Price doesn't count for everything in retail

ORLANDO, FL — What customers are willing to pay for a product depends on several factors, since they have different expectations depending on the distribution channels, retailers and categories.

During the IMRA breakout session "Pricing as a Strategic Profit Development Strategy," Bob Gordman, president, strategic business planning, Meridian, stressed that "pricing does not solve all of the issues to drive the business." Instead, the most successful pricing strategy is retailer-specific, customer-driven and only one element of the merchandising strategy.

"Having what the customer wants is more important than price," he said.

Common price policy drivers include the need for short-term profits, the competition's prices, product costs, logistical costs and habits, he said.

Gordman also said that retailers cling to several myths about consumer behavior, including consumers' knowledge about individual product prices; price being the most important driver of shopping behavior; and that the success of an ad is related to the aggressiveness of the pricing. Instead, Gordman said, the consumer wants customer service and fair pricing, as well as the selection of product, which "we see regardless of the channel."

The consumer also holds different expectations of distinct distribution channels. For example, the consumer is willing to pay more at Nordstrom vs. May Co. because there is a greater expectation that something will be on sale at May. This also is true of merchandise categories, such as jeans, for example, which are more price-driven than tops.

Income levels are also a factor. And as income levels rise, so do the customer's demands of selections while price becomes less important.

Pricing is also only one element in an ad's success, he said, adding that "retailers remember ads — consumers don't." In fact, the average value of a broadcast ad is a maximum of four days, and an ad has only three seconds to capture the customer's attention.

"If you want to gain market share, you can't change the customer but you can change the price," Gordman said.

Tim Manning, vp of marketing, KhiMetrics, added that 70 percent of purchasing decisions are made at the shelf. "Retailing is anything but predictable."