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Ruta Donovan: Hello and welcome to the Retail Pricing Insights Podcast. My name is Ruta Donovan, and I am VP of Marketing and Growth at 7Learnings.
Welcome to our second podcast episode. In these series, we aim to improve your pricing strategies by inviting experts to discuss industry trends and share actionable strategies with you.
So we have access to these experts throughout our Dynamic Pricing Community, which we have been building for almost two years. We have events, we have a LinkedIn group, and so far we had 12 events with two speakers in each of the events, as well we have breakout room sessions, so there’s lots of networking and lots of insights for you.
This community is completely free of charge, but you have to apply and we are strict with our membership rules. So go ahead and follow the link in the comments to apply for our community.
Today, I have the honour to speak with our guest, Dr. Yola Engler, a pricing expert with more than five years of experience in leading pricing teams.
She is currently the Director of Pricing and Profit Management at Westwing. Westwing is Europe’s top e-commerce platform for beautiful living. So if you want to find a beautiful couch or a lamp or anything for your house, go ahead and check out their website. Today, you will have a chance to meet a person who works with prices and sets the prices on the platform.
So in this interview, we will discuss the impact of recent changes in e-commerce. As you know, throughout the last two years, we went through so much change from COVID impacting e-commerce sales in a very, very positive way, I would say. So there was a lot of growth and now we are experiencing a downturn with recession, inflation, and all other scary words.
As well, we will talk about Black Friday preparation. I know that all of you are preparing for the Black Friday and it might be a bit too late. If not for this, but then for the next Black Friday. So I’m very, very excited. To greet Yola.
Yola, thank you for joining us today.
Yola Engler: Hi, nice to see you.
02:40 RD: It’s great to have you as our second speaker at our 7Learnings Podcast. So I wanted to start with a bit of a difficult question about the past few years in e-commerce. As we know, the past few years have marked a few significant turning points for e-commerce. The pandemic increased e-commerce demand and disrupted the global supply chain. And then now at the end of 2023, we have a low demand environment. How had you adopted your pricing to effectively deal with these major changes?
YE: Indeed, tricky, but important question. So there’s several sectors that have become more important, I would say. First of all, inventory became much more important for all our steering activities. It started with the COVID crisis where we saw, as you mentioned, all these supply chain disruptions and we rather had a supply shortage and out of stock risk. That’s when we first saw from that perspective an inventory challenge and now with the low demand, we face the opposite challenge, having quite large overstock available mostly in the e-commerce sector. We saw it as we are a bit spoiled with all the growth rates during COVID and then this rather optimistic outlooks and then the no demand and this huge inflation peak really hit us hard and so high order values met with this, this low demand. So summing it up, inventory became definitely more important and it is now shaping our pricing strategies.
But with it also, I think there was a mindset shift for many of the e-commerce companies towards profit rather than purely gross consideration. And that’s what we know, when we come from a goal based pricing approach, where pricing is just a means to an end, we see that reducing inventory and increasing profit are the major pillars, which we now focus on rather than the gross pillar for our pricing strategies.
And then maybe a third one, which is underlying all of it, the big and frequent changes in the market environment really forced us to improve our operations to guarantee a more rapid and agile reaction towards these changes in the market environment. So this is more from the operational point of view.
Not so much a strategic point of view that we needed to adjust to the new environment.
05:09 RD: Yes. And one of the challenges now is overstock. So how do you deal with it?
YE: Yeah, a big challenge for us. First of all, I think it’s important to notice that yes, we overall have overstock, but overstock is not as important. It doesn’t have the same importance for all articles, but there are some articles with huge overstock amounts and others that are still high sellers and they don’t have a problem.
So first of all, we decided against these flat discounts that we still see a lot in the market, but in my opinion, it’s not the most efficient or effective way of dealing with overstock generally. So if you think about it, if you just guess 10 percent on everything and you still keep the price distance between overstock articles and non overstock articles the same.
So yes, maybe people buy a little bit more, but they will mostly buy the best sellers more and not so much your slow sellers. So in the end, you’re rather cannibalising your margin than really solving your overstock issue. That’s the first takeaway. I wouldn’t approach it with a flat discount approach, but rather use an article specific approach.
