September 08, 2015

What Happens When Prices Are Too High?

Here's what your Merchandise Forensics work will indicate, when prices are too high.
  1. When prices are too high, annual repurchase rates will likely decrease.
  2. When prices are too high, annual orders per buyer may or may not decrease.
  3. When prices are too high, items per order will likely decrease.
  4. When prices are too high, price per item purchased will significantly increase.
  5. When prices are too high, average order value grows.
Repeatedly, you'll see Executives who are ok with this dynamic. They'll accept a world where 90 customers spend $120 per order when they would have a world where 110 customers spend $98 each. There's two problems with this thesis ... first, you only have 90 customers purchasing instead of 110, hurting future business potential ... and second, you dissuade new customers from buying product, causing you to acquire fewer customers, hurting future business potential.

This is a common problem in cataloging ... in pure e-commerce, prices sometimes decline over time ... and in retail, prices are artificially inflated in an effort to create a fake sale opportunity, yielding a net price that accurately reflects what customers want to spend.

We must measure Merchandise Productivity - and more important, each element of Merchandise Productivity. We need to understand these dynamics before the dynamics negatively impact our businesses.