Retail Pricing Heroes is a magazine for all retail pricing experts who agree that pricing two levels up is crucial, who think about their customers and business innovatively and responsibly – and therefore will become pricing heroes.
For the first issue, we have talked with Pavel Tomanek, COO Tesco, Lenta, X5, O’key, on how to price in 2023.
Retail Pricing Heroes: How did high inflation affect retail chains, what TOP1 thing has changed?
Pavel Tomanek: High inflation is something that I would call a silent killer. When prices are going up fast, there are some “positive” effects – sales are higher and the margin on old stock isn’t bad. But customers are afraid about what’s going on, and their confidence and willingness to spend money change. The old rules and principles of retail disappear as habits adjust. The Covid and post-Covid eras make it challenging to manage all the changes. Sales will drop, and you will lose momentum as volumes, customers, and margin will start to be under pressure. Look at online business. If you want to survive and not be killed by inflation – start thinking about pricing and how to convince customers you are fair while giving them what they want. So the biggest change that I can see is that the old rules and principles are not valid in pricing anymore, and you should be thinking in a more complex way. Pricing done by customer centricity.
RPH: How could retail chains earn money during that high inflation period?
PT: Stop thinking in old terms like key value lines basket, front basket, and back basket. The world is changing – the prices of bread, milk, and meat are not important to the young generation. They perceive prices by their shopping list – almond milk, avocado, hummus… It’s become more and more apparent that customer segmentation is crucial. Each store has its own market made by geography, locations (high street, neighborhood), and social structure. The real challenge is giving them local specific pricing. This allows you not to lose margin by having the cheapest meat and matching the competition where it is not important. RPH: 2023 will be a year of recession with consumers having low budgets compared to the early inflation period in 2022 when they disposed with savings from the covid-19 pandemic. What should managers in retail chains do differently in 2023 recession pricing compared to 2022 inflation pricing? PT: Hopefully 2023 will not be an inflation pricing year. Recessions always impact customers differently depending on income, social status, and job stability. Understanding your customers and their behavior in detail will be critical. Seeing how the customer behaved store by store will allow you to set a proper price strategy by categories.
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