Pricing in a Post-Tariff Market
As the markets closed on September 17th, the United States announced another round of tariffs against Chinese products. The tariffs, this time consisting of $200 billion worth of goods, were implemented on the 24th and will increase from 10% to 25% over the coming months. In return, China fired back with a list of 5,207 U.S. imports to be taxed, totaling $60 billion. National retailers like Walmart have responded by voicing concerns to US Trade Representative Robert Lighthizer and addressing potential costs to American consumers (CNN).
What started as a way of bolstering American business has become an all-out trade war between the two countries, with retailers in the crossfire. In such a situation, it can be difficult for affected retailers to implement new strategies quickly and effectively. Thankfully, with some insights into their competition and the national price leader, the most prepared retailers can come out on top.
Effects on Price Image
The prime question is this: who is going to pass on the cost to consumers first? Every retailer in the nation is waiting with bated breath for the answer. Private letters from Walmart and Target, among many others, have hinted at increased costs on the horizon, but there is no certainty of the first retailers to implement them (CNBC). The issue is that whoever passes the cost first hurts their price image the most. Items that were not hit by tariffs may still drop in sales because of the price adjustment, making the threat far greater than anticipated.
Still, this is only the beginning. The first retailer experiences the largest effects of the tariffs, but the next retailers to pass on the cost to consumers are also affected. This is where real-time competitive data can make a difference. Imagine that competing Store A raises the cost of a certain tinfoil to $8 in a market, and you are able to monitor that increase. From there, you can raise the price on that same product at your store to a lower price point than Store A. Though both products are affected by the tariff, your price image for tinfoil is maximized because 1) you were not the first in the market to raise the cost and 2) you are selling that product at a lower price than Store A.
Sliding Scale Tariffs
What makes these observations more crucial is the nature of the tariffs themselves. The increased cost for the latest affected products will go from 10% to 25% by January 1st, 2019, meaning that these small-scale retail battles will be happening on a weekly or even daily basis. Having up-to-date information on your competitors—both on a local and national scale—will translate to more victories.
The reality is that most retailers will face losses in the coming months because of tariffs, and stores hit especially hard by the increases have already taken steps to address them (USA Today). Accurate and timely competitive data can help to mitigate losses, especially when monitoring the national price leader. This is where store-level pricing is most important, because some price zones will be more heavily affected than others. Competitive data can inform a retailer when their competition is responding to tariff costs and how they can respond effectively. Implementing enterprise-level decisions in stores and going down to the local level can translate to a significant competitive edge in a post-tariff market.
A Watchful Eye
With the tariffs increasing to 25% by the end of the year, the market is racing to recover losses—the earlier a retailer can adopt a competitive strategy, the better. Because most retailers operate on low profit margins per item, an increase of even 10% on a product adds up quickly. In the case of a KVI, the increased cost to the retailer could negate any profit on that item, or even come at a loss. Figuring out a competitor’s pricing strategy and how often they update prices makes for valuable insights for decision-making.
At any point in the timeline, a strong price image is necessary to drive traffic to your stores. As we get further into the year, keeping an eye on the local effects of tariffs will be as important as pricing on a national level, and accurate competitive data can make all the difference. With the right insights, the tariffs present a unique opportunity for retailers in the coming months. Click here to learn more about Engage3’s automated price monitoring and register to receive information.