The holiday season is a crucial time for retailers. People often spend more money during this time of year, which is a great opportunity for businesses to capitalize on the increased spending.
However, as per a recent study, 91% of shoppers say inflation will impact their purchase behavior this holiday season. And factors like rising interest rates and gas prices are forcing shoppers to reduce their shopping budgets.
An additional study from McKinsey indicates that 74% of consumers are “trading down” by switching stores for lower prices, adjusting their quantities, postponing purchases, or using buy now pay later programs.
Getting the prices right is now more critical than ever.
But how do you know what the right price is? And how can you be sure you’re getting the most out of your holiday sales strategy? Let ‘s dive deeper.
How to Create Your Holiday Pricing Strategy?
Here are three ways to evaluate and optimize your pricing strategy for the highest revenue potential during the holiday season.
1. Don’t Rely on the Past
In CPG, too often decisions are made by looking in the rearview mirror.
This holiday season will be very different.
In the past, shoppers would head to stores with a specific list of items for their holiday meals and gatherings.
With increased pricing sensitivity, shoppers are now less brand loyal, which has created opportunities for lower cost and private label brands.
In some cases, shoppers are even purchasing from totally different categories for their meals.
Understanding the real elasticity of your products during this time is critical in defining what actions can and should be taken for a successful season.
2. Identifying Opportunities for Optimization
With accurate, current elasticity data, CPG manufacturers can identify opportunities to optimize prices to reach their maximum and volume goals. It is worth noting that there are two main types of price optimization: dynamic pricing and static pricing.
Dynamic pricing is a pricing strategy that involves changing prices based on customer demand. Static pricing is about setting a fixed price for a product or service. While static pricing worked well in the past, inflation has created a need for companies to become more dynamic to achieve their goals.
How can you become more dynamic?
- Harmonize your historical syndicated, consumption, and shipment data.
- Implement High-Definition Predictive Elasticities
- Use machine learning (ML) algorithms to predict future trends in your product category.
- Test different pricing strategies on a small scale (using A/B testing) and see what works best for you.
Additionally, you can use Wise Athena to:
- Find the most optimal pricing per SKU or region.
- Predict demands during the holiday season.
- Understand how the competition will affect the prices.
- Understand the cross effects of pricing changes on your own products
3. Implementing Changes to Maximize Revenue
Now that you have identified the best prices for each item, it’s time to make the changes to maximize your sales and revenue.
Each retailer and each product have their own elasticities. Understanding those can allow you to find the right timing to implement changes and maximize revenue.
The holiday season presents an opportunity for volume lift via promotional activity.
If your products have higher elasticity, the right trade spend can really pay off.
If your products have low elasticity, it can be the perfect time to increase prices to protect your margins.
This year retailers are focusing on the holidays earlier than usually, so having your strategy in place early with your retail partners is critical.
Again, Wise Athena can help you implement the prices and maximize revenue. Specifically, it allows you to optimize your timing and promotions, analyze prices by retailers and regions, and determine profitability along with predictive demand.
You can also predict the impact of competitor’s actions and/or reactions to your strategy.
Related: Build an Even Stronger RGM Team through AI/ML
This holiday season is unique. Long held holiday dining traditions may be altered. Being aware and agile can allow CPG companies to meet shoppers where they are and find success.
One of the easiest ways to do so is by leveraging WiseAthena’s AI-powered machine learning platform that helps CPGs make agile pricing decisions based on various factors. The platform takes the guesswork out of your pricing strategy and provides data-backed insights!