By
Cheryl Sullivan, Revionics
The
pace of change in retail is more breathless than ever, and today’s always-on,
cross-channel shopper has preferences and tastes that evolve at the speed of
social media. Meanwhile the competitive landscape continues to increase in
scope and complexity as global discounters extend their reach and Amazon and other
online giants rush into more and more market sectors and geographies.
This leaves a retail landscape littered with
unfortunate casualties, both in the form of bankrupt retailers and in gems of
conventional wisdom that are blown to
pieces. To find out the true state of retail affairs, Revionics went straight
to one of the most highly respected sources in retail
— commissioning Forrester Consulting to survey shoppers in the U.S., UK,
France, Germany and Brazil.[i]
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One
of the most astounding findings of the
study is in direct contradiction to the law of supply and demand you learned in
Economics 101: many of today’s shoppers are extremely patient and are NOT
willing to pay higher prices when an item has limited availability. Among
respondents, 59% said that if they felt prices had been unfairly raised due to shortage of an item, they would wait to
purchase, not purchase at all, or purchase from a different retailer. In fact, 31%
of shoppers said they would wait as long as it takes for
the right price.
For
retailers, the temptation to repeat outdated pricing strategies and raise prices to get a short-term margin boost when
supplies are scarce now carries the ultimate risk: losing existing shoppers to
competitors, perhaps forever.
Other study data points revealed
a greater issue for retailers: leaving money on the table by offering
promotions that are at best misguided, fail to achieve the retailer’s strategic
goals, and damaging to the top and bottom line. This baffling and completely preventable margin leakage jumped out loud
and clear, as 52% of shoppers reported receiving daily or weekly promotional
offers on items for which they happily would have paid full price. On the flip
side, 47% of shoppers reported receiving daily or weekly promotional offers
that they don’t use (for the U.S., this number skyrockets to 56%) — a huge miss
in terms of putting resources into
strategic efforts that don’t resonate at all with their targets.
But there’s good news for retailers as well. The explosion of
shopper, market and competitor data combined with today’s high-speed data
analytics enables retailers to get deep granular insights into exactly what
items matter most to shoppers, will drive their price image or perception of the
retailer and where they need to craft a unique pricing strategy that would
include a more aggressive price and promotions approach.
At
the same time, Artifical Intelligence (AI)-based
machine-learning price and promotion optimization algorithms can understand
shoppers’ price sensitivities across the full assortment, across touch points
and channels. Although it’s no secret that today’s shoppers are highly price
sensitive, in reality they are only price sensitive to a fraction of the
retailer’s assortment. The science is able to make price and offer
recommendations that are viewed by shoppers as non-arbitrary, and on those most
sensitive items, while being able to recover
margins on selective items without alienating shoppers. They can help you avoid
leaving precious money on the table by immediately identifying and eliminating
counter-productive promotions offers, as well as giving highly targeted
recommendations for offers and items down to the promotional vehicle level
(circulars, end-caps, mobile, web, etc.).
The study also found that
shoppers rank pricing higher than all other factors (speed of delivery,
quality, free shipping, etc.) as the number one factor when deciding where to
shop across multiple store formats (discount, apparel, grocery, DIY). This held true regardless of whether they were
shopping online or in-store.
Again, machine learning technology not only
gives retailers detailed insight into price elasticity down to the item level,
enabling meaningful Key Value Item (KVI) analysis, but it also illuminates
variations in shoppers’ price sensitivity by item across channels. Given that KVIs
are items that shoppers watch very closely and where they are very attuned to
pricing, but that these shopper preferences change rapidly, the ability of
machine-learning algorithms to detect changing market signals in real time is
critical for retailers to stay competitive where it matters most to shoppers.
The result is a powerful win-win: you can more
crisply define and achieve your price image, maintain a highly focused
competitive strategy, and know where you can recover margins on less-sensitive
items to sustain a healthy long-term business.
[i] “Demystifying Price and Promotion,” a commissioned study conducted
by Forrester Consulting on behalf of Revionics, November 2017.
Revionics Chief Marketing and Strategy Officer Cheryl Sullivan is a proven
retail and CPG innovation executive with close to 30 years of experience in
leading teams to deliver high-impact products that meet the needs of retailers
worldwide. She has spearheaded industry innovations that drive measurable
business impact and profitability for many large retail and CPG organizations
globally. Prior to joining Revionics, where she leads corporate marketing and
strategy, Sullivan was the Senior Director of Product Strategy for Oracle
Retail, driving vision, strategy and roadmap across all Category Management,
Pricing, Promotion, and Assortment & Space solutions.
