News

Tuesday, 11. August 2009

The results of a poll carried out by Dacos on what features have impact on the companies` pricing demonstrate that es-pecially supraregional competitors exert influence on the re-tailers´ pricing.

Saarbruecken, August,10 2009. Competitors are permanently under observation! That is the result a poll carried out by the software company Dacos in July among customers and prospects of its analyzing and simulation systems led to. The different components of the Retail Simulation Engine developed by Dacos support retailers in optimizing their assortments, prices and promotions and in addressing its customers more individually. Approximately 20 companies mostly belonging to the food industry with in the majority of cases an annual turnover oscillating between two and five billion Euro participated in the poll.

The survey which does not have any representative character depicts a distinct tendency in the food industry: With regard to pricing retailers gear primarily to their competitors. Especially subsidiaries belonging to companies with a great number of price zones enjoy a vast liberty in their own pricing. Changes in shelf prices will be effectuated especially if an event from outside gives the respective necessity. The ambition to achieve a good gross profit margin seems to take

Orientation on competitors

The polled retailers declared price comparisons with national competitors to be the most important parameter for their pricing directly followed by price comparisons with regional competitors. While intensively observing their competitors as far as pricing is concerned, retailers nevertheless consider discounters to be of primary significance with regard to fixing prices for articles belonging to the lowest price zone. Due to the actually rather low inflation rate the full-line provider does not have to compete against Aldi or Lidl at the moment. As a consequence low prices do currently not prove to be a guarantor of higher customer frequency or of enhanced sales volume. Up to now the crisis seems not to have reached the consumer with a strength that would induce a change in their purchase habits with regard to foodstuff.

After all, one quarter of the participants is adjusting its pricing to margin targets whereas the poll results show an inferior importance for requirements set by the manufacturing industry.

Shelf prices are event-oriented

Usually, the shelf prices of the compulsory assortment are changed event-oriented. As a result changes effectuated by competitors, on the cost price or in the course of new listings will finally have an impact on the label in the shelf. This procedure again depicts the significant influence competitors exert on the whole process of pricing. All respondents declared to change their shelf prices in compliance with competitors. Only few resort to price revisions according to a predefined time scheduling.

Subsidiaries with room to maneuver

A remarkable result of the Dacos poll consists in seeing how strongly subsidiaries depend on the company´s price policy with regard to pricing: The less price zones a retailer offers, the more restrictive is the price policy exercised in these markets. Subsidiaries with a wide range of price zones enjoy more room to maneuver with regard to fixing their prices. If the competitors change their prices, mostly the subsidiaries are allowed great latitude to adjust their prices on an autonomous basis. The polled companies show a medium number of two to ten price zones.

Employees provide better information

It is the employee who is considered to be the most valuable source of information with regard to pricing and price optimization and who is able to provide the corporate management with reliable information on changes effectuated by competitors. Only one third of the participants declare to have trust in the strongly promotion-oriented price information services. Trade panel data seems to lack specification thus being rather of inferior importance. 

Psychology as a key element to address the consumer

With only one exception all respondents declared to respect market-psychological aspects such as price thresholds and mathematical estimations of elasticities with regard to their pricing. As a result a consumer still estimates the muesli with a price of 2.99 Euro to be much cheaper than the package with a price of 3 Euro – even if this effect is still lacking scientifical proof.

The findings resulting from the poll provide us with three surprises: Companies are permanently observing price changes effectuated by their competitors. The employee is considered to be a competent informant. And last but not least a vast number of price zones is necessary to allow subsidiaries great room to maneuver. Prof. Dr. Joachim Hertel, CEO with Dacos Software GmbH, declares: „This result shows that retailers and their subsidiaries are not yet exhausting their potential of retaining and winning customers. Apparently none of the respondents is analyzing their customer´s purchasing behavior with the aim of improving their sales volume and their margin within the different subsidiaries, and this completely individually and without taking into account the actions taken by their competitors.“