September 19, 2023
On Thursday, August 31, 2023 The Works, British discounter for toys, hobby, arts and crafts announced a slide in profits blaming geopolitic and post-pandemic realities. But is it really the case? Our data suggests otherwise
On Thursday, August 31, 2023 The Works, British discounter for toys, hobby, arts and crafts announced a slide in profits for the year as its chief financial officer, Steve Alldridge, made a statement on his intention to leave the firm.
Upon hearing the announcement, the Aimondo Data Team decided to delve deeper into the issue. Is inflation truly the culprit? Is the company employing a strategic approach to pricing, ensuring they capture the full available margin? Or are they leaving significant money on the table by following a "blanket discount" strategy?
To be honest, our expectations were modest. Based on our experience, even large companies seldom pursue a savvy price leadership strategy. Surprisingly, even some major players often neglect this, assuming their brand name alone will ensure they remain in consumers' consideration. However, the results of our analysis on a random sample of products were startling, and not in a good way.
For our analysis, we selected random products from the toy category where The Works competes against several major players like OnBuy, Smyth Toys, a variety of Amazon sellers, and others. There's a screenshot that shows product range overlap between multiple market players.
The first observation we made: despite The Works' aim to position itself as a discounter, it doesn't consistently offer the lowest prices, at least for the products we examined.
For the products where The Works did offer the lowest price (where their market position is #1), they could raise their prices by up to 90% and still retain their price leadership position. What kind of pricing strategy is that? Even for products where their offer isn't the cheapest, there's a staggering price gap between The Works and the next competitor (sometimes as high as 40-60%).
Based on these data insights, it's no surprise then that they report a significant decrease in profit margin. It's evident that strategic margin control isn't their priority.
One could argue that this aggressive pricing strategy is part of a broader plan. Perhaps the company is using penetrative pricing to dominate consumer consideration while tapping into the prevalent trend of deal hunting. Yet, squandering up to 90% of the margin doesn't seem like a well-considered strategy, especially considering there's virtually no risk in raising those prices. Customers seeking the best deals would still choose The Works.
Do you believe The Works is making smart moves? Does your own company utilise market intelligence and price monitoring tools to dynamically adjust prices? It's certainly food for thought.
If you you have not checked out yet our free pricing management course where we cover everything from the basics to consumer behavioural biases, to the most useful in this filed of work data analytics models like multiple linear regression — you're welcome to do so.
Tech Lead with a background in academia, Phd in Computer Science
Step-by-step guide on maintaining high profitability in retail.