No matter what markets a retailer is in, today’s retail landscape is unquestionably challenging: always-on shoppers demanding complete transparency and an increasingly globalised and aggressive competitive environment. The result is the ever-present threat of a death-spiral as retailers cut prices and offer promotions in a race to the bottom as they try to match competitors online and in-store on every front.
Luckily, there is a better way – leveraging artificial intelligence-based price and promotion optimisation to identify the shoppers and competitive price elasticities for each item and know exactly which items must be priced competitively, and against exactly which competitors, to remain engaging to customers. At the same time, optimisation tools provide insight into where the retailer can recover margin to structure the business for long-term health and sustainability.
To learn more about what makes prices and promotions relevant to shoppers, we commissioned Forrester Consulting to survey shoppers in the U.K. and Germany, as well as the U.S., France, and Brazil i. Overall the research surfaced an enormous amount of wasted retail effort in the form of misguided promotions, with 52% of the promotional offers from retailers going to customers who say they would have been happy to pay full price. These promotions not only sacrificed precious margins, but also risked annoying customers. 39% of German shoppers and 37% of U.K. shoppers said they felt annoyed, less likely to shop that brand or store, or indifferent when presented with these types of offers. That presents a big risk of alienating a loyal segment of your customer base.
But a dig into more granular data yields some interesting differences. In Germany, 53% of respondents reported receiving promotions via email for items they would have paid full price on, while a whopping 72% of U.K. shoppers reported similar experiences. German retailers were more likely to make wasteful promotions in-store, however – 59% of their shoppers reported in-store promotions for items they would have paid full price on, v. only 40% in the U.K. (For more detail, check out the upcoming Retail Executive Summit in London 27 June, where guest speaker Forrester VP and Principal Analyst George Lawrie will present more detailed research findings).
Another hot topic in both these markets, and Europe generally, is dynamic pricing. Retailers often claim they don’t think their shoppers will accept frequent price changes, but when asked, shoppers say otherwise. An earlier global study ii found that a full 78% of shoppers are comfortable with the use of data science to determine prices as long as they receive a fair price for the product they are purchasing. eMarketer did a nice job making the case for why the time is ripe for wider adoption of dynamic pricing in retail, citing not only the Forrester studies but PlanetRetail research showing that 78% of retailers would like to implement more price changes and promotions to provide better prices and deals in-store, and that 40% were either currently using electronic shelf labels (ESLs) to show prices, promotions and detailed product info, or planned to use them in the next 12 months. PlanetRetail’s Global Research Director Robert Gregory will be digging into these and other German, U.K. and EMEA trends at the Summit.
Changing prices and promotions more frequently doesn’t make your business more effective unless those updates align with shifts in the shopper and competitive landscape. That’s why AI capabilities in optimization software are so key: they sniff out real-time changes in shopper demand and competitive signals, evolving recommended changes to mirror dynamic developments in the market. Another major discussion focus at the Summit is AI in retail, and how innovative retailers like Lenta and Reitan Convenience leverage those capabilities to deliver real – and measurable – impact in their businesses. And our Chief Science Officer Jeff Moore will also be on hand to separate the hype from reality and help retailers understand what aspects of applied AI are truly transformative, as opposed to what some over-excited vendors may be making noise about.
i Indiscriminate Promotions Cost Retailers, a Revionics-commissioned study conducted by Forrester Consulting, May 2018.
ii Understanding Retail Customers’ Pricing Expectations and Tolerances, a Revionics-commissioned study conducted by Forrester Consulting, May 2017.