What Role Does Pricing Strategy Play in Establishing Brand Trust?

Trust is an important factor in achieving commercial success for retailers, particularly in the highly competitive U.S. market. One of the ways that retailers earn trust is through their pricing strategies, but it’s a lot more complex than simply who is the cheapest.

Of course, pricing has always had an influence on customer buying decisions, but the level of analytics needed to understand the subtle relationships between all of the variables and their relative impact has made it a prime application for big data.

To customers, a brand must represent good value, which is the sum of many measurable variables, as well as some that are harder to control, such as the moral and ethical expectations of the customer.

Brand trust is hard won over many years and lost very quickly. Everyone reading this will be able to name several brands that have had their reputation very publicly damaged because of their actions in the recent years.

But this also happens on a personal and private level. If we have shopped somewhere for a period of time, we begin to understand how the pricing strategy works and whether we feel it addresses our needs as consumers.

If we begin to sense the value equation is changing, we may start to look elsewhere, switch to less expensive products and shop less often at that store.

Pricing is both an art and a science: Price sensitivity, expectations, tastes and brand demographic are constantly in flux. Understanding the customer demographic to ensure a brand’s assortments and promotions are appropriate is key, but trust is easily eroded so pricing controls need to be in place.

Technology can play a very powerful role in helping organizations control and understand their application of pricing strategy.

Controls, whether in software or process, are important to ensuring that legislation is always adhered to and to keeping companies from falling foul of trading standards such as MAP (minimum advertised pricing). However, they also control the application of a company’s own pricing policies and methodology to ensure they can hit their market demographic sweet spot.

To achieve this, pricing software solutions have to be very flexible with a powerful rules engine and approval workflow logic to escalate appropriate approvals when defined conditions are not met. In essence, the rules reflect the tactics that enable the brand strategy.

Having the control mechanisms in place may well protect you from the long arm of the law, or embarrassing news coverage from a pricing error, but it doesn’t tell the impact of your promotions. Every company analyzes the success of its promotional activity, but this is often reduced to simplistic isolated reviews of profitability or units sold.

There is of course value in this, but so much more can be learned if data is structured properly and the right questions asked of the data sets. Some great examples of this include whether you are cannibalizing other product areas, which customer targets respond to your promotions, and whether over time customers are becoming indifferent to a particular type of promotion.

Companies that want to be successful with their pricing strategy must invest not only in software, but even more in their data acquisition and management. And this is not just data about products, positions, assortments, categories and margins, but also data about their customers, their purchases, and even outside influences such as competitors’ pricing and promotion activities and the weather.

These sources must all be connected together, and this is where the real value is achieved: by forming relationships between these sources that allow the business to ask bigger questions of the data, measure customer behavior over time, and most importantly predict it in the future. If customers are becoming cold to your promotions, this could be your best chance of identifying it early and having the ability to make the changes that are necessary.

Combining appropriate pricing tactics through a robust rules engine and leveraging sophisticated analytics are key to delivering fair, transparent and honest pricing.

If your customers feel confident that your prices are reasonable and reflect your brand promise, you will get the most valued asset any company can have – loyal customers that act as brand ambassadors for your business and all the financial benefits that brings.

Channie Mize is the General Manager for the Retail Sector for Periscope, a McKinsey Solution.