By Ian Thompson, Managing Director, Planning
In the past, we have discussed the process and progression of deregulation and how markets shift from stable to volatile as they progress. In this post, we will address how an individual retail site can respond to the level of market maturity its current market displays.
Based on the level of regulation associated with the geographic region in which you operate, your site may fall into any of the aforementioned categories. Markets do not, of course, develop in a uniform manner, and as retailers and their markets progress through the phases of market maturity, competition and price volatility increase. Because of this lack of uniformity, a retailer who is unprepared for its market's varied competition levels will experience diminished performance. Therefore, understanding how to navigate your site toward market maturity is critical. The bottom line: planning for impending volatility is the path forward.
What Actions Should a Retailer Take in Each Phase?
There are four core actions that correspond to the four phases of deregulation (market maturity). They are: preparation, refinement, optimization and site maximization.
In a stable market, or phase 1 of maturity, there is no opportunity to differentiate your site based on pricing, meaning it is exceptionally critical that you focus on the six volume magnets: market, location, facilities, operations, merchandising and brand. (Though your market is homogeneous in terms of price, you cannot escape the importance of being in the right place and responding appropriately to the needs of your area, hence the inclusion of "market" as a volume magnet.) You absolutely must excel in all six of the areas that draw volume in order to succeed in a stable market without price competition. When it becomes clear that a market will deregulate, then the preparation for world-class pricing needs to start. Excellence is the right preparation for the deregulation of your market.
When the deregulation process begins, instability begins as well. As price controls are lifted and competition increases, you may find that there is uncertainty among all major players; after all, you are now entering a market maturity phase where you must compete in a new and challenging arena. That is why preparation in the stable phase is paramount; if you do not already boast a firm grasp on the value of your market, customer, demographics, brand identity, etc., then the unstable phase will necessarily be punctuated or even defined by heightened uncertainty. It would be simple to infer that you should drop prices to maintain volume — but be cautious. Your consumers are not necessarily price sensitive enough yet (due to their past experience with the standardized, stable market) to flock your way solely because of a price drop.
That is why your focus, as you navigate your site toward market maturity, should be on solidifying the aspects of your site that you know can perform regardless of price: the volume magnets.
This phase demands that you set goals for refinement. Pricing tactics will develop and differ at each site based on that site’s pricing power while supporting the overall brand proposition. What happens in the unstable phase will define how quickly your market progresses toward phase 3: competitive market.
As you enter the competitive phase of maturity, the retailers most familiar with their market should be in an ideal position to retain business. But as new competition is introduced, it becomes easier to ignore or forget the volume magnets that put you in this position in the first place. Too often, retailers begin devoting all of their energy to beating the competition based on price alone, becoming complicit in the emergence of volatility. Instead of participating in this large-scale reaction, maintain your position, price appropriately and focus on optimization.
To optimize your site, begin taking all seven elements into account together — market, location, facilities, operations, merchandising, brand and price. Each one affects the success of the next. And success in all six volume magnets gives you the power to price as you choose when the market does enter its most volatile stage.
In a volatile market, volume and margin become a growing challenge. This is the time to maximize. You've traveled through the process of refinement and optimization and are ready to get the most from the value you have built at your site.
Once volatility is introduced, it’s very hard to get away from it. The restorative pricing cycle can be a few weeks long or only a 24-hour period, with a single restoration and numerous price decreases occurring within the same day. So how do you maximize results?
We suggest reading about the definition of world-class pricing to get started. If you have already aligned your volume magnets and now need to ensure margin, you are well on your way to expertly navigating your site fully through the phases of deregulation.
Need further assistance with developing your world-class pricing strategy? Get in touch with Kalibrate today.