Retailers are increasingly aware that yesterday’s business processes and technologies are hopelessly out of date with retail realities of today – not to mention of the future. The proliferation of competition, both online and brick-and-mortar, the rise of digital-native shoppers and the reality of 24×7 complete transparency were apparent even pre-pandemic. But the global COVID outbreak accelerated the migration to online channels as a primary preference. In fact, a global shopper study showed a five-fold increase, from 7% to 35%, in the number of shoppers who were primarily online during the pandemic compared to pre-COVID.[i] 

As retailers in Europe and beyond look to the post-pandemic era and refocus on their retailer transformation initiatives, they fully appreciate that many of these newly online shoppers will not return to in-store shopping as their default. In fact, a March 2021 global shopper study revealed that only 28% of shoppers indicate they will shop ‘always’ or ‘almost always’ in-store in the future, a 30-point decrease from pre-pandemic.[ii]   Retailers who considered online pricing, promotion and markdowns to be mere afterthoughts to their brick-and-mortar focus will need to radically recast their approach. The imperative for AI-based optimization with channel-aware capabilities will be urgent across every stage of the pricing lifecycle. 

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Cheryl Sullivan, President and General Manager, DemandTec

Price Transparency Drives Home the Need to Get Prices Right

While retailers were acutely aware of intense price transparency even pre-pandemic, the flood of online shoppers only served to accelerate the trend. Moreover, as COVID set in, shoppers experiencing economic hardship and uncertainty grew increasingly price sensitive. Shoppers in the study from earlier in the pandemic reported widespread perceptions of unfair or arbitrary pricing from retailers – with three out of four (74%) reporting encountering such prices, and 56% of shoppers were unlikely to or would not shop with that retailer again. In fact, among shoppers encountering unexpected prices, very few report that they would not change store preference and would continue to shop at that store: 27% in the UK, 29% in France and 22% in Germany.    

The one constant amidst all the change is the importance of price – as always, it remains the single most important factor when shoppers decide where to shop and in how they perceive their shopping experience. The earlier study revealed that 34% of shoppers rank price as the most important factor contributing to their overall shopping experience, with product quality (28%) and product availability (18%) lagging significantly as #2 and #3. Retailers must get prices right, particularly on those Key Value Items most critical to shoppers’ perception of the retailer’s price image, and the ability of science to accurately separate demand signals from the noise and generate price recommendations that meet shopper expectations is now table stakes.

Meeting Shopper Price Expectations and Perceptions that Vary by Channel

Leaving aside dated assumptions that shoppers demand identical prices for each item, whether it’s online or in the store, the reality is that shoppers expect and accept different prices by channel. Once again, retailers who leverage channel-aware science are able to craft prices that meet shoppers’ expectations on the items they pay most attention to, while knowing where they can safely recover margin elsewhere in the mix on less price-sensitive items. 

Interestingly, the 2021 shopper survey found that while shoppers in many sectors report noticing more frequent price changes than in the pre-pandemic era, more of them feel good about online prices that they do about in-store prices. For example, online grocery shoppers globally who buy locally for home delivery or remotely for delivery by shipment, report price satisfaction rates of 56% and 53%, respectively, but only 35% of them feel good about prices in-store. This is even more pronounced in the UK, where only 11% of shoppers feel good about in-store prices. Retailers must rethink business processes and technologies to ensure that they take a fluid, science-informed approach to pricing in each channel to avoid losing shoppers to more agile competitors.

The Rise of Private Label

An environment of heightened price transparency and price sensitivity presents a significant opportunity for retailers in the realm of private-label items. Whether because of a period of supply chain disruptions or budget-consciousness or both, shoppers last summer reported a significant growth in their purchase of private label products over the national brand from pre-pandemic times, from 37% to 43%. 

The spring 2021 results are even more intriguing with 80% of shoppers saying they see private-label as being of similar or higher quality than national brands – a striking reversal from traditional perceptions. It’s the perfect time to re-think the role of your private-label offerings, and to leverage price optimization science to bring those roles to life at the shelf or online to grow basket size, share of wallet and profitability with these traditionally higher-margin products.

The dynamic nature of today’s shopper, competitive and market behaviors presents challenges to retailers who cling to manual, human-led and reactive business processes – as well as rewards for those retailers who take the opportunity to automate, innovate and adopt technologies that keep pace with the accelerating rate of change. The reward for those who adopt AI-based pricing is the elusive win-win: prices that engage and retain fickle shoppers, with business results that contribute measurably to achieving financial goals.

www.demandtec.com


i Source: Navigating Current and Future Headwinds: 5 Critical Pricing Lessons from the COVID-19 Pandemic, Progressive Grocer, October 2020.

ii Source: 2021 Outlook on Shopper Behaviors and Perceptions, Progressive Grocer, March 2021.

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