Green Pricing; the narrow escape for the retailers - A lesson from Wilko

Barely two decades ago, it was Woolworths in Administration sale mode, and now no other retailer than the cut-price chain Wilko, who occupied many of the former stores of Woolworths when they seized operations.

It comes to many as a big surprise especially consumers who have for long enjoyed great deals from the retailer which has now become their only source of home products. However, industry analysts and observers only see this as the final stage of the events spanning the past couple of years.  Last year alone, it shut 15 stores and squeezed its head office structures to cut costs. Between 2021 and last year it lost about 1,600 staff, reducing its headcount to 12,400 from the about 14,000 staff in their role.

Retail pundits have attributed this bust to different reasons including the management and ownership structure of the firm, large stores in expensive locations of new stores, but I will stick my nose out and attribute it solely to the lack of a flexible pricing strategy especially after COVID.

It is no secret that the target customer base of the Wilko brand is high street footfalls, who obviously are extremely price sensitive. In the heat of the moments from the start of the pandemic, Wilko was considered a necessity store by the government and hence allowed to operate within lockdown though Covid restricted movements, hence the 40% decline in Wilko footfalls for the 2020 year.

It was at this material stage when the management should have considered looking at the pricing strategy and maximizing other possible streams of income available to the retail brand.

Continuity is extremely important and should not be sacrificed for temporal profitability or customer base especially when selling goods with low profit margins. With low footfalls, low sales, low profits, constant operational and consumption costs, and obviously low supplies, the obvious strategy was to twerk the prices to cover the increasing cost. This obviously would not have been a welcomed news for the customer base but then, desperate times call for desperate measures for survival.

This is what calls for the concept of Green pricing, a pricing scheme that compels businesses to look more into the wider future and not solely on instant gratification.

The concept of "Green Pricing" aligns with the idea of incorporating sustainability and long-term industry dynamics into pricing strategies. This approach reflects a more holistic view of the costs and impacts associated with products, including environmental and social considerations. Let's break down the concept with some illustrations:

Traditional Pricing vs. Green Pricing

In traditional pricing, businesses primarily focus on covering production costs, overheads, and desired profit margins when setting product prices. Environmental and social impacts are often externalized, leading to potential negative consequences for the environment and society.

Green Pricing goes beyond immediate financial considerations and takes into account the long-term effects on the environment and society. It involves assessing the true costs of production, including factors like resource depletion, carbon emissions, social welfare, inflation, exchange rates, political climate, seasonal effects, and other such factors as may be necessary to ensure to safety of the business, the society’s livelihood and general welfare.

Components of Green Pricing

Environmental Impact

Consider a clothing retailer that traditionally prices its products based on manufacturing costs and desired profits. With Green Pricing, the retailer would also account for the environmental impact of materials, manufacturing processes, and transportation. For example, organic cotton might have a lower environmental footprint than conventionally grown cotton.

Lifecycle Analysis

A technology company could apply Green Pricing to its electronics products. Instead of solely focusing on manufacturing costs, the company considers the entire lifecycle, including raw material extraction, production, transportation, use, and end-of-life disposal. This could lead to product designs that are easier to recycle or repair.

Future Trends and Regulation

A food manufacturer might factor in potential future regulations and market trends related to sustainability and health. Green Pricing could result in products with lower sugar content or eco-friendlier packaging to meet anticipated consumer preferences and regulatory changes.

The retail Perspective

Retailers generally control less of the production processes of the items they sell. In their bid to implement green pricing strategies, they should focus more on factors that will ensure their survival after meeting all the regulatory, financial, and social requirements of the business. Such a strategy might not give immediate benefit but will provide the needed assurance that the business has a life in the foreseeable future, hence an assurance of the going concerns of the brand.   

Communicating Value

Green Pricing involves transparently communicating the rationale behind price adjustments. Companies could provide information on how the pricing aligns with sustainable practices and benefits.

Retailers can educate consumers about the positive impacts of Green Pricing. By highlighting the efforts being made to reduce the product's environmental footprint, they can engage environmentally conscious consumers. More social work and sponsorships can be done to keep the brand in the minds of consumers.

The long-term benefits of Green Pricing are market leadership and resilience to factors that may push the business into closure.

Companies that adopt Green Pricing demonstrate their commitment to sustainability, potentially attracting environmentally conscious consumers and setting themselves apart as industry leaders.

Considering future industry dynamics helps companies anticipate and adapt to changing market conditions. By factoring in sustainability, companies can be better prepared for shifts in consumer preferences and regulatory landscapes.

In essence, Green Pricing involves a shift from short-term profit-focused pricing strategies to more holistic approaches that consider the broader implications of a product's lifecycle. This approach not only benefits the environment and society but also positions businesses for long-term success in a changing world. It's important to note that implementing Green Pricing requires careful analysis, collaboration across departments, and a commitment to sustainable business practices.

Writer:

Abdul-Rahim Iddrisu

Iabdulrahim9@gmail.com