And how we do it at Westwing: we try to cluster our articles in different buckets. In the first step, we try to determine the severity of overstock. And we do that through two measures. On the one hand, we check how bad the stock is. So for how long does my stock last? Is it only two months or is it three years? And then we also determine the seasonality pressure. So is it a garden chair that really only sells during the summer period? Or is it just a sofa that you can sell all year round and probably also for the next three months without any drops in demand? So here we have kind of the stock reach and we have the seasonality pressure.Then we do some basic checks on our competitor prices. Then, the trickiest bit is to determine articles in elasticity in order to then determine what is the best discount level. So how far do I need to get rid of my stock? And in order to do that, the elasticity gives me an estimate of how much discount I need to give to the product in order to speed up the sales enough to reach my end of season target or target in a way.
Yes, so basically summing it up, we really go through an article based approach and we look mostly at the severity of the overstock on the elasticity and then as a benchmark check our own cost infrastructure as we try still to make some kind of money with them and only in the worst cases when you sell them with negative margins.
08.05 RD: Okay, so I hear keywords: bestsellers, focusing on bestsellers, seasonality and using elasticity, price elasticity. That sounds great, but there’s another side of the coin, which is the market environment, and now we have inflation and increased purchase prices and how do they play in your pricing strategy? What role do they play?
YE: It actually makes the entire situation even more tricky. Because we’ve just talked about the overstock and yes, the overstock is really costly. So most of our overstock was bought already during a time of high purchase prices. So it’s really costly and that’s why it’s also tricky to give too many discounts.
Why you still have to do that to some extent for your overstock articles, you then need to compensate for the rest of your assortment wherever possible. And also here, it’s super important to have that article specific approach as the inflation, the purchase pricing, but also the low demand affects all articles in a very different way.
So actually inflation, we see huge differences between the different countries. So if you sell in different countries, that is a first determination, but then it also differs between different categories. And then third, it also differs between the articles. So that’s why we adopt an article specific approach where we check for each article, how have costs developed and also how is, again, the price sensitivity of price elasticity. For which we can maybe increase prices easier without a huge impact on the demand. And for those where the impact on demand would be too high.
So in a way, yeah, we need to be very careful. So we do have the overstock pressure for those we are a bit bounded and we typically don’t increase prices, but then we try to compensate with the rest of the assortment and in the rest of the assortment, we focus on the articles with low price elasticity because their demand will not be as largely affected from a price increase.
10:20 RD: And how do you think these components will play in the upcoming Black Friday? So this Black Friday will be very different from Black Friday last year.
YE: Yeah, very true. Although I think we saw maybe even last year’s Black Friday, I think we saw the biggest hit as last year, Black Friday, everyone had huge overstocks and we saw this very low demand in the market.
I think actually this year is already more balanced and less significant than last year. And last year you could really see how customers are waiting for Black Friday. So the demand was even lower in the period before, but then Black Friday was huge. People gave a lot of discounts because there was a lot of overstock in the warehouses.
But also people really waited for the discounts because they could only afford to buy at the discounted prices given the entire inflationary pressure. So this year it’s a bit better, I think. We will still see that the overstock situation shapes Black Friday, but now I think also different considerations again play a role, maybe more than last year.
So what do I mean with it? Black Friday obviously is a good period to sell off your inventory, but it’s also a great period to increase your growth rates and to use the Black Friday concept also to shape or build your brand and bring attention to your offering and I think there might be a bit more focus again on those pillars rather than purely getting rid of overstock.
11:55 RD: Yes, and in our first episode, we asked Sahin Tezsoy from LUQOM GROUP, how and when is he preparing for the Black Friday. And his answer was that he’s already preparing for the Black Friday straight away after the last Black Friday. In January, for instance, the first test begins and they know there’s a lot of testing and looking at what competition is doing, what they did on the previous Black Friday. So how does this preparation look like for you?
YE: It’s quite similar to be honest. We also pretty much start right after Black Friday. This is a new Black Friday, starting to see what worked well in this year’s Black Friday, where do we want to try changes to the Black Friday concept. What could be a new storyline for the next Black Friday and then starting through several iterations fine tuning the Black Friday approach.
But you also need to consider that usually you need to order the articles for Black Friday if you get them from Asia nearly half a year before Black Friday. So that means by April or May, we need to send out the orders. So all the magic needs to happen before that, meaning the article selection and the general concept needs to be decided in advance. So yes, also that we start very early the Black Friday planning.
13.20 RD: Wow. So seasonality in your industry is very different from seasonality in the fashion industry, for instance. When you have new seasons every two weeks or new collections every two weeks, you actually have to think about the fashion and as well as the purchase, how people will be spending the money on a big day like Black Friday.
YE: Yes, very true. So obviously this is not true for all articles. We also have some in Europe and closer by, but a large part comes from Asia or India. And for those, they have low times to prepare the orders, especially for a busy time like Black Friday. They also, all our suppliers get into capacity constraints as everyone orders much more.So they also need to spread out their manufacturing over a longer period, to actually fit the demand.
14.10 RD: Exciting. So what are your three tips for our listeners for the upcoming Black Friday?
YE: Hmm. Three tips for Black Friday. So I think the first tip is always to start with your overall strategy and to determine your overall goals with Black Friday.
So is it really getting rid of overstock? Is it brand building? Is it growth? Is it profit? What do you hope to achieve with Black Friday? And I think you should be very clear on that. Typically it’s a combination of all of these goals, but you should be very clear which part of the assortment or which part of your offering serves what purpose and then also determine the right KPIs to track whether your goals were fulfilled. So that is my first tip, be clear on the goals.
Second, once you have that thing together, your article selection and your pricing strategy, as they go hand in hand for me and always follow your overarching goal. Then maybe as a third one, start early with the planning. I think we just touched it, but be prepared, be early on with your overall planning to make sure that you order in time, you receive your articles in time.
And what we typically do is we have the baseline planning, but then have short term technical adjustments towards our Black Friday plan. And so just before Black Friday, we again look at our inventory situation and might fine tune the article selection for Black Friday based on our stock levels that might be articles that unexpectedly went out of stock or where the incoming isn’t there on time, we take them again out of the selection and others like the newly overstocked articles, we then put in the selection for Black Friday and create new deals.
So be flexible in the short term, but start the planning long term in advance.
16.10 RD: Okay. Some great tips here. And as well as my last question, I wanted to ask you, I know that you just went to EPP, European Pricing Platform Conference in Amsterdam, and you made a presentation there. So could you give us some highlights or learnings for our listeners as well, who couldn’t maybe participate in the conference?
YE: Oh, super happy to, obviously. I think my few recommendations or what I’ve seen in the past, let’s say one and a half, two years, I think there are a couple of factors that became more and more relevant for pricing functions in companies. Some of them we touched already.
First of all, inventory became way more important for pricing strategies and it drives many pricing discussions.
Second, the topic of profit is way more relevant than before and companies just start switching their mindset from a pure growth mindset to a profit focused mindset and with the focus on profit, also the pricing becomes more relevant. And this is also your chance as a pricing manager to push actually your pricing topics towards top level management because attention is there now for the topic of pricing.
As we can read in many articles that pricing is actually the lever that pushes the profit the most. So more than cost adjustments or higher sales volumes in order to increase your profit the price is actually the most important and most effective giver high attention on pricing and getting your challenges solved.
And then the last two points for me are in this very volatile environment, you need to react fast and every day you will get a new goal for your pricing function. And every day, your input factors for your pricing function will change. You need to make sure that you have a pricing infrastructure that allows you to really react very fast and agile towards the new changes and with it and the increased focus on profit, I would also really recommend this targeted article based pricing approach, which we also touched on earlier.
Don’t put a one strategy fits all articles approach, but really fine tune your base pricing or try to make use of elasticities in order to fine tune your pricing strategies to watch an article as only then you will get most of the profit that is still there to make.
18.45 RD: Thank you. And I’m so happy to ask this question. I should have started with this one. Your eyes just lit and all those insights just flew out of you. So thank you so much,Yola, for sharing your knowledge and insights with us today.
YE: Very happy to. Thank you very much for having me here.
RD: Thank you, Yola, for sharing your pricing insights with our listeners. This was the Retail Pricing Insights Podcast. My name is Ruta Donovan. And as well, I would like to say a big thank you to our 7Learnings team who helped to produce this podcast, especially to Eirini and Reka who contributed in recording and producing this specific podcast episode.
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As well, as mentioned in the beginning of the episode, I would love you to be part of our Dynamic Pricing Community. The only thing you need to do is to go to our Dynamic Pricing community page and leave the application. The community is free of charge and you will gain lots of pricing insights as well as connections in the retail pricing world.
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And last but not least, I will be leaving the podcast and 7Learnings on a short 10 months break as I’m going on maternity leave. But I’m very excited to have Eirini, who will be hosting the podcast for the next episodes to come. I really know she can do it. She already has another podcast going on too.
So I’m very excited to see where this podcast will grow when I come back in 10 months. So thank you very much for this journey, two podcast episodes. Go ahead to listen to the first one, maybe as well. And you will have more podcast episodes to come. We already have eight speakers confirmed. So I am very sure that there will be more insights and strategies to come in the future.
It was Ruta Donovan and it was the Retail Pricing Insights Podcast.