In response to COVID-19, the term “new normal” has often been used in retail discussions related to evolving business priorities and consumer behaviors. Truthfully, as society continues to evolve and adapt to the effects of the pandemic, there is no “new normal.” Instead, we’re living in the “next normal” of retail.
In March 2020, the idea of a new normal might have referred to the shortage of toilet paper and hand sanitizer. Or how wearing masks went from a novelty to a standard routine. Many retailers thought it was just a matter of time before shopping habits and operations returned to the way they were before. But that’s no longer the case. Now that we’re experiencing the next version of “normal” in retail, there’s no turning back.
The coronavirus accelerated existing trends in the retail industry, many out of necessity to continue operations. eCommerce is the obvious example, as well as personalization, and the shifting of online experience from transactional to experiential.
Understandably, during COVID-19, many retailers looked to advancements that met current (and often urgent) customer needs. A focus on in-store procedures as well as curbside and supply chain management were critical to adapt during the turbulent year.
But now, the reality is the entire retail universe has changed – and there’s a lot more to consider for retailers to maintain a competitive edge. Artificial Intelligence and machine learning continue to evolve and learn, creating a new opportunity for retailers to figure out who they are in this next normal.Let’s explore four essential pricing strategy questions retailers must ask themselves to move forward into the next normal.
As a result of store closures and safety concerns, the pandemic put ecommerce at the forefront of retail. According to Digital Commerce 360, U.S. consumers spent 44% more with online retