Price Leaders: Effective Recession Tactics

Even world class Price Leaders will need to sharpen some of their existing skill sets and develop entirely new ones in order to meet that most rigid of task masters: the expectation of constant improvement. Let's take Walmart. Right now, Walmart is the only major retailer with comp store gains. That's enough. Today. That won't be enough by the end of 2nd quarter. Then, in order to meet the God of Rising Expectations, Walmart is going to have to start working on either expense ratios or gross margins, or, increasing the rate of comp store gains. To do that, Walmart is going to have to continue doing what they do well, and start adding some new tactics (with accompanying skills and capabilities). Of course, this applies to everyone, not just Walmart, but it's a big name and makes for a good example.

Given that Price Leaders come under fire across a wider breadth of categories than previously experienced, it becomes that much more important to successfully identify those products which they do not have to be the price leader in while still sustaining the overall brand identity. These are critical. Extensive analysis and evaluation has to be done to correctly identify the products where being a few percentage points over the actual Price Leader won't be noticeable. And a process has to be established which constantly challenges this. The worst thing a Price Leader can do is get greedy and allow the competition to successfully challenge for share of mind. Profit-wise, the worst thing a Price Leader can do is fail to capture higher margins wherever possible. Critical observation: these products may vary from market to market. While regional competition is not usually something a Price Leader has to respond to, in a recession, they do. Regional (as opposed to local) competition impacts a signficant enough portion of the overall volume to require aggressive action. When comp store growth is being forced out of any nook or cranny, giving it away to a regional competitor can't be overcome elsewhere. Regional merchandise price evaluation has to be a constantly evaluated process for the Price Leader.

Promotional price responsiveness also must become a critical skill set, and like setting initial prices, has to be managed Regionally. Really. Like the initial prices, promotional prices are very likely to be different from region to region. One of the probabilities of the recession is that less efficient national competitors will either shrink to become regional players, or smaller (less noticeable) regional players with better balance sheets and stronger market positions will outlast their better known competitors. In short, a regional player can often out perform their national competitor when that national player isn't world class in the critical areas. OK, so but what this means is that the promotional pricing the Price Leader has to respond to will vary in depth and agressiveness from Region to Region.

A last, but possibly most important new skill set lies in assortment building. One of the drawbacks of having been the dominant Price Leader is that just about everything sells....to one degree or another. You've got enough foot traffic that just putting stuff on the shelf actually moves it. Obviously that doesn't mean the assortments are all winners.....they clearly are not. What it does mean is that less pressure is placed on putting together the assortment up front. Rather, Price Leaders rely on identifying the losers, moving them out through aggressive reaction, and bringing in the new. This is fine during growth economies. During recession economies there are fewer open to buy dollars available, stress is placed on average inventory levels, and what used to be acceptable product performance levels no longer apply. Which means that the Price Leader suddenly also has to become world class at assortment building. And this skill is NOT usually one in abundance within the organization. Price Leaders rarely attract truly skilled and talented assortment builders. I'm sorry....you don't! Taking Walmart as an example, the organization excelled by treating merchants as if they were interchangeable business managers...requiring little product knowledge, relying on process, technology and methods. That's not going to get the job done for the next several years. The good news is that as "better" retailers fail and downsize, there are going to be some world class assortment builders on the market.....get them onboard. You'll need them. You'll also need to take a long and hard look at your technology and process.