COVID-19 has affected every single aspect of life around the globe – for me personally, living in Germany has been the lens through which I’ve experienced the pandemic. In response to early lockdowns, we found ourselves assessing our most basic needs of health and safety, and making purchasing decisions in light of those needs. Beyond the necessary shifts for self-protection and personal wellbeing, consumers made the mental shift to transacting more through online channels and other digital methods.
Now more than a year later, retail experts like ourselves and our customers are looking in the rear-view mirror at the most significant trends. What opportunities have developed from European retail and consumer behavior trends, and how can retailers unlock business potential in each of these areas? How should organizations rethink pricing strategies? Let’s have a look.
Far and away, the leading opportunity for retail is digital. The COVID-19 pandemic brought about incredible forward movement for digital technologies. What was forecasted to take three to five years’ time to reach took place within three to five months. Forrester’s analysis found that in 2020, the share of retail sales migrating online were two to three times higher than in 2019. As well, Forrester predicted in Q3 2020 that in 2021, ecommerce will drive two-thirds of retail growth, rising to 85% by 2023.
A slew of omnichannel offerings have risen in popularity this past year: contactless payments, in-app ordering, curbside or in-store locker pickup, virtual consultations, chatbots and virtual assistants. While not altogether ‘new’ for retailers, consumer adoption of these capabilities has caught everyone’s attention. And according to Accenture, consumers who use omnichannel services are likely to continue doing so. Overwhelmingly, anywhere from 75% to almost 90% of current omnichannel users say they expect to sustain the increased level of usage.
“With the prevalence of digital, retailers should ask what kind of products am I selling, what is my assortment strategy, and how will I utilize modern technologies to increase the customer experience and connect much better online and offline,” said Ales Drabek, former Chief Disruption Officer, Conrad Electronic. “Now is a great opportunity to create completely new types of experiences for customers, connecting with them in improved ways, online and off. Those who don’t make intentional changes in this way will really struggle in the next couple of years.”
Working and schooling from home were two major lifestyle changes caused by the pandemic. These shifts in daily life – how we worked, ate and were entertained – triggered demand changes. Not only did we need more equipment for setting up home offices and far less business attire, but we also had more time for pets, gardening and home improvement. Retailers today will need to keep a close eye on how these behaviors evolve as normalcy returns.
One case study related to this trend is that of Conrad Electronics, as the company was able to adjust quickly to changes in demand during the pandemic. Drabek said, “It became apparent that some categories became extremely important for our customers. We adjusted our website to improve the online experience and fine-tuned our algorithm in the search and recommendation engine to make prominent the products a customer might be looking for.”
Drabek also said the company increased its inventory available on marketplaces, so consumers looking for technical products elsewhere would still happen upon Conrad Electronics to fill their evolving at-home needs.
“When we talk about consumer spending, it’s not just about the money we have in our pockets and our buying power, but also about our disposition and willingness to spend it,” said Stephen Fetsch, Head of Retail, KPMG Germany. “As some markets pick back up, we’re seeing consumers in a relatively good consumption mood; specifically, France, Germany, Belgium, Netherlands and Luxembourg. In other countries like Spain and Italy, we’re still seeing low consumption levels. For consumer spending to increase, behavioral insecurity has to diminish. That will really signal the leaving behind of this pandemic.”
Retail’s approach to the supply chain in 2020 was flipped upside down. Most European retailers now have a much more local footprint and supply chain structure than before. As an example of this, a pan-European program called Farm to Fork lays out plans to build sustainable sourcing for participating entities. While it will have an obvious environmental and social impact, a model such as this will also be an economic effect and be profitable for the retailers because of consumer desire to contribute meaningfully in this way. Retailers are having to tune themselves to the new definition of value, from the customer’s perspective, and for many of them, sustainability and supporting local is of high value in their purchase decisions.
“The interest in sustainability has only just begun,” said Fetsch. “If you ask me, it is the overarching and dominating issue of this decade. We’ve come to recognize that the way that we used to live will exhaust the planet, so we need a change in behavior. Younger generations are more value-driven than their older peers, but I think now after COVID, the value of human connectedness is shining through. That’s generating a deeply held concern for the basis of our life here on this planet, and that is going to drive consumption habits.”
The concept of affordability will change as economies right themselves, so for this reason, retailers need to put thought into how this impacts their pricing and promotional strategies. EY’s Future Consumer Index found that across 20 countries, 32% of consumers are ‘affordability first,’ meaning they now live much more within their means and budget, focusing less on brands and more on product functionality.
“The digitalization of the customer experience will require pricing transparency,” said Vladislav Tikhomirov, Head of Pricing, METRO Cash & Carry Russia. “Before the pandemic, a retailer may have created a price-attractive basket of Key Value Items (KVI) as a way to earn margins. That method is now obsolete. Everyone is now online, which makes price comparison incredibly easy. As such, retailers will have to make pricing decisions that are increasingly more data-driven, market-driven and customer-driven.”
Transparency will be key for base pricing, but also for promotions. While the accessibility and availability of product reduced the role of promotions during the pandemic, Tikhomirov went on to recognize that it will strengthen in the months to come.
“Retailers will be required to focus even more on promotion price efficiency, paying close attention to the balance between number of promotions, frequency of promotions, level of discounts, and so on. Finally, multi-channel pricing. Retailers with both a store and ecommerce presence will have to consider decoupling the two from a price perspective. The behaviors of people buying online are different compared to in-store behavior. Retailers need to evaluate separate focuses on dedicated online prices, with distinct competition, demand models and economics.”
Despite the uncertainty of the past 16 months and any unforeseen circumstance that may lie ahead, retailers can price confidently with the power of AI. Interested in getting a strategy checkup to determine if your pricing is optimized for the post-COVID consumer? Reach out to one of our pricing experts today – we're eager to help.