The retail industry has always posed unique challenges for marketing executives, and the current environment is arguably the most challenging yet.
But, finding a productive path forward, savvy retailers are capitalizing on the fact that price matters more to shoppers than ever before. Here are some of the ways market leaders are shaping their price strategies to win customers’ hearts, polish their image and drive measurable bottom-line business results.
1. Know Your Shoppers – No Excuses!
Shoppers have continually demonstrated that they are willing to share their data with retailers in return for the expectation that retailers will provide more meaningful, targeted and relevant prices and promotions. The good news is that there is an unprecedented amount of data available to today’s retailers, not just from shoppers but from competitors and other third-party sources. There are also affordable cloud-based analytics offerings that can deliver deep insights into your shoppers’ true price tolerances. And with detailed demographic data increasingly available, retailers can do sophisticated segmentation of their shoppers.
2. Leverage Modern Technology
Retailer innovators are leveraging modern science-based algorithms that can pick up leading indicators of fast-evolving shopper behaviors and market trends, enabling retailers to predict the impact of a potential price change by factoring in competitive elasticity and shopper price sensitivity, down to the item-store level and across channels.
Retailers can “turn the knobs” to assess various scenarios in terms of their price strategies for that item or category: are they seeking to drive traffic? Maximize margins? Impact unit sell-through? With detailed insights into their actual customers’ behaviors, the retailer can craft meaningful prices on the items that matter most to their shoppers, while still protecting top- and bottom-line results by preventing margin leakage on other items.
Many retailers have had a knee-jerk resistance to this approach, fearing that shoppers would be resistant to the type of algorithm-driven pricing that has long since been accepted in the realms of travel and hospitality, as well from online behemoths like Amazon.com. We questioned that assumption, so we commissioned a large survey conducted by Forrester Consulting[i] of shoppers from the U.S., United Kingdom, France, Germany and Brazil to learn first-hand about their pricing expectations and tolerances – including many findings that defy conventional wisdom.
The survey, which questioned consumers about their price perceptions and shopping behaviors across multiple retail categories, found that an overwhelming 78% of shoppers think it is fair to use data science to increase and decrease prices as long as they are presented with prices they’re willing to pay. This also doesn’t mean it’s the lowest price. Only 17% of shoppers claimed they only purchase the lowest price.
And that leads us to another finding that surprises many: shoppers are even fully prepared for Dynamic Pricing across various retail sectors, with only 6% saying they don’t think it is fair at all for prices to change dynamically. Note that Dynamic Pricing does not mean that prices are constantly changing across all items, but that retailers can offer more frequent, more targeted pricing on those items that matter, at whatever frequency makes sense for their business.
3. Avoid The Price-Match Death Spiral
Many retailers have suffered from the collateral damage of the always-on, always price-aware shopper by falling into the death-trap of seeking to match every competitor’s lowest price on every item. This no-win approach sets off a race to the bottom on a path littered with retailers closing stores or even declaring bankruptcy.
And more importantly, the knee-jerk approach to price-matching doesn’t win customers’ hearts. In the same Forrester study referenced above, only 17% of shoppers surveyed said they would demand price matching on products they wish to purchase with this numbers dropping to 9% in the U.S., 8% in the UK and 4% in Germany.
So while price matters more than ever to your shoppers, they have clear – and measurable – price sensitivities and competitive elasticities that vary quite widely by item. When retailers take the time to carefully assess that detail, they often find that they can sharply reduce the number of Key Value Items on which they must be price-aggressive. No guesswork needs to be involved – leveraging good science-based analytics that are predictive and prescriptive, lets you selectively, meaningfully change prices precisely when and where it matters while protecting your brand image.
4. Craft Promotions That Meaningfully Meet Your Business Goals
Just as pricing has progressed beyond a seat-of-the-pants approach to a data-driven, results-oriented science, so too should promotions be designed to impact your shoppers’ desired behaviors to meet defined business goals. How often has your organization blindly repeated a promotional offer just because you’ve always made that offer at this time of year?
Again, a data-driven analytics approach can become a powerful competitive weapon. Today retailers can get deep insights into the effectiveness of past promotions to understand which offers met their business objectives, and which had no effect or even damaging effects.
5. Channel Matters – But Not the Way You May Think
I’ve seen many assertions that retailers should offer uniform pricing across their in-store and online channels, but that turns out to be another myth that doesn’t stand up to scrutiny. In fact, the Forrester survey found that most consumers do NOT expect online and offline prices of the same product to match. In nearly every sector, shoppers assume online prices will usually be less expensive than in-store prices. A notable exception is groceries, where those assumptions are reversed and shoppers expect more favorable pricing in the store.
The survey also revealed that digital promotions are not necessarily the best way to reach your shoppers. A full 29% of those surveyed say they do not respond to mobile promotions, and 31% do not respond to online promotions. Many shoppers, a full 47%, are somewhat to very sensitive to in-store promotions.
Once again, the data is there for you to know which segments of your shoppers respond to which offers in which channels – as long as you have the analytics to deliver you those insights.
Sustainable, Shopper-Focused Pricing And Promotions: The Retail Nirvana
The bad news is that retailers who rely on outdated approaches rapidly find themselves becoming less relevant, falling further behind in a race that they risk losing completely.
The good news is that the proliferation of shopper and market data means that retailers no longer have to guess which strategies and actions will be effective in engaging their customers. Marketing and merchandising innovators in all retail sectors are leveraging modern self-learning tools that evolve at the speed of market and consumer shifts to deliver solid business results with prices and promotional offers that give shoppers what they want, when they want it.
As the Forrester study noted, “The research highlights the role of technology in delivering contextually relevant promotions and the importance of applied technology in selecting the right portfolio of price and promotion tactics.” Leveraging data-driven solutions for actionable recommendations based on customer demand signals gives retailers a competitive boost, and retailers who choose this path set themselves up for long-term success in an increasingly unforgiving retail landscape.
[i] Understanding Retail Customers’ Pricing Expectations and Tolerances, a May 2017 commissioned study conducted by Forrester Consulting on behalf of Revionics.