Twelve months in, the grind of a lingering pandemic means that fundamental shopper behaviours have been significantly transformed – and shoppers will never return to pre-COVID patterns. Faced with mandatory store closures, coupled with long queues for many that remained open, even reluctant digital adopters flocked to online channels. In fact, a recent global shopper study surveying respondents in Brazil, France, Germany, the UK, and the US found that 77% of shoppers say they always or often shopped in-store pre-COVID, and that has fallen sharply to 43% during the pandemic. Only 54% of shoppers say they anticipate returning to always or often shopping in-store after the pandemic.[i]
Shopper loyalty, fragile even during pre-pandemic times, is further frayed as shoppers facing economic uncertainty and hardship grow more price-sensitive – and more suspicious of what they perceive as out-of-line prices. Here the data is equally stark: the same study found that nearly 3 in 4 shoppers (74%) report encountering unfair or arbitrary prices during COVID, and 56% of shoppers who perceived unfair prices won’t commit to returning to shop at that retailer again.
Price has always been king in retail, and clearly, price is more important than ever. Retailers need to take a deep breath and re-assess their pricing processes, strategies, and capabilities to remain relative in a fast-changing, unforgiving market environment.
Science Keeps Your Finger on the Pulse of Shoppers, Competitors and the Market
Fortunately, today’s price optimization science incorporates AI to separate the signal from the noise and keep pace with fast-changing shopper, competitive and market environments. Using science-based technology enables retailers to know which items shoppers pay the closest attention to. Prices on these Key Value Items are vital in creating and maintaining the retailer’s desired price image. But the profound disruptions shoppers experience now, including stressed families working and learning from home while avoiding in-person visits to shops, have changed consumption behaviors across the board. Long-held assumptions about Key Value Items (KVIs) are often irrelevant – and up-to-date price science surfaces the true, current KVIs, prioritizing those prices that will have the most relevance for a retailer and their shoppers.
🏆
The 2024 Creative Retail Awards are open for entries.
The Creative Retail Awards are much more than a mere accolade; they represent the pinnacle of achievement in the retail industry. Garnering a nomination or winning one of these awards is a testament to innovation, excellence, and leadership.
www.creativeretailawards.com
Yesterday’s pricing behaviors also come up short in today’s demanding landscape. Simple rules-based approaches are clumsy tools that pale compared to finely crafted prices delivered by science-enabled retailers. Manual, human-constrained processes and flows are inadequate in the face of growing data volumes and complexity and rapidly changing conditions. Retailers who position for long-term success are revamping their processes and technologies to support agile, scalable businesses. In fact, a recent retailer survey found that 70% of retailers say they are willing to take humans out of key processes and rely on AI-powered automation and dynamic pricing, and 60% of retailers are focused on putting AI-powered pricing in place.[ii]
Dynamic and Channel-Specific Pricing: Shoppers are Already There
Many retailers feared that dynamic pricing or different prices in different channels would alarm and repel shoppers. But shoppers are increasingly digital natives or very comfortable with the online experience, and they expect to encounter retailer price agility – provided, of course, that those prices stay within the bounds of what they consider fair and reasonable. Retailers who embrace dynamic pricing know that when a price has gotten out of line with shoppers’ expectations they can adjust the prices that matter most to their shoppers.
Dynamic pricing does not mean changing prices broadly across your assortment with frequency. It does mean having the agility to respond to changing demand signals, price sensitivities and competitive elasticities to offer aggressive prices where they matter most to shoppers. Equally important, price science adjusts prices elsewhere in the assortment to recover margin in order to meet targeted financial performance metrics.
Another retail myth is that shoppers expect uniform prices across online and in-store channels. But primary research tells us that shoppers not only tolerate but expect disparities in prices between channels, and that ensuring the retailer meets those expectations is what is most important. This is a critical time for retailers to ensure that they have a balanced omnichannel pricing and promotions approach that dovetails with shoppers’ current requirements.
Reconsider Your Private-Label Strategies
A final area to consider a pricing reboot is in your private-label assortment. The global shopper study revealed increasing shopper preference for private-label over national brands – from 37% pre-pandemic to 43% now. As price-minded shoppers discover the quality and value that private-label products provide, their traditional brand loyalties slip away. It’s an excellent time for retailers to consider how they price, promote and merchandise these critical offerings, which present an opportunity increase shopper trust, loyalty and drive uptake of what are generally margin-rich items.
The Race for Relevance
Time-pressed, wallet-stressed shoppers want the price they expect at the moment they are in the hunt. Retailers in all sectors who successfully leverage science across the full lifecycle – including base price, promotions and markdowns – make themselves relevant and engaging to both existing and untapped market segments. Even better, their ability to quickly and consistently provide the prices and offers that matter to their shoppers ensures the all-important win-win balance: aggressive prices where they matter most to shoppers, with the ability to sustain healthy overall margins for long-term business health.
DemandTec offers AI-powered lifecycle pricing solutions for retailers.
[i] Navigating Current and Future Headwinds: 5 Critical Pricing Lessons from the COVID-19 Pandemic, aProgressive Grocer study commissioned by DemandTec, October 2020.
[ii] Source: “Smart Pricing Strategies for the Post-COVID World,” Tim Denman, Editor-in-Chief,RIS News, June 2020.
