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Retail Pricing in Chile

Written By: Gargi Sarma 



Chile has the fifth largest economy in Latin America, with a GDP of $252.8 billion USD. However, its GDP per capita is the second highest in the region, after only Uruguay. Chile is one of Latin America's most stable countries. The country has grown in recent decades. Furthermore, it boasts one of the greatest business environments in the area, ranking among the top countries in indexes such as Ease of Doing Business, Corruption Perceptions, and Global Competitiveness.


Over the last decade, Chile's retail commerce has become increasingly international. Large global retailing chains like Wal-Mart and Carrefour, as well as local operators like Falabella and Cencosud, have grown into Latin American markets, raising competition and adopting new marketing practices and tactics.


Increased price competition has resulted in a wider range of pricing models and promotional offers in grocery shops, supermarkets, pharmacies, and department stores. Discount coupons, product displays, eye-catching signs, discount pricing, and free additional product promotions are now used by stores to create visitors and raise purchase levels. Such unilateral techniques boldly promote the benefits that buyers might expect (e.g., lower prices, and additional items at no extra cost).


The COVID-19 epidemic had a devastating influence on almost every sector of the economy. Construction, transportation, and hospitality all experienced significant decreases. The mining sector, on the other hand, expanded in the previous years, owing primarily to increased metal demand in China.


While the COVID-19 pandemic has had an impact on many stores, it has also contributed to spurring digital transformation in the retail industry. Leading merchants have made significant investments in leveraging their own applications and providing delivery options.


However, the massive influx of active participants via e-commerce and increased customer demand caused the distribution system to collapse, with merchants and couriers unable to cope. Pricing and promotions have the greatest influence on consumer choices for stores, yet brands and retailers continue to modify prices and promotions based on limited information from expensive, time-consuming, and incomplete audits of competition approaches.


Market Share:


In Chile, the distribution sector is highly concentrated, with only a few operators accounting for the vast bulk of overall sales. 


Figure 1


In Chile, there are eight major supermarket chains that target distinct client profiles with varied store formats and are located throughout the nation. In 2020, Chile's major supermarket groups were (US Department of Agriculture):


  • Walmart Chile, the country's largest supermarket chain by revenue, with a market share of around 12.9%, operates 363 locations under the Lder and Express de Lder brands.

  • Cencosud, with a 7.5% market share, operates 247 hypermarkets and supermarkets under the Jumbo and Santa Isabel brands.

  • SMU is the third largest chain, with a 6% market share and 290 Unimarcbrand outlets.

  • Tottus (owned by Falabella), has a 2.1% market share with 69 hypermarkets and supermarkets






Figure 2


Consumer Behavior:


Consumption in Chile now indicates social status rather than meeting basic needs. Growth in the nation has made it possible for customers to buy higher-quality goods. Aside from quality, availability, durability, technology, customer service, and customer experience, price continues to be the primary determinant of purchases. Consumer confidence has been rising since 2021, despite the ongoing Covid-19 epidemic and the conflict in Ukraine. Purchases can be done online as well as at physical stores. Consumers frequently browse things online before purchasing them at a shop. E-commerce platforms are expanding, and according to ecommerceDB, online sales increased by 23% annually to $7 billion in 2021. Although consumers are usually accepting of foreign brands, they could favour local brands for some goods (like wine). Nearly 70% of Chileans say they are independent of brands, which indicates that they are not particularly brand loyal. Social network access is expanding nationwide, but primarily for amusement. However, some customers look to brand profiles to learn more about products. In general, Chileans have enough faith in the government to secure their personal information.


Figure 3


The environment is being respected more and more while making purchasing decisions. Chile is regarded as having the best environmental awareness in all of Latin America. More and more consumers are reading the labels on the goods they buy. Through marketplaces or thrift shops, the secondhand market has grown. 

In 2020, online sales of food and beverages reached 1.2 billion and increased by 133% (US Foreign Agricultural Service).


Be mindful of Chileans' distinctive consumption patterns:


  1. Price: Chileans have a tendency to be price sensitive, particularly during uncertain economic times. About 52% of consumers search for deals when they shop. But quality, durability, and comfort are typically more important than pricing. 42% of Chileans would rather spend their money on fewer, higher-quality things. 

