Monday 19 November 2018 10:25 am

Thank God it's Black Friday – why retailers need price transparency to make a success of the festive season

During the early days of what quickly became known as the “retail apocalypse” back in 2010, a commentator or retailer would come out in the press and say that all the doom and gloom was overstated. The sector, they’d argue, was merely riding out a bumpy stretch of road, and would undoubtedly emerge on the other side, unscathed.

That was overly optimistic. What we now know for certain is that the sector is in a state of major transition, driven by technological developments, political upheaval, and changing consumer behaviour. Customers increasingly prefer to shop for bargains online rather than visit physical stores.

It became clear that it wasn’t enough in such circumstances for retailers simply to wait for the situation to improve. And the collapse of Toys ‘R’ Us into administration this year showed that even established “legacy” brands were not immune to change, and needed to invest in people, in technology and in digital transformation across the board.

The consensus among retailers was that modern business models needed to be flexible and adaptable, and that modern practices needed to be driven by technology.

In a challenging landscape, the most significant times and events in the retail calendar take on special importance. We are rapidly approaching the most crucial time of the year for retailers, a period when prices are at their most competitive.

This week we have Black Friday, followed by Cyber Monday, and then the long run-up to Christmas – all one after the other. A deep understanding of the surrounding environment can determine whether this quarter – and, ultimately, the year in its entirety – is a success or failure.

For those companies that successfully navigate the turbulent waters of autumn and winter, the potential profits are significant. But for those swept away and dashed against the rocks, the losses can be too much to bear. However, knowing where it is that you sit among your competitors – that is, to know your price point – is no easy task. Indeed, it is a notoriously difficult problem: retailers, large and small, online or on the high street, struggle with it. They’re hamstrung by technical limitations, and end up painting a picture with brush strokes so broad that they find it almost impossible to turn insight into action.

Nonetheless, knowing your price point is vital. Profit margins are slim in the world of retail, and all retailers must search continually for ways to improve their bottom lines. Also, they are vulnerable from exposure to overseas markets, which means that even modest currency fluctuations can make a sizeable dent in their profits: we have to look no further back than to the summer of 2016 and the referendum on EU membership, to see this in practice.

Precise and prudent bookkeeping, as well as sound financial management, is fundamental to a retailer’s success. But cash must still flow in for a company to function, let alone flourish.

And knowledge is power. The more a retailer knows, the better it performs. When a retailer knows how their prices compare to other offers in the market, for instance, then their interactions with their suppliers instantly become more productive: they now know what they have to do to win.

And more importantly, the money made by the retailer who optimises their offer, while still providing the best value to the customer, can be reinvested, creating further incentives for their customers to shop there again. The retailer might put more money into marketing, or lower the prices of their other products.

But price transparency is not simply a race to the bottom, as some will claim; it is, rather, a race to an equilibrium. Price transparency forces all retailers to adjust and find the price that is reasonable to them and to the consumer. It isn’t about crushing rivals, but about effective management. Price transparency, in a stroke, creates a highly efficient retail marketplace.

Tools that create price transparency, such as online price comparison websites, are therefore inherently democratic. They help retailers of all sizes improve their bottom lines, and provide value to their customers.

Retailers that have set their prices correctly can then focus once again on quality and customer service, rather than the size of their budget for marketing and search engine optimisation. But retailers that fail to create a coherent pricing strategy hurt their business, penalise the customer and weaken their brand. They start to upset the equilibrium, and nobody wins.

For the retail sector to function as efficiently as possible, pricing transparency is essential. Indeed, it can be the great leveller in a sector that has come to be seen as wholly unstable and unfair. And the technology is here; all that remains is for companies to exploit it, and adopt a reasonable and coherent pricing strategy.

Failure to do so may also mean a particularly tough winter.