How the acceleration of ecommerce in Latin America is impacting pricing strategies
In my role at Revionics, I’ve had a front-row seat to watch the pricing transformation in Latin America play out. A major shift to ecommerce has been observed across most retail verticals, notably convenience, pharmacy, DIY and grocery.
At the end of 2020, an analysis by eMarketer found that Latin America is “the fastest-growing retail ecommerce market,” with the region seeing 36.7% ecommerce sales growth, compared to 31.8% in North America and 29.1% in Central and Eastern Europe.
Every retailer I’ve spoken with in the last year is actively working to enhance their ecommerce and omnichannel capabilities – investing in “buy online pickup in store” (BOPIS), revamping their websites, and becoming more and more sophisticated as they adopt the technology needed to compete. To that end, retailers also need to rethink their approach to pricing.
eCommerce adoption in Latin America has been a cultural shift
Physically transacting with a retailer has been the longstanding cultural norm in Latin American countries. Browsing store aisles, striking up conversation at the checkout counter, paying with coins and paper bills – it’s what consumers are accustomed to. Because of this, and because the market is behind other regions in the adoption of advanced technology, Latin American retailers and consumers alike are still adjusting to the rise in ecommerce.
For Latin American consumers especially, there is a lack of understanding regarding how online payment technology works when shopping online. This technology has certainly grown more common through COVID-19, but it will take longer for consumers to adopt it more enthusiastically. Digital transactions are not well understood or ubiquitously used by consumers, as most people get paid in cash and are less likely to use debit or credit cards than in other markets.
An interesting trend I’ve observed is the resulting partnerships and creative synergies that have come out of the past year. Financial institutions now help power retailers’ platforms, providing an extra measure of security for consumer peace of mind. A convenience retailer I work with struggled with the decrease they saw in foot traffic. To help compensate for the lack of in-store demand, that retailer is working with local banks to use its network of store locations as points of payment, welcoming shoppers to pay cable and utility bills in person, or to deposit checks and cash.
To stay competitive, retailers are overhauling their online channels
The observable rise in ecommerce is not only a result of COVID shopping behaviors. The proliferation of smartphones and wireless technology in Latin America had already sped up the adoption of digital technologies. Then, as was the case across the globe, lockdowns had a sweeping impact on physical retail, which necessitated digital avenues for commerce.
I do think that retailers understand the importance of competing more efficiently online, so it’s no surprise that they’re throwing their weight behind initiatives to improve their digital presence. Organizations are evaluating their financial objectives and looking for ways to maximize their website KPIs. They’re also A/B testing to better understand consumer behavior and engagement, and they’re scrutinizing their online assortment to be more strategic and supportive of online conversions. Retailers also recognize that consumers rely on reviews and ratings to help inform their online purchases, so they’re investing in this area of ecommerce as well.
On the topic of assortment, before COVID-19, the strategy of many retailers was to be “the Amazon” of their category, having a full assortment available online. Now with more emphasis on ecommerce, retailers are rethinking that approach, being more selective of the products sold online as to not overwhelm shoppers with too many options.
How digital dynamics differ from in-store interactions
Pricing will always be important to a consumer, but more than the lowest price, shoppers care about the best value. With more focus on the online storefront, retailers will need to learn how to draw consumers to the ecommerce site, and then determine how to communicate value in new ways.
Think about a traditional brick-and-mortar model – when a shopper enters a home goods or electronics store, for example, they’re often greeted by a store associate who offers assistance. That team member will lead a dialogue about the specific product the shopper is looking for, asking about attributes or features most important in making a purchase decision. And in many cases, associates are incentivized to upsell, directing shoppers to products with higher price points or margin.
When it comes to the online domain, there’s no one physically present to offer this service, leaving retailers to rely on the algorithm to work its own persuasion magic. This is often done with product recommendations – “customers who purchased this product also bought this.” Retailers can lean on AI and machine learning technology to drive this relevancy for online shoppers, and in doing so, guide them through a shopping experience similar to what they would encounter in a traditional store setting.
Acceleration of omnichannel emphasizes the need for pricing sophistication
In store, there’s a clear definition of what a retailer’s product pyramid is, which informs the way a store associate interacts with shoppers, but this will need to be refined for ecommerce.
Communicating a depth of products in a specific category is not the goal; rather, establishing clear good-better-best relationships between online products will provide clarity to a shopper as they evaluate their options. What value does the lowest-priced product provide, versus what a shopper can get by paying more for the “best” option available?
The automation of pricing is critically important here, ensuring in a non-manual way that proper gaps remain in price for each product in that hierarchy. A “good” product shouldn’t be priced higher than the “better” choice. If not managed correctly, retailers can dissatisfy customers by sending the wrong message about value.
Additionally, there are important pricing dynamics to consider:
- Frequency of price changes – eCommerce provides the opportunity for retailers to modify price more often than in stores. Intra-week price changes are more realistic to carry out online than would be possible manually at the shelf. With AI and machine learning technology, retailers can optimize prices multiple times a week to ensure prices remain competitive.
- Discrepancies in price per unit – Pricing can entice customers to buy more of a product, but care should be taken to not send mixed signals with pricing inconsistencies. As an example, a 48-ounce bottle of water should be priced “cheaper” than buying four 12-ounce ones, keeping the price-per-unit discount in mind. Online it might also be more apparent to a shopper if a different color of a product shows a higher price than expected based on the other options available. Prices online should make logical sense to a consumer, and this can be monitored with the right price optimization technology.
A shift in channel demands a new understanding of customers
With store growth declining and more of a focus on ecommerce in Latin America, retailers will be required to understand their customers in new ways. Real effort will need to be made to comprehend evolving preferences and product value.
Luckily, a natural effect of the rise in ecommerce is the amount of customer data available to retailers. Engagement metrics, the product attributes of items in a shopper’s cart, the amount of time spent on a product page – these dynamics tell a story that must inform a retailer’s pricing strategy. Finding the right technology partner is key to translating those insights into meaningful pricing decisions and keeping up with the pricing transformation in Latin America.
Check out JJ’s blog, Tales from COVID: Pricing in the Americas, to read more about retail pressures in South America and the dynamics in Mexico’s market.