By Cheryl Sullivan, Revionics
Dynamic Pricing, or high-frequency pricing, is a growing trend in the retail industry. It is being driven by the digital explosion, hyper-competitive environment and the ever-connected shopper who is non-private, no longer loyal to any retailer, brand or product and where price is the primary driver of their purchase decision.
Amazon has been employing dynamic pricing for quite some time, changing prices every few seconds with as many as one to two price changes per day on a single item. With the growing shift of sales to e-Commerce across all categories including grocery, the need for retailers to adjust their pricing on a more frequent basis has never been greater. According to the NRF(1), online retail will grow 8% to 12%, suggesting that e-Commerce sales are poised to fall between $427 billion and $443 billion based on Census Bureau data.
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But what about the brick-and-mortar retailer? Surely, they are exempt from this growing phenomenon, or are they? News flash: you no longer compete just with the retailer down the block! You now compete with retailers around the world and you are only one stop on the shopper’s path to a purchase.
Brick-and-mortar retailers have been leveraging Price Optimization technology for several years. This sophisticated technology combines shopper behavior and competitive pricing data, with self-learning science that understands shoppers and competitive price elasticities, pricing policies and strategic objectives to determine the optimal price that a shopper is willing to pay while maximizing retailer margins. This can be done for every item in every store in a matter of minutes. Yet, due to labor constraints, retailers merely take a fraction of recommended price changes, leaving untapped margin on the table and customers at risk.
The days of getting away with limited price changes are gone. Today, progressive in-store retailers are combining the power of dynamic price optimization with technology that has been around since the late 1990s — Electronic Shelf Labels (ESLs). They are now making mass price changes every night to keep up with the shopper and competitive pressures. This doesn’t mean they are changing prices on every item in the store. Dynamic pricing solutions monitor the market for shifts in shopper demand and the competitive landscape, only recommending a price change for an item when it’s warranted.
So what do shoppers think about this? According to a recent Forrester study commissioned by Revionics(2), 78% of shoppers said they are okay with retailers using data science if they are offered a fair price — one they are willing to pay. And contrary to popular belief, that fair price doesn’t mean they demand the lowest price or want the exact price of a competitor. According to the Forrester study, only 17% of shoppers claim to buy products at the cheapest price or demand price matching.
To survive in retail today, all channels are fair game when it comes to competing for the shopper’s basket. With agile technology infused with machine-learning science, retailers can come up with the optimal price at any frequency necessary to compete and win at retail. Don’t get left behind because you want to employ the traditional retail practice of being first at being second. In today’s hostile competitive environment, only those who move first will be around long enough to play the second inning of this game.
(2)
A commissioned study conducted by Forrester Consulting on behalf of Revionics, May 2017.
Cheryl Sullivan is Chief Marketing and Strategy Officer for Revionics. She is a proven retail & CPG product management executive with 20 years of experience in driving product strategy, product management and program management. Prior to joining Revionics, Sullivan was Senior Director of Product Strategy for Oracle Retail, driving vision, strategy and roadmap across all Category Management, Assortment, Pricing, Promotion and Space solutions. The Category Management Solution was the 2nd highest revenue generating product within Oracle Retail’s Merchandise Planning & Optimization solutions over the last five years. Prior to Oracle, she served as VP of Product Management for both ems and Spectra Marketing and VP of Category Management for Intactix and i2 Technologies.
