Retail Surgery: Will repositioning our pricing help increase sales?

Assessing and changing price positioning is not an exercise to be taken lightly. It’s critical to first identify the underlying reasons for poor sales and decide whether an overall repositioning exercise is warranted.

AlixPartners vice-president Amit Vedhara, who is a pricing specialist, warns: “When retailers undertake a price repositioning in response to competitive pressures, in addition to potential gains, they face a real risk of damaging consumers’ value perceptions and suffering a profit hit in the short term.”

If a retailer does discover that their prices are too high versus comparable competition, they may want to recalibrate their prices to a lower level, but should also think about pulling back on promotions to limit the immediate impact on profits. Vedhara says it’s crucial to consider the net realised price: “We would ask a retailer what prices they are actually selling at once promotional impacts are taken into account, and what effect is this having on the perception consumers have of the value of their products.

“Price setting and architecture drives overall price positioning, and helps retailers determine what they stand for, why they are relevant to consumers and why relative prices within the architecture are justified.”

He concludes that retailers must also consider that sometimes prices should actually go up, as well as down, citing one real-life example: “The management team were able to establish a viable premium positioning through a programme of selective re-ranging, establishing higher price points progressively, and avoiding the risks of price increases on ongoing items damaging value perception.”