Fifty-seven per cent of Indian shoppers expect to find deals before Navratri and Diwali, and yet, when retailers offer up those big savings, the doubts start. How are these real? Maybe your local store told you Amazon’s offer is a scam, or maybe your friend told you their discounted order never got delivered. Holiday shopping is crazy enough, let’s demystify holiday sales and see how they are possible and if they are as good as they seem.
You might think this is a simple game of volume versus margin. The higher a merchant prices their item, the fewer the sales, and the lower their total revenues. On the other hand, the lower they price their item, the smaller their profit margin per sale. So, they need to find that perfect sweet spot where they can price their item low enough that it drives volumes, but high enough that they get sufficient margins. For the holidays, then, maybe you think they just go for the volumes, pricing their items with tiny margins but knowing that volumes will still drive that revenue, and ultimately, a decent bottom line.
The problem is that this strategy is too elementary or archaic for larger retailers to rely on. In 2023, for instance, Indian retailers saw a 26 per cent increase in online sales during the holidays, but the two days before the end of the sales event saw a higher surge, that of 72 per cent. Factoring these trends into play, retailers must use a much more complex price-volume-mix strategy to determine the overall impact on revenue. The price-volume-mix strategy evaluates three variables for a retailer, looking at how movement in one variable impacts the other two, and thus can sway the overall revenue.
The pricing variable is what we discussed above, but, of course, they consider it with much more nuance. In fact, larger retailers have entire pricing strategy teams that work within their merchandising organisations to simply finesse how to price items.
The volume variable is about predicted sales quantities. How can sales quantities be impacted independent of price adjustments, you ask? A great example of this is for “limited release” items, like a pair of limited-edition sneakers, or a print run of only 500 copies. Limited quantities tend to increase demand. On the other hand, the reverse is also seen. Reliable products, best sellers, and products with higher reviews have greater sales on e-commerce platforms than those with no user-generated content. In fact, retailers have even created badging systems to call customer attention to these (think: Amazon’s “Best Seller” badge and banners like “1,000 sold in the last week”).
The mix strategy is simply looking at the variety-to-individual-product counts needed to be able to satisfy customer demand without wasting manufacturing and warehousing resources. For a single retailer (like FabIndia or Home Center), this might be the number of products they sell. For a marketplace (like Amazon), this is for each vendor determining how many variations of their individual products are worth selling. Given that the Indian consumer begins product discovery 18.3 days before making an actual purchase, the number of products to compare within a single retailer becomes a critical factor to conversion.
However, computing the predictive volume and determining the right pricing strategy requires a large amount of data. A retailer needs historical data about sales trends from the year, quantifying how changes in their pricing strategy have impacted their sales. They also need year-over-year data to understand how seasonality trends like those observed during the holidays impact their top and bottom line.
For instance, these historical trends allowed Amazon to reduce their delivery delays by 15 per cent during the 2023 “Great Indian Festival” compared to 2022’s event. Of course, most retailers also have a deep-rooted understanding of their customers and have access to data around their demographics, interactions, and purchase patterns. This allows them to provide dynamic pricing and personalised offers, which can lead to bigger baskets and higher average order value. That said, industry trends and market data around competitors can provide helpful benchmarking, especially for predictive modelling.
This is probably why you’ve noticed the big retailers like Flipkart and Myntra giving out large sales that your local stores are unable to match. Even brand franchises have the corporate office telling them what products to discount and how much. Unfortunately, however, your local kirana and mom-and-pop stores just don’t have that kind of data, or that variable mix, or those large quantities to play with, so their pricing strategy while, less complex, often gets outsmarted by the larger e-commerce platforms or retailers. Small retailers suffer competitively on this ground. Not only are the big retailers able to adjust their price-volume-mix strategy in a dynamic way, but they also create enough buzz around it to gather customers.
So, what should you do this holiday season? With Diwali right around the corner, and with all the cleaning and cooking, how much time do you really have to analyse whether that sale looks too good to be true? You’re getting a discount — go, shop for your presents, and save the worrying for something else. The discounts are real because the big retailers are able to optimise on various price-volume-mix for hundreds of products at the same time. It’s not just about one product. The customer really becomes king and gets the benefit of discounts.
Gupta is lead product manager at a Fortune 500 company. Views are personal
