Hello and welcome to Pricing Heroes podcast by Competera. It is a series of interviews with the best-in-class retail pricing experts driving their companies' bottom metrics and, therefore, the retail industry.
Today's guest is Dr. Yola Engler - Lead Group Pricing at Signa Sports United based in Berlin.
SIGNA Sports United is an NYSE (New York Stock Exchange) listed specialist online sports retail company based in Berlin, Germany. They own companies and brands in various sports, including bike, tennis, outdoor, and team sports. They sell equipment and apparel via our 100 own online stores, collaborate with 500+ independent brick-and-mortar shops, and partner with over 1000 sports brands.
Olena Saraniuk: Hi, Yola, and thank you for joining us.
Yola Engler: Hi, Olena. Thanks for having me.
OS: For our listeners, we're both speaking from Berlin, so today is the closest podcast, location-wise, we have ever recorded. First, please tell us more about yourself, your background, and your positions as a lead pricing and inventory manager.
YE: Sure. My background is in economics. I studied economics and then did my Ph.D. in behavioral economics, where I investigated how psychological factors impact decision-making.
And after a small detour via consulting, I found my way to e-commerce pricing at home24, a large online player for furniture in Germany. There, I took over the Pricing and inventory management team later. But it was, in particular, the pricing topic that I fell in love with as it combines an analytical and data-driven approach with business knowledge and psychological effects that I studied during my PhD. So, I decided to focus on pricing and took over the role of Group Pricing Lead at Signa Sports United around a year ago.
OS: It's fascinating to hear about the psychological side of the area because I've been having some conversations with the experts in the field as well, and many of them are now connecting the psychological effects and pricing, especially during inflation.
And here comes the first question: What are your and your team's major wins throughout 2022?
YE: 2022 was a year of platform modernization and optimization for us. We migrated most of our shops to a new pricing platform which now enables us to explore the field of machine learning and also allows us to experiment at scale.
The biggest win was the migration itself because the team needed to migrate more than 50 shops. But also we were able to do the first tests using machine learning algorithms, and the results were already very promising.
Now, we are all super excited that we have the foundation in place to really experiment further in the next year and get the best out of the new technologies.
And then there is another win. While migrating, we also optimized our competitor data scraping frequencies and saved significant costs without harming our revenues or margins.
What did we do? When I started at Signa Sports, there was this mindset that "more scraping is always better," which I think is quite common. I guess everyone has in mind that Amazon is changing prices several times an hour and is scraping competitor prices many times a day, so that must be right.
But scraping also takes effort, data resources, and costs money. And for many products and categories, it is not worth scraping competitors daily, let alone several times a day, because the benefit is too little or nonexistent.
For example, most e-commerce players have a longtail with articles with few views and even fewer sales. For those, the price impact is typically very low.
Another example is categories for which the purchasing decision is typically a longer process, and therefore, prices are relatively stable. For example, a bike. Typically it's not an impulse purchase, right? People return to the webshop several times before purchasing. And if you change prices too often, you drive your customers crazy. So, we observe relatively stable prices throughout the market for these categories. If I now scrape my competitors six times a day, I will just get six times the same price.
On the other hand, if you look at electronics, where customers are used to constantly changing prices, scraping and pricing several times a day may be worthwhile.
Therefore, we developed an optimization function that balances the cost and benefits of scraping and allows us to determine the best scraping frequency for each category, subcategory, and product.
OS: That sounds really interesting. I enjoyed the example with a bike because there are some categories you must understand whether you want to buy this model or this particular one.
Or sometimes you have an impulse to go and buy a new pair of leggings, for example. Or the new pulse metering device. And typically, the less money you spend, the quicker you make the buying decisions.
And with 70 online sites and 500 partner shops serving over 7 million customers worldwide, are all prices managed by the headquarters?
Or is every region independent in terms of pricing management?
YE: It's something in the middle. Not every region or shop does its pricing, but we rather have one pricing team per company. And these "local" pricing teams are very independent and free in their operational pricing decisions.
On the other hand, on the holding side, we focus on establishing the pricing infrastructure and a learning platform for all these local pricing teams.
Why do we do this?
Typically, each of our companies is specialized in one particular sport. So, we have one company for bikes, one for tennis, one for outdoors, one for running and so on. And being specialized means that they are also the true experts in their particular industry: they know when the big tournaments are, who the main competitors are, what the seasons are, the must-have products, etc. And our local pricing teams use this industry knowledge to enrich their pricing.
