Volatile Pricing in Retail
The word “volatility” is normally associated with the stock market. Buyers and sellers are always jockeying back and forth, trying to decide when to buy for the least expense, and when to sell for the greatest profit. The volatility of a particular stock will affect the number of times it is traded, with traders trying to take advantage of low prices, while protecting themselves from loss. However, volatility in the stock market is not the same as volatility in the retail market. In the stock market, a particular stock may have a given value, but the level of volatility will indicate the size of swings in value.
Volatility in the retail market can come in many forms. A product that is highly volatile can change in worth in the blink of an eye. You see this all the time with gas prices. Business owners who have gas pumps at their place of business often find themselves with a load of overpriced gasoline because the market has gone down again. Customers expect to pay thirty cents less for a gallon of gas because the prices this week are lower, while the vendor paid much more than that.
Popularity of an item can also affect its pricing. This is seen in the hospitality industry during conventions or sporting events. A big university game can drive hotel room prices up by 50%.
How To Manage Volatile Pricing
In the retail market, there are a number of ways to manage the ebb and flow of popularity, demand, and market value of your goods and services.
Inventory buffers can help you weather the various storms. Typically, a high inventory gives you the chance to “even out” the price and demand fluctuations. A traditional approach, it is also quite effective for mid-size to large retailers. For small retailers, however, a large inventory may be out of the question. Once again, the gas vendor analogy comes into play. Large truck stops purchase hundreds of thousands of gallons of fuel, and can usually get a discount in the process. A small “mom and pop” store with a couple of gas pumps can’t store enough gas to wait for the prices to go back up.
Using inventory as a buffer may not work, though, if yours is a high tech business. Tech items tend to become outdated quickly, and could leave you with a warehouse full of obsolete technology. So, what else can you do?
Reducing cycle time can save your business a lot of money. In doing this, you identify ahead of time any blockage in the supply chain and streamline the supply process. If your vendors are too slow getting quality products to you, see if there are non-value actions taking place that could be eliminated. Perhaps they need to change their shipping company, or eliminate one step in manufacturing.
Collaboration with customers and suppliers can help to combat volatile pricing in the retail markets. With collaboration techniques in place, the business owner will be aware of fluctuations in demand in different products and services. Further collaboration in place with suppliers can help the supply chain to respond more quickly, with more efficiency and higher profit margins.