Wayfair: Pricing Strategy & Gross Margin
Former Associate Director, Pricing Strategy and Analytics at Wayfair
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Wayfair: Pricing Strategy & Gross Margin(January 26, 2022)
Shaloo Savla
Former Associate Director, Pricing Strategy and Analytics at Wayfair
Shaloo is a Former Associate Director at Wayfair where he worked within the Pricing and Analytics division. His team was responsible for measuring, monitoring, and managing the pricing strategy of over 10m SKU’s at Wayfair. He worked closely with the two founders to understand exactly how to manage and improve gross margin.
In Practise Notes
- Interesting that Wayfair replicated Amazon's pre-meeting reading notes policy.
- Wayfair operates completely differently to traditional furniture retailers in that it doesn't own inventory and it sets prices programmatically rather than cost plus.
- Wayfair is aiming to build a home brand that drives more organic traffic, higher repeat rates, and more price inelastic demand. If this plays out, it should drive W gross margins higher
- Wayfair's three components of pricing: 1) COGS 2) Price inelasticity 3) Market / Competitor pricing Each component is estimated and priced in real time
- Wayfair optimises contribution margin for each item based on the pricing components.
- Higher CasteleGate penetration will drive higher gross margin and loyalty plus higher turns for suppliers.
- Because W doesn't own inventory, most of the product discounts are supplier-funded and don't impact gross margin for Wayfair.
- Interesting comments on the value of WayDay
- A key risk for Wayfair is whether it can build a home brand that drives loyalty. Higher repeat buying = more inelastic demand which drives profitability. If this is not the case, Wayfair doesn't have any brand equity and it will likely have to compete for attention on price vs AMZN and comps.
Interview Transcript
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