compare and identify where to adjust the prices for each category. While both Dresses and Outerwear had similar pricing, the sellout rate indicates that consumers were willing to spend more on outerwear than the former category, opting to go for discounted dresses. This implies that the price band might be too high for the Dresses category.
Adjust your prices accordingly and set the right price band for your consumers in every category. Yes, including subcategories, which leads us to the next question.
#3 What are the price differences between subcategories?
Understanding the price bandwidth for categories isn’t enough. In the fast fashion industry, having many variations is recommended to provide consumers with ample choices and ultimately, more variations equal more subcategories.
Each subcategory may have a different optimal price band and to figure this out, you can delve into your market’s price breakdown. From there, you can cross-check with the sellout rates to identify if you need to alter the prices for your collection.
A price breakdown by the outerwear subcategories, Jumpers and Jackets & Vests
Using Outerwear with the same filters, as an example, shows you the slight but important price differences between the 2 subcategories; Jumpers and Jackets & Vests. Jumpers were priced lower with most of the SKUs falling within the USD 0-25 range. Jackets & Vests, on the other hand, were more evenly distributed with a more equal amount of SKUs placed between USD0-25, USD25-50 and USD50-75.
Sellout performances of the subcategories Jumpers and Jackets &Vestss
From the table above, while it looks like both subcategories are doing well, there is actually an opportunity for all three fast fashion retailers to tap on. 85.1% from the total of 73.5% jackets and vests were sold out at full price, which means there is a demand for this particular type of outerwear. This means that Topshop, Zara and H&M could potentially capture a higher margin with higher prices. Studying the pricing strategy of your subcategory will also lead you to discover the market’s bestsellers, allowing you to adopt only the top performing ones into your assortment. In this case, Jackets & Vests were the better selling ones, since only 26.5% of the total were sold out. Through this, you can easily identify if the pricing of a particular product from a subcategory requires adjustment.
You’ve now gained an idea of how to price through a data aggregation of your market, but identifying competitors and how they conduct product pricing is just as important.
#4 How are my competitors pricing their products?
The key difference between your market and your competitors is in its overview. Analysing your market’s pricing strategies in aggregation gives you a high-level view, where you can get accumulative market insights. Competitors Benchmarking, on the other hand, offer an in-depth view, as you can specify how your closest competition price. Both aspects are important to take into consideration, as both overviews complete the picture.
Price breakdown by Topshop and Zara
In this pricing strategy example, comparing between Topshop and Zara helps you to gauge the pricing range adopted. Topshop leaned towards the pricier side, even though both retailers priced most of their products within the range of USD25-50.
Sellout performance table by Topshop and Zara in full price and discounted price
While both retailers had almost equal amounts of total sellout, Topshop saw a higher sellout at full price, while Zara had a higher sellout at a discounted rate. Even though Topshop had a higher price band for its products, it seems consumers were more ready to pay at full price either way.
Through this analysis, you’ll know where you stand in the market and better structure a competitive pricing strategy. In this case, you can construct an entry price near Topshop’s for an opportunity to achieve higher returns.
With a clear understanding on pricing, the final question delves into discounting.
#5 What’s the best discounting percentage?
Discounting is an unavoidable clearance strategy for the fast fashion segment, as it is helpful to eliminate deadstocks, especially if you have a large assortment size. Price reduction attracts more traffic to your business too, with a potential to convert them into loyal customers. The key to the right discounting strategy is to find a balance between supply and demand. The best way to discover the best discounting percentage is to study how the market is doing it.
A discount overview by category for H&M, Topshop and Zara
Naturally, it is always best to clear stocks at its full price. However, if you need to discount, the general rule of thumb is to always start at a lower discount rate. In this case, the average discounts for H&M, Topshop and Zara start from 20-30%, with the optimum discount rate being 40-50%.
An in-depth view of the price history of an SKU and its stock status
To get an in-depth view, you can also view when the markdowns happened and its stock status to get a clearer picture of how the sales fared.
Always Play the Pricing Game Right
Prices are a make-or-break factor for consumers and it’s essential that you know how to play the pricing game right. While it’s easy to do the usual multiplication that gives you half (or more) of the margin, you need a broader spectrum in order to thrive in a demanding market. In this case, it’s the power to gain an overview of the pricing methods within your market at a glance. By aligning yourself to the market and incorporating the best product mix pricing strategy in real-time, your new collection will draw in more traffic – ensuring more sales and higher margins.
Complete the checklist above before launching any collection and you’ll always price and discount right, every single time.
#1 Identify and adopt the market’s bestselling assortment in to meet consumer demand.
#2 Price your products accordingly to market expectations.
#3 Adjust the pricing of subcategories by market demand to fully maximise opportunities.
#4 Study your close competitors’ price bandwidth to fill pricing gaps.
#5 Start with low discount rates first, before going into the optimal range.
The data above were obtained from Omnilytics, real-time retail data platform. The numbers and statistics may vary, as the platform is updated everyday. The time period of the information taken were between 1st April 2018 to 30th September 2018.
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