Capitalizing on market uncertainty caused by M&As

September 19, 2016By Industry Intuition, Views

By Dave Wendland, as seen in Chain Drug Review, August 8, 2016

Editor’s note: This is the third article in a four-part series.

With no immediate slowdown in sight, mergers and acquisitions continue to emerge each day. This series of articles began with the "survivors" in mind — organizations left standing amid the fever pitch of disruptive activity.

In my last column I offered some examples of "innovation" within three possible areas to rise above the M&A dust cloud. This column examines pricing strategies and ways to capitalize on the market uncertainty often created by two newly merged companies struggling to find their new footing.

Price strategy adjustments and/or directional changes have been utilized more in recent years as traditional retailers have been faced with the need to maintain relevance to their constituency when market shifts occurred. Take for instance the reaction (some examples below) among traditional food and drug retailers to recent mergers within the value channel (dollar stores) and the emergence of "deep discount" grocers such as Aldi or Lidl.

Pricing strategies are reviewed not necessarily to reduce prices, but rather to be price smarter. And, of course, it is no secret that pricing strategy plays a key role in customers’ perceptions of a retailer.

The essence of strategic pricing and its management is to provide consumers an attractive selection of products that meet their needs at price propositions they are willing to pay while returning an acceptable margin. That said, the goal of any pricing strategy or adjustments based on market disruptions is to maximize top-line revenue in a way that builds sustainable bottomline growth while supporting shopper loyalty and market share.

Here are some examples of recent price strategy shifts:

In May, BJ’s Wholesale Club Inc. announced new strategies in retail price optimization not only to become more competitive where needed but also to shore up profits in other areas. BJ’s is deploying a dynamic solution across its enterprise to deliver competitively priced assortments to members through a three-year contract with Revionics Price Suite. The suite will help BJ’s improve its pricing capabilities and right price its assortment based on market conditions. The management and price optimization solutions will help improve member-centric prices while taking the competitive landscape into account, as well as align brand and size parity among its single and multipack products.

Wal-mart is another retailer directly in the crosshairs of this invigorated competition, primarily from dollar stores and Amazon. com Inc. Wal-mart has worked to sharpen its pricing and offer broader assortments in certain categories that greatly expand options for shoppers.

Target Corp. has also responded to market disruption through the introduction of its more aggressive price match policy in late 2015 extending to brick-and-mortar competitors, including club stores. As the price gap has narrowed, Target is making significant investments to reestablish its competitive advantage as the low price leader.

Suppliers working with retail partners can also tap into competitive intelligence gathered by research companies, such as Competitive Promotion Report LLC, to position themselves for success within the new market.

Understanding when, how and where promotions are being executed provides valuable insight when developing competitive approaches. Strategic insights often emerge from exercises such as this.

This quick examination of pricing reactions and actions based on merger activity is certainly not the first time it is being addressed.

In fact, during December 2012 the Federal Trade Commission studied how retail mergers affect competition with a strong emphasis on consumer pricing. The study estimated the price consequences of horizontal mergers in the U.S. grocery retailing industry and examined 14 regions touched by mergers, including markets that were highly concentrated and those that weren’t. It identified price effects by comparing markets affected by mergers to those unaffected, using both difference in-difference estimation and the synthetic control method.

The FTC discovered that mergers in highly concentrated markets are most frequently associated with price increases, while mergers in less concentrated markets are most often associated with price decreases. More information on this study may be found at

Tumult caused by mergers and acquisitions creates an excellent time to reevaluate your value proposition, improve and/ or refine assortments, and drive down operating costs. This may stop a mass exodus of otherwise loyal shoppers, and produce a return to sustained profitable growth. Additionally, it presents an ideal opportunity to validate overall pricing objectives and market positioning.

Pricing matters. Consider that a 1% improvement in price realization within a retailer can deliver $10 million in increased profits for every $1 billion of annual sales, far surpassing the impact of a 1% improvement in COGS (cost of goods sold) and other costs. This is according to a report published by IRI in August 2015, "Drive Margin Growth of 1 to 3 Percent With Collaborative Pricing Strategies."

Instead of reacting to the industry transformation that’s occurring, smart retailers use the opportunity to recalibrate pricing practices so their organizations can remain competitive and continue to grow.


The focus of this editorial series is on retail reactions to competitive mergers and acquisitions and addresses such issues as internal change, in-store innovation, and service levels.