Shoppers Weigh In On Pricing And Promotional Strategies: What You’re Doing Right And Wrong, And What You SHOULD Be Doing
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]
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For retailers, the temptation to repeat outdated pricing strategies and raise prices to get a short-term margin boost when supplies are scarce now carries the ultimate risk: losing existing shoppers to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.