Competition in the retail sector has always been conspicuously rife, though with gigantic acquisitions and mergers taking place left, right and centre, it would seem as though an already crowded marketplace has become even more crowded in recent times.
For bricks-and-mortar retailers already feeling the pinch, along with what’s become known as the ‘Amazon effect’ for many, this has resulted in a very real need to adopt a more effective competitive pricing strategy, to invest more heavily in advertising and marketing and to engage in what are known as customer intelligence methods, including customer satisfaction surveys and mystery shopping programmes.
Prior to Setting a Budget
Before retailers set themselves a budget for advertising, marketing and customer intelligence – competitive pricing strategies don’t require the creation of a budget; however, the forecasted knock-on effects naturally need to be factored into retailers’ estimations and they might also find it advantageous to pay for price checking audits if they can’t effectively conduct them themselves – they first must identify the areas that are most in need of improvement in order to allocate fiscal resources effectively.
Setting budgets for these important areas isn’t straightforward by any means, though retailers should start by organising their financial information, identifying the areas that are most in need of improvement, and once they’ve set themselves a budget and have begun allocating funds here and there, assess the effects as they go along and make changes accordingly.
Organising Financial Information
The first step to creating effective budgets is for retailers to organise their information about their current financial situation because estimates, although at times helpful, won’t suffice.
Retailers need to know how much revenue is coming in if they’re to effectively allocate X amount of their revenue to advertising and marketing, X amount to customer intelligence methods, and if they’re going to have an agency conduct pricing audits on their behalf, then X amount to this important activity, one that empowers them to display their products at the right price in relation to the competition.
Retailers should organise their financial “information based on reliable revenue,” says Forbes contributor Dave Lavinsky, which “is the minimum amount of money your company makes each month.”
For instance, if a retailer’s revenue ranges between £6000 and £8000 p/month, their ‘reliable income’ is the lowest figure, £6000 p/month, because that’s what they can reliably expect to earn as, “Any amount over that monthly minimum is extra revenue that cannot be added to the budget because it is not reliable and can change.”
It’s also important to note that retailers’ budgetary needs will change; for instance, pricing audits conducted with the aim of engaging in competitive pricing strategies aren’t an ongoing expense but rather an occasional expense, for instance they’re often conducted every financial quarter, as are customer intelligence methods like mystery shopping programmes, which although should be conducted regularly, also don’t need to be conducted on a monthly basis.
Advertising and marketing, however, are ongoing expenses and retailers that are lax about maintaining ongoing advertising and marketing campaigns often lose the visibility they’ve worked at gaining.
The Need to Adjust Budgets
Whilst it’s important for retailers to set solid budgets, for instance allocating X percent of revenue to advertising and marketing, it’s also important to adjust budgets accordingly as time goes by and to do that effectively they need to measure their efforts to identify areas in which they’re succeeding and areas in which improvements need to be made.
When setting a budget with the aim of going head to head with the competition, retailers might find it advantageous to not allocate a set-in-stone X percent for advertising and marketing and X percent for customer intelligence methods like customer service surveys, but to rather create an ‘umbrella budget’ of sorts, one that includes all the funds they plan to allocate to certain areas and make adjustments according when required.
When retailers keep their budgets in mind when making decisions regarding the plans they put into action to go head to head with their competitors, they’re empowered to prevent overspending, a prominent reason why many retailers are unable to compete with the competition as effectively as they should, and allocate the right funds to the right areas.
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