While the supply chain woes seen during the pandemic have mostly worked themselves out, pricing will always be a priority for independent home improvement retailers. Often, however, pricing strategies in place for other industries don’t fit the needs of the independent channel.
“From a pricing perspective, the DIY industry is unique, requiring more sophistication than other retail segments,” says Matt Pavich, senior director of strategy and innovation at Revionics, an AI-driven pricing solution for hardware retailers.
As independent home improvement retailers examine their pricing strategies, here are some aspects Pavich believes they should keep in mind.
Scale
“Home improvement stores carry a massive amount of products, much more than most other retail segments. Think about the uniqueness of light bulbs, paint colors, screws and nails, multiplied by the various sizes, measurements and more—this creates major data requirements that require a sophisticated platform to manage the scale of the data.”
Data Scarcity
“Because home improvement retailers are the only hope for somebody who needs a very unique product, like an odd tool size or unique light bulb, a lot of products that are carried by these retailers are very low volume/velocity products. Due to their limited sales history, they are harder to model, optimize and forecast than a product that sells much more frequently. As such, a home improvement retailer requires a much more robust artificial intelligence (AI) platform that can better solve for products with limited data.”
More Cannibalization and Affinity Impacts
“Cannibalization and affinity occurs for all retail segments. In grocery, if you buy hot dogs, you probably are more likely to add buns to your basket. If you buy medium salsa, you’re likely to cannibalize from a different salsa. In home improvement though, it is more extreme. Most consumers who buy certain home supplies are almost 100% likely to buy certain affinity products—like drills and bits, electronics and batteries, potting soil and plants that need to be potted—making it even more important to fully understand the impacts of cannibalization and affinity. If prices are suboptimal when a customer buys yogurt, it is less of a missed opportunity than when an entire kitchen redo is sub-optimally priced.”
Pricing Relationships
“Because of the massive product counts, there are some very complex relational pricing that needs to be maintained. This includes price families (similar items with the same price), volume discounts (better value per ounce, etc.) and quality/brand discounts (i.e. premium product is 15% more than value product). In a lot of retail segments, these pricing relationships can be fairly simple. In home improvement, it can lead to massive pricing architectures with hundreds to thousands of items needing to be priced in relationship to one another. I’ve seen something as ‘simple’ as a curtain rod involving pricing architectures with hundreds of SKUs based on design, length, materials, etc.”
Tiered Pricing
“Because a lot of customers at home improvement retailers are professionals, it leads to a need for quantity discounts. In this situation, it involves different prices based on how many items are purchased. For instance, a bag of soil might be $14.99 for a retail customer, but if a landscaper buys 50, they might get it for $13.99 a bag. Sometimes these tier structures can be really complex.”
Competitiveness
“Because a lot of customers are contractors trying to run a business, it is extra important to be competitive on the right items. This makes it even more important for home improvement retailers to not only use the most advanced analytics to identify the most important items to compete aggressively, but also it requires a solution that is able to process large amounts of competitive data and model, optimize and forecast the impact of making competitive pricing moves. Finally, speed is critical when trying to win the war of price perception, so it is also important to use a solution with the scale to dynamically price in real time.”
Customer Segments
“Home improvement has different shoppers than most retail segments. For one, it is one of the few segments that skews male, but more importantly, the difference between a highly loyal customer and somebody stopping in to grab one light bulb every six months is massive. Loyal shoppers at home improvement retailers, including contractors, can spend huge amounts of money versus casual shoppers.”
Discover additional pricing insights and strategies here and here.
