Retail Pricing Based on Product Hierarchy Groupings

Retail Pricing Based on Product Hierarchy Groupings

As customers focus more on retail price, it has become very difficult for retailers to plan and administer price at an individual item level. Hence a new methodology “product hierarchy group pricing” is introduced, wherein pricing is based on collective conceptualization of items. This has proven to be a great boon for retailers by reducing their workload and also maintaining
good customer satisfaction. This white paper aims to discuss this new pricing methodology “product hierarchy group pricing” in detail.

Introduction

An item or Store Keeping Unit / Stock Keeping unit (SKU) represents the basic unit of commerce in the retail industry. The retailer sets the price based on the item past sales performance, current market observation, quantum of customer base, and the store spread.

Earlier, a majority of retailers followed the process of ‘single product hierarchy pricing’ , where items were evaluated and the market pattern was forecasted on an individual basis without any further groupings or association. Though this was easier to perform, it was inaccurate and did not represent the true essence of pricing since it did not take a holistic view.

With this in mind, a path breaking concept, ‘product hierarchy group pricing’ was introduced in the retail world, where items with similar characteristics and attributes are collectively conceptualized, referred, and mass managed by the Retailer Business team / their pricing systems.

In general, more mature businesses bunch up products for easy reference and holistic analysis, as illustrated below. This is a similar practice cultivated in retail pricing using ‘product hierarchy group pricing’ .

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