Using Data Science to Avoid Global Pricing Chaos

Technology and e-commerce have revolutionized the way consumers buy everyday products. While this often benefits consumers, many industries face challenges that never existed before. Take “showrooming,” for example. A customer wants to buy something — a piece of furniture, perhaps. It looks good online, but he wants to try it out first. So, the customer finds a nearby store that carries the item, looks at it in person, and decides he’d like to purchase it. Then he picks up his phone, and in a few clicks, finds that same model available at a cheaper price from an e-commerce site in another country, even with shipping costs.

This problem pervades many industries, and while organizations have learned to watch out for showrooming and other new obstacles, many still struggle with substantial price variations across markets.

One powerful example of this problem is the luxury and contemporary fashion industry, in which pricing variations create operational problems for retailers and e-commerce sites in some markets.

My startup, Ragtrades, used big data to explore just how big a problem this is. We aggregated figures from 20 major luxury and contemporary fashion brands and 50 retailers. We assessed prices across 12 countries, using local versions of each website and each country’s currency. This analysis included more than 300,000 data points, using our proprietary algorithms to identify exact matches. Our analysis found that prices in Russia and East Asia are the most misaligned, leaving the same item available at a wide range of prices. Western Europe, meanwhile, had the most aligned prices.

One example was a pair of sneakers from the luxury brand Valentino. The sneakers were listed on three popular Russian language e-commerce sites for three very different prices: On Valentino’s official Russian website, the sneakers sold for 34,300₽ (roughly $504), while TSUM Moscow was selling them for 20% more, and Luisaviaroma was selling them for almost 40% less (21,100₽ or $309.66) than the Valentino site. With prices so varied, it’s easy to see how customer confusion and competitive discounting can affect businesses.

Why Some Prices Are More Consistent Than Others

These findings in luxury fashion stand in stark contrast to those of some other industries such as electronics and household items. An MIT study found that “companies sell their wares at the same prices in stores and online, at the same moments, nearly three-quarters of the time.” The study by MIT Sloan economist Alberto Cavallo, founder of the Billion Prices Project, looked at large, multichannel retailers. It examined prices across 10 countries for about 24,000 products (including apparel but not luxury fashion).

That’s good news, because misalignment can cause big problems. One of the biggest, as we’ve seen in luxury fashion, is that when prices vary wildly, some sellers grab a huge share of business, while others are left with unsellable inventory. When that excess is then dumped into the market at a heavy discount, it damages brand status and retailer relationships.

Through research and experience, we’ve found that the following steps can help organizations in any industry avoid these pitfalls:

Make sure your big data is big enough. Although more industries are starting to embrace the use of big data, less than a quarter (23.9%) of executives in those industries say the results are “highly transformative and innovative,” as cited in the Big Data Executive Survey 2018 by NewVantage Partners. One likely reason: Companies that have started to collect and process big data still aren’t getting all the information they need. In fact, Forrester estimates that “between 60% to 73% of all data within an enterprise goes unused for analytics.” To get big results, it’s worth investing in more robust technologies that maximize the number of data points collected.

Gather data that every team member can understand. Far too often, the technologies that companies use for big data provide them with complicated reports that people only with backgrounds in data science can understand. Managers need to use data to make key business decisions for the organization, so this information must be presented in a clear way. For our clients at Ragtrades, that means junior merchandisers, buyers, and planners need to be able to instantly see the data relevant to them and intuitively understand what it means. When investing in new data and analytics tools, make sure there are clear and concise reporting options that allow all members of the team to be efficient and data-driven.

Get results — and act — in real time. Pricing misalignment perfectly demonstrates why real-time results make all the difference. If your business runs analyses of global pricing monthly or less often, then by the time your business discovers a problem, it’s already too late. Make sure your big data technology gathers and alerts you and your management teams right away. And be sure your teams know this issue is imperative. That way, for example, people who focus specifically on selling Valentino sneakers will know to reach out to retailers misaligning prices immediately.

Expand reach. The luxury fashion industry is largely based in the United States and Europe. Brands’ headquarters have generally been vigilant about communicating pricing strategies to distribution partners on their home turf. They’ve also generally included Hong Kong, Asia’s longstanding luxury mecca, where many brands have offices. To keep prices aligned, be sure to offer businesses in every market the same information you offer those where you’re more established.

Drop retailers. When prices are wildly misaligned, some sellers grab a huge share of business while others are left with unsellable inventory. When that excess is then dumped into the market at a heavy discount, it damages brand status and retailer relationships. If some of your retail partners are drastically mispricing your products, give serious consideration to redirecting your business. It’s better to invest in partnerships with retailers who respect your plans than to jeopardize your brand’s value in the eyes of consumers. And it’s important that brands and retailers work together to build relationships that can last.

Fortunately, the best retailers want to work with brands that are thoughtful about their pricing strategies. For long-term success, quality retailers are just as invested as brands in consumer perceptions. In short, choosing partners with the right priorities will help keep your prices aligned — and serve as a win for everyone.