Emerging trends in retail pricing practice: implications for research

Abstract

This article represents the first of several editorials to appear in the Journal of Retailing designed to examine the nexus between retail practice and research, with the goal of stimulating further research. This essay on emerging trends in pricing discusses recent advances in retail pricing optimization. We begin with a review of how retailers typically make pricing decisions using time-honored heuristics and attempt to infer the optimal decisions. However, current methods are sub-optimal because they do not consider the effects of advertising, competition, substitute products, or complementary products on sales. Most fail to take into account how price elasticity changes over time, particularly for fashion merchandise, or how market segments react differentially to price changes. In addition, many retailers find it difficult to know how to price merchandise when their suppliers offer temporary 'deals'. They are also generally unaware of how their pricing strategy influences their overall image. As these issues demonstrate, optimal pricing is not a static problem. Retailers must be able to react quickly to changes in the environment or sales patterns. This paper also provides examples of the more sophisticated pricing techniques that are currently being tested in practice. Finally, we conclude with a discussion of the critical components that must be incorporated into retail pricing.

The Role of Big Data and Predictive Analytics in Retailing

“…We discuss a field experiment next that describes an application of randomization and model-based inference in retailing. Figure 5, reproduced from Levy et al (2004), depicts a flowchart that the case follows to enable a customer-based predictive analytics and optimization system for pricing decisions. This figure lays out the steps involved in applying big data to achieve retail objectives, identifies the sources of data-in this case, store level panel data combined with pricing data from competing stores, the importance of a theory driven approach in terms of determining the demand function and incorporating the psychological aspects of pricing, strategic role of competition, and the objective to be maximized-in this case, the overall store profitability.…”

Unfairness in consumer services: Outcomes of differential treatment of new and existing clients

“…Nowadays, not only are price discrimination and dynamic pricing (Kopalle et al, 2009) becoming common retail pricing strategies (Levy et al, 2004), but also increasingly informed and connected consumers are becoming more aware of prices offered to other customers (Cox, 2001;Feinberg et al, 2002;Garbarino and Lee, 2003;Nguyen and Klaus, 2013). This is especially true with regard to services, where word of mouth tends to be more prevalent (Nguyen and Simkin, 2013) and customers regularly interact with other customers and are able to observe superior value propositions being awarded (Lacey and Sneath, 2006).…”

“…through differential pricing) when comparing offers made to their friends, family or colleagues (Nguyen and Klaus, 2013). With the development of IT, the implementation of favouritism and discriminatory practices by firms has increased (Kivetz and Simonson, 2002), becoming a common tactic (Levy et al, 2004).…”

On the validity of price knowledge measurements via self-assessment scales: Two studies in retailing

“…In fact, this was not the case. 9 Most research in this fi eld does not affect marketing practice. We can only speculate on the reasons for this result, but we surmise that it is at least partly because of the checkered quality of actual price knowledge literature, which suffers from problems and shortcomings, as follows.…”