Additionally, the local teams are very close to all the business developments in their respective company: they know the warehouse and supply chain situation. They are informed about campaigns or new product introductions. And they also know their data best.
So, the companies typically have expert knowledge, and they have company knowledge and thus can fine-tune the pricing much better to their particular needs and react much faster because they are the first ones to know when something in the market happens.
On the other hand, some topics don't need to be reinvented by each company. These include a good pricing infrastructure with good pricing and competitor data, a pricing tool, smart algorithms, and also a controlling and analytics platform. And that's what we focus on in the holding. We provide the basics for all the local pricing teams in the companies, which they then adapt to their needs.
Additionally, we are building a small pricing academy as we strongly believe in testing and learning. The academy is the platform for pricing managers to share their learnings and best practices and learn or get impulses from external experts.
OS: That's interesting that you put so much effort and attention into educating and sharing knowledge throughout the company, vertically and horizontally.
Moving to broader things now: the whole world is shaken by rising inflation.
And we have it in Germany, the United States, and Europe. Considering the inflation, what are your thoughts on the current sports and outdoor markets?
How did it change? What's the pattern right now?
YE: Also, the outdoor and sports sector, in general, is very much affected by inflation. As in most industries, we face much-increased purchase prices.
However, the more significant impact for us is the very low consumer sentiment, particularly since most of our products are non-necessity goods like bikes or tennis rackets. And in times of tight budgets, purchases of these categories are often postponed.
However, having that said, we actually see it more as a short-term bump as the huge megatrends underlying our business model will remain.
And by that, I mean the trend for health and fitness, for being more sportive and active, the trend towards e-mobility and e-bikes, and the trend towards digitalization and e-commerce.
We obviously still need to manage the current situation very tightly, and it is not easy for anyone; but, at the same time, we also see it as a chance to build the infrastructure & processes for the future so that we are ready to scale once the economic situation eases again.
OS: It's now time to reflect on it and build it sustainably, making you more powerful in the future. Definitely. And you're saying that your team and the pricing teams throughout are managing the situation with inflation tightly.
Is there advice you can give to your colleagues who are also in the same situation with inflation right now?
YE: I'd generally recommend an analytical and granular approach because every industry is affected differently, not just every industry but even each category. Ask yourself:
How big are the price increases?
How elastic is the demand?
What's my inventory situation?
How stable is the supply?
What are competitors doing?
How big is my pricing power?
And so on.
You need to analyze your particular situation and determine a targeted pricing response. Don't take the 'one-fits-all' approach.
OS: Now, a lot of retailers, especially in the United States, and maybe you'll tell me as well about the German market, are going for excessive promo campaigns.
We saw this second Amazon Prime Day, and Target is starting the holiday season early this year. We see that retailers are going for excessive promo campaigns that put their margins under so much pressure.
But what stands behind is the full warehouses that need to be cleared off to put in more merchandise. So, this usually leads to blanket discounts and margin losses. So, what stands behind wise promo management?
YE: This is precisely the one-fits-all solution. And yes, you also see it a lot in Germany. I just read an article that now even Ikea is advertising excessive discounts. And Ikea was typically the prime example of avoiding any discount battles. It looks like companies fall into panic mode to somehow get rid of their excess inventory.
Regarding your question, what does good promo management look like? I would answer it just as your previous question: take targeted pricing decisions depending on the market you are operating in: are my categories and articles seasonal? Are my customers price-sensitive? Do I have overstock?
Being more particular: For each category, you should ask yourself why customers are not buying and whether you can even influence their buying decision through the price. For example, you may have thought about buying an e-bike, which is relatively expensive. Like 2000-3000€. But now, money is scarce given your increased cost for groceries, gas, et cetera. So, you start saving where it is easiest, and you will likely not even look at e-bike offers anymore. No matter if the e-bike is at full price or at a 20% discount. On the other hand, people still looking to buy an e-bike are probably quite well off and would buy the bike at full price.
So, ensure that discounting has a revenue impact, not just throwing away money.
Also, check where you really have overstocks and how supply chains will develop.
For bikes, for example, we are still not sure how stable supply chains are. So, keeping more safety stock than usual might make sense.
Summing it up: Take a granular and targeted discounting approach to avoid unnecessary discounts and to save at least some margin.
OS: Definitely. Thank you for such a profound answer. And we're recording this episode a week before Black Friday. I'm curious about what we're going to see this year. Maybe this will be the craziest Black Friday.
YE: I actually think so. Many companies have already started and are trying to be first in place before the big discount battle starts around Black Friday. Many extended the period from Black Friday to Black Friday week to Black Friday month.
So, we'll see many discounts flying around, and discounting might also continue until Christmas.
If you have some money left to spend, there should be good deals on the table.
For companies, it will be a tough year, particularly margin-wise.
OS: Something to explore in a couple of months. I wanted to ask you the next question because you have such a profound experience. What are the key factors behind effective price management?
YE: Let me surprise you with a high-level approach.
For me, effective price management always starts with an aligned business and pricing strategy. Who are my target customers? What is my price positioning? And what price image do I want to reflect? Am I more in the discount sector? Am I more on the luxury brand side?
So, targets should be clear.
And then, for price management, I think there should also be a good price organization built around it. So for me, this consists of two pillars.
First, there needs to be one single point of accountability. We often see that many people in different departments touch prices, but nobody is ultimately accountable.
And second, a good pricing organization involves a pricing steering committee or a pricing council which ensures that everyone with a stake in pricing is involved in the big pricing decisions and takes aligned actions. Often, this involves Finance, Marketing, Sales, Product or Category Management, and Pricing, of course.
Third, especially when selling lots of products, you need a good pricing platform to handle lots and lots of data efficiently and effectively. This includes high-quality data, automated data flows, good pricing software, smart algorithms, and a controlling and analytics platform.
The platform gives you the toolset to implement your pricing strategies and adapt them quickly to changing market conditions.
But then, most importantly, you need to test, test, test, and learn, learn, learn. Analyze your data as much as you can. Your pricing platform should allow you to move away from manual price setting towards analyzing your data, setting up tests, and trying new strategies.
You can learn so much from your data, and many pricing strategies exist, so test and adapt them to your needs. A strategy that worked well for someone else might not work for you. So try and learn from your data and become smarter every day.
Pricing is rather a process and not a one-time task.
OS: And actually, the next question comes from the answer. How do you see the future of pricing thing?
YE: I think the future of pricing is very exciting. The future of pricing will still be data, lots of data. I think data-driven pricing sounds nearly old, but I think there's still a lot of potential from what I see in our companies and others.
There is still much room for improvement in ensuring that all pricing-relevant KPIs are available and that data flows are automated; I still see a lot of manual copy and pasting of data from different sources.
And once the data is available, all these smart algorithms, including machine learning and neural networks, become more relevant because now you have data the algorithms can learn from. So, as soon as we have the data in place, I think smart algorithms will be the next big thing.
Yet, I strongly believe that algorithms and humans have to work hand-in-hand to make the most of the data. There is no perfect algorithm yet, but lots of human knowledge is needed to constantly improve algorithms in addition to their self-learning capabilities.
Additionally, we will see deeper integration with performance marketing as the two disciplines are highly interdependent. For example, depending on how competitive my price is today, I will get more impressions on Google Shopping. Yet, the higher impressions and likely sales may not necessarily offset the reduced margin. We, therefore, should optimize price and marketing bidding together. However, this is not easy, and it will take time for good solutions to emerge. Yet, we see the first steps in that direction.
OS: I like your vision about the future of pricing. It seems really bright. It's like a harmonic conjunction of person and algorithm.
And I have one more question, which is usually much of an interest from our audience. What are your recommendations on books and podcasts, media, or something that creates environments, whether it's about professional or personal development? So, what literature, media, podcasts, or other sources of information do you use about pricing and retail do you recommend to your colleagues?
YE: I think my biggest recommendation is to go on LinkedIn and follow price experts and consultancies, et cetera. I mostly get my inspiration from there. They're usually posting interesting webinars, articles, and book recommendations.
There's also a community. And what I really like most is that they often discuss real-life pricing examples. Books are often very theoretical, and then you always miss a connection: "Okay, sounds easy in theory, but actually, it's super difficult to implement." So discussing real-life examples and hearing different opinions is most valuable for me. And this is where I get most of my information.
I'd look at a couple of pricing experts, consultancies, tools providers, and the professional pricing society. This typically gives you a starting point to connect to more people and follow the ones you like. The algorithms usually allow you to follow people based on what and who you're following and connecting with what you're reading. So here we have it again, the smart and harmonic conjunction between people and algorithms.
OS: I'm out of my questions. Thank you once again for being my guest today, and it was a great pleasure to speak with you about everything.
YE: Thank you very much for all your interesting questions. It was lots of fun discussing the issues with you. And let's see how Black Friday goes.
