Private Brands Must Be Liberated From Old Pricing Rules
Just for fun, go to this Wikipedia page which purports to list some of the many human biases that make life so difficult to predict. Cognitive biases, statistical biases, confirmation bias, and more.
The catalog has become important to leaders in the retail pricing community who realize the rewards of empirical-based actions where bias is thwarted, as opposed to rules-based pricing where only bias in the rules are applied and rewards are missed. It’s the difference between a hunch and science. In other words, it’s the difference between what we guess to be true and what in fact is true, according to your consumer’s preferences.
What’s the cure? AI-powered pricing, as I have conveyed over the past few months. But when it comes to the topic of private brands – which began as an idea to offer shoppers alternative “nearly as good” substitutes for national brands, rules of predetermined price gaps to leading brands or margin rules have traditionally dictated the prices of private brands.
However, today, these private brands can deliver superior quality and true differentiation. But not all private brand products are the same when it comes to consumer bias. And this presents an important scenario where the retailer would be wise to apply science.
“With a great deal of time and luck, retailers are maybe capable of predicting this sort of margin-changing behavior unassisted. But an automated, optimized pricing system would have caught the bias earlier by lifting the guardrails on pricing private brands and enabling them to compete in real market conditions.”