How pricing can combat COVID’s impact on consumer frequency trends
As we all know, when COVID hit there was a major consumer behavior shift towards fewer trips to the store and larger baskets. As the retail world begins to open back up a year later, one of the challenges we’re seeing retailers face is trying to get shoppers back into the store. While it may not be your first thought, pricing can be a powerful tool to help drive shopper frequency, both directly and indirectly.
The four levers of sales
First, let’s look at where frequency sits as a part of sales. If we take a very high-level view, there are four basic levers that ultimately lead to your total sales – frequency, number of shoppers, average units per basket, and average unit retail.
Together, the number of shoppers you have, along with how frequently they shop, make up your transactions. If I get more shoppers and they stay at the same frequency, then I’ll grow my sales. Conversely, if I increase the frequency of the existing shopper pool, I will get more transactions as well.
On the other side is what shoppers do when they come in the store. There are two ways to grow – one is to have more units in your basket, and the other one is to increase the retail that you get on an average unit. So, if they buy more items, or spend more money on the same number of items, then you increase your sales.
COVID’s impact on the four levers
COVID has impacted retailers’ transactions and average basket in different ways. Take grocery, for example. Companies that have developed really strong omnichannel and multichannel platforms in the face of COVID are actually doing well on the frequency transaction side. If you think about Amazon, people are buying more frequently through online platforms because they feel safe, and companies like Amazon have made the process extremely quick and convenient.
But retailers that have stuck to a strong brick-and-mortar model and not built out the online and curbside channels are hurting from the lost frequency. Even though the basket sizes have been larger over this past year, as we now start to settle into this “next normal,” retailers are going to be asking how they can drive shopper frequency back up to boost more sales.
The challenge then is for retailers to grow frequency without hurting basket size, and growing basket size without hurting frequency. Because, to some extent, transactions and average basket have an adverse relationship. The more often a consumer shops, the less they need to buy.
Whether you buy 8 cans of cat food once a week or 4 cans twice a week, the amount of cat food you buy still evens out to 8 cans in a week, because your cat eats the same amount regardless of how often you shop.
However, there are a lot of other product categories where consumption is influenced by frequency. Items typically considered impulse buys – potato chips, beer, snacks – are the classic example. These are not core items where consumption remains the same, and they also usually have higher margins. These products are where retailers have the opportunity to grow both frequency and basket.
Which brings us to the question, “How can pricing support frequency?”
Increasing shopper frequency with pricing
It’s easy to see how pricing can directly affect the basket side of sales. You can use a trade-up strategy to incentivize customers to buy a larger bottle of wine, or leverage affinity analytics to grow the number of units per basket, or have the right markdown plans in place to increase sell-through. But the influence of pricing isn’t quite as obvious on the transactions side.
Where pricing can have a quick, short-term impact on basket size, the impact on transactions is more long-term. If you create a really good price perception strategy, drive a unit-focused strategy, really actively manage your competitive strategy, and have the right competitive price in the market, that will lead to more shoppers and more frequency in the long run.
But it’s not like you can take your retails down immediately, and more people are going to shop at your store. They need to understand that you are a lower price, and that takes time. So pricing is more of a long-term influencer of frequency. But that doesn’t mean that pricing can’t also directly support it.
One way it can directly support frequency is promotions. Combined with the right marketing vehicles and tactics, you can drive people back into your store with promotional pricing. There’s a lot of different ways that you can run a very successful promotion with the right AI price and promo optimization. And our Promotion Performance Analysis can really help retailers determine which promotions are going to drive some additional units and sales.
A good example of a frequency-specific promotion would be restaurants that have specials on slower days of the week, like two pizzas for the price of one on Tuesdays. While you may not sell hot and fresh pizzas, the same concept could be adapted for your retail store. Then, using advanced analytics you can find patterns to support and strengthen that promo strategy.
Of course, successful promotions cost money. You have to have marketing budget to spread the information and drive customers into your store. But this is where pricing can help too. The best way to get the budget is to get profit. If you have profit, you can fund larger marketing campaigns, frequency campaigns, and loyalty programs.
Robust pricing analytics and an AI-driven pricing, promotions and markdown optimization solution is your key to more pricing profits to fund better frequency driving campaigns.
Another way pricing impacts frequency more directly is through the pricing strategies you put in place. Use your pricing strategies to push focus into categories that drive frequency, like produce or ready-to-eat. Shifting your mix into these categories from others using pricing and promotion strategies will benefit your frequency long-term.
With Revionics, this could look like managing the pricing gap or selecting a unit driving strategy for these categories within our base price solution. With advanced analytics and your sales data, we can really dive into your transactions to solve business challenges.
Another way you can use pricing to drive shopper frequency is through leveraging growing trends in the industry to differentiate from other retailers. It’s more important than ever to be promoting the right sustainable products with aggressive pricing. And Amazon can’t offer the same personal touch of locally sourced products like you can. Private label brands are another growing tactic than can help you capture brand loyalty and drive margins, if done well.
By offering the right pricing on these products and building your brand gaps, you can drive consumer demand into products that will drive frequency.
Competitive analytics is a good way to see where your competitors are beating you on key products. And where you are getting beat, you are going to lose frequency and number of shoppers. Having that competitive intelligence and staying aggressive on key items will again build your price perception and lead to more frequency in shoppers over time.
The “next normal,” not back to normal
The reality is, in-store traffic is unlikely to reach pre-pandemic numbers anytime soon, as some of these consumer behavior changes towards online shopping will stick around long-term. Not to mention the increased competition that emerged from a lower consumer brand loyalty during stock shortages and shopping restrictions.
But pricing can be a powerful catalyst for retailers to build long-term price perception, increase shopper frequency, regain market share, drive profits, and fund sales-boosting activities like promotional campaigns and investments into curbside, last-mile logistics, and other omnichannel capabilities.