Why Should Your Pricing Strategy Consistently Evolve?

By Karthik V J, 
Senior Manager – CEO’s Office
SunTec Business Solutions          

The News

Wilko is, or probably was, a high-street retail chain, famous for selling homeware and household items, at a low price. But recently, it faced significant financial difficulties and allegations of poor management.1 As a result, in September 2023, Wilko sold off its brand name, website, and intellectual property to The Range, another retail chain.

This brought an end to a nine-decade history. The demise of Wilko has several lessons for other organizations on the need to evolve their pricing strategy as customers and their demands change.

The Insight

Wilko always played a significant part in the lives of British citizens. With more than 100 stores widely distributed across the UK, it was the de-facto shopping destination for household products. Established in 1930 by James Wilkinson, the store had close to 500 stores at its highest point. It was always a family-run business with James Wilkinson, his son, and his granddaughter at the helm of the business.

The early success of Wilko can be attributed to the fact that its low prices resonated with the prevailing economic situation during The Great Depression. People valued anything that was functional and at a low price. And things stayed the same even after the Second World War as shopping at Wilko became a habit rather than a novelty.

But things started taking a turn for the worse around 2018 when Wilko touched its highest revenue followed by a steep decline in popularity and revenue. And the pandemic certainly didn’t help as Wilko’s supply chain was not resilient enough to withstand the disruption of those years.

But one of the main reasons for Wilko’s decline was its inability to evolve its pricing strategy.

You see, in its initial years, Wilko did not have to compete with other low-cost retailers. Yes, there were some small retail chains, but there were none that could compete with Wilko. Over the years, the emergence of retail chains such as Poundland and B&M intensified the competition. Suddenly, there were other retail chains that were offering similar or even lower prices. Wilko decided to persist with its low-cost strategy despite having no means to engage in a long-haul price war. The lesson – you can compete on price only when you have deep pockets or the certainty of winning in the long term, but it is not advisable to get into a price war as it can get ugly.

Wilko’s persistent focus on price alone meant that it ignored its core strength – its product portfolio. As customers change, and as their expectations evolve, it is important for organizations to revamp their product portfolio and pricing strategy. But Wilko did not do either of these and ultimately paid the price.

It is also important to note that Wilko was always conceptualized to be a high-street retail chain but with a focus on traditional town centers that were meant for customers without cars.2 But after the pandemic, customers preferred larger retail outlets, even if they were far away from the town. Rival chains had moved their stores to out-of-town retail parks that offered cheaper rents, cheaper business rates, and free parking.3 In fact, organizations came up with innovative pricing approaches to attract shoppers to their far-flung stores. For example, IKEA came up with a pricing approach called “Pay with your time,” through which customers traveling to its IKEA stores were given discounts based on the distance they traveled.4 Wilko never adopted any of these innovative pricing approaches and were not able to keep up with its competitors.

The pandemic also changed customers’ buying habits and their aspirations. With travel being limited, a large portion of Wilko’s customers had money to spare which they were investing – as evident from the growth of the stock indices in the years that followed the pandemic. Their ability to pay and willingness to pay shifted, but Wiko’s prices did not pace with this change. There was also the problem of its inconsistent pricing strategy across its retail and online channels.5 This further led to inflationary pressures. But, because Wilko was stuck in its trap of low-cost pricing, with a not so resilient supply chain, they faced tight margins – one of the first nails in the coffin. In hindsight, a more flexible, consistent, and agile approach to pricing would probably have helped.

Wilko failed to understand the changing consumer and their evolving requirements. As a consequence, they were unable to compete with firms such as IKEA and Dunelm in terms of the value of their product offerings.6 Remember, value drives the price, and this reduction in value meant that customers moved away from Wilko. In other words, organizations must aim at a strong understanding of the value that their customers expect and must align their prices accordingly.

It is an irony that Wilko, which stepped into the gap created by Woolworth’s demise in 2008 succumbed to pressures that initially helped it succeed. Part of the British culture, and a one-time leader in the ‘value’ shopping category, Wilko would have continued to flourish, if it had evolved its pricing strategy, and probably had a more consistent leadership. But its downfall certainly offers important lessons in pricing for the other players in the industry, especially those who aspire to be leaders in providing products that deliver great ‘value’ to its customers at low prices.

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