  2. Technology: When making decisions for their businesses, Chilean enterprises typically hunt for the most recent technologies, particularly to stay ahead of rivals. To uncover domestic and international ideas that can help them optimise their operations, some even advertise technological bids and hackathon-style competitions. 

  3. Payments: Chilean consumers frequently break up large purchases into several smaller payments. Look for partners who can assist you in providing this option locally. 

  4. Purchasing Decisions: Chileans conduct web research before making purchasing selections. Even if you aren't seeking to sell online, fully localising your online presence is important and goes beyond simply translating your website into Spanish. Local distributors and partners will benefit from having a local digital presence as well. 


Figure 4


Adapting to the business environment in Chile:


Too direct or sales-oriented of an approach may not be well welcomed by Chilean counterparts, who want to establish a rapport first. 


  1. Creating trust is crucial: Expect a longer sales cycle so that trust can be built before any deals are closed. You can gain contracts more quickly if you have local partners with established networks, or "pituto." Contrary to popular belief, this is not corrupt. Overall, corruption is low in Chile, and businesses value transparency at every stage.   Keep in mind that Chile's industries, especially retail, are highly concentrated, with a small number of enterprises controlling the market. This makes it simpler for a business to enter the market, but it also gives buyers more negotiating power and emphasises how important it is to establish long-lasting connections. In Chile, people are very close to one another, and if you're new to the market, it only takes a few weeks to make or break your reputation.   For direct sales, the gross margins for consumer items range from 30% to 50%. The overall gross margin is divided when an importer and a distributor are involved, with each receiving 20% to 30% of the total. 

  2. It's crucial to set your product apart from those of rival nations: You'll probably encounter competition from goods and services coming from Asia, the US, and other Latin American nations given Chile's wide free trade agreements. Both businesses and customers consider the price while making purchases.It's crucial to distinguish your offering from others and make any distinctions, such as those related to availability, technology, or durability, evident. In order to swiftly discover local partners who can offer these services, keep in mind that Chileans place a high value on assistance and customer care. 

  3. Expect a combination of in-person and online purchasing: The use of online B2B platforms is becoming routine for procurement teams in the private sector. Agents still prefer face-to-face talks, thus many of these tools are utilised to promote offline sales.


Public procurement is almost exclusively conducted online through 2 main channels: 


  • Over 850 public bodies in Chile are connected to providers through ChileCompra. In 2021, it listed public acquisitions totalling more than $7 billion USD. 

  • Focusing on small and medium-sized businesses is MercadoPblico. In 2021, it also disclosed approximately $7 billion in public purchases.


New Zealand businesses can compete for public contracts on an equal level with regional firms under the P4 free trade agreement.


Retail Pricing:


Chilean pricing begins with a simple calculation based on Cost, Insurance, and Freight Import (CIF) value: costs plus relatively consistent ship-to-warehouse expenditures. When a distribution system is in place, consumer products' gross margins range from 30 to 50 percent or higher for direct sales to consumers, or from 20 to 30 percent for the importer/distributor and the retailer. The final price for mass-market items should be competitive with Asian and Brazilian imports. To thrive, higher-priced commodities must establish specific market segments. More specialised products are offered by stocking distributors or commission agents, who typically earn 5 to 10% profit margins on their sales.

Depending on the product or service, the price can be a major selling point in Chile.  Competitively priced products from Taiwan, China, India, and South Korea frequently outsell more expensive European or North American products, particularly in consumer product categories such as electronics, appliances, and vehicles.


However, reliability is especially crucial to consumers when purchasing goods such as modern electronics or heavy machinery; as a result, Chilean buyers frequently prefer more expensive US or European products.  While price is still an important component in purchase decisions, other factors such as quality, durability, technology, customer support, and service availability will also affect the decision. The importance of each factor is determined by the industry, the client, and the application.


We can say that retail pricing in Chile is typically decided by a combination of factors such as manufacturing costs, import costs (if relevant), distribution costs, taxes, competition, and market demand. Here's a rundown of how retail pricing is often done in Chile:


  1. Calculating costs: Retailers assess numerous costs associated with acquiring or producing the goods they offer when calculating costs. This comprises raw material costs, labour costs, manufacturing or importing charges, packaging, transportation, and any other expenses spent in the supply chain.

  2. Import charges & Taxes: If the goods are imported, retailers consider import charges, customs fees, and other taxes that may be assessed on imported goods. These expenses are usually rolled into the ultimate retail price.

  3. Distribution and operational costs: Retailers factor in costs associated with storing, handling, and delivering products. This comprises warehousing, logistics, transportation, and operating overheads including rent, utilities, and personnel compensation.

  4. Competition and Market Analysis: To develop their pricing strategy, retailers examine the competitive landscape. They examine the cost of comparable products offered by competitors as well as the value proposition they provide to clients. Pricing decisions are also influenced by market demand and customer preferences.

  5. Profit Margin: To establish a viable business model, retailers include a profit margin in their price calculations. The margin varies depending on the type of product, market conditions, and the overall price strategy of the retailer.

  6. Sales Taxes: Most goods and services in Chile are subject to a value-added tax (VAT), known as the Impuesto al Valour Agregado (IVA). The current average rate is 19%. Retailers must include the applicable VAT in the final selling price and must remit the tax to the government.

  7. Price Display and Transparency: Retailers are obligated by law to plainly and visibly display prices for customers. Any applicable taxes or fees should be included in the advertised price, and any discounts or promotions should be clearly noted.


It is crucial to remember that pricing practices differ between shops and that unique rules or industry norms may influence pricing in some areas. Furthermore, changes in currency exchange rates, inflation, and government regulations can all have an impact on retail.


Common Retail Pricing Practices in Chile:


Retailers in Chile use a variety of price techniques to attract customers, increase sales, and stay competitive in the market. Here are some examples of prevalent retail pricing techniques in Chile:


  1. Everyday Low Prices (EDLP): Retailers use a consistent pricing strategy by consistently offering comparatively low costs. This technique seeks to attract price-conscious customers while also building loyalty based on affordability and value.

  2. Promotional Pricing: Retailers utilise temporary price reductions, discounts, or promotions to boost sales and instil a sense of urgency in customers. Limited-time specials, buy-one-get-one-free deals, seasonal discounts, and clearance sales are examples of these promotions.

  3. Competitive Pricing: Retailers set their prices to be in line with or somewhat lower than their competitors' prices. This method enables them to remain competitive in the market and attract customers who evaluate prices before purchasing.

  4. Price Bundling: Price bundling occurs when retailers combine two or more products or services and sell them at a lower price than if they were purchased separately. This method encourages clients to purchase additional things while increasing the perceived value of the offer.

  5. Price Skimming: Price skimming is a tactic that entails charging higher initial pricing for new or innovative products. Retailers want early adopters and customers prepared to pay a premium for the most recent products. Prices may be reduced over time to appeal to a broader customer base.

  6. Psychological Pricing: Retailers utilise pricing strategies that capitalise on their customers' psychological proclivities. For example, to create the perception of a lower price, they may put prices just below a round figure (e.g., $9.99 instead of $10). This method is intended to entice clients and increase revenue.

  7. Price Matching: Price matching occurs when a retailer offers to match or beat the price of a competitor for identical goods. This method guarantees customers that they are getting the greatest bargain possible and encourages them to buy from that retailer.

  8. Premium Pricing: Some stores portray themselves as high-end or luxury brands, charging higher costs in order to generate a sense of exclusivity and greater quality. Customers who are willing to pay a premium for prestigious items or services are targeted by this method.


Depending on market conditions, product categories, consumer segmentation, and other considerations, retailers may mix different pricing methods or alter their strategies. In order to optimise their strategy and maximise profitability, retailers may undertake pricing experiments or analyse customer data.


Conclusion:


Emerging retail pricing prospects in Chile can be influenced by a variety of variables, including changing customer behaviour, technological improvements, and market dynamics. Here are a few examples of emerging retail price prospects in Chile such as omnichannel pricing integration, subscription pricing models, personalization and customization, data-driven pricing optimization, etc. 


Retailers must constantly watch market changes, consumer preferences, and technological advancements in order to uncover emerging price opportunities that correspond with their target market and corporate objectives.


About RapidPricer


RapidPricer helps automate pricing, promotions, and assortment for retailers. The company has capabilities in retail pricing, artificial intelligence, and deep learning to compute merchandising actions for real-time execution in a retail environment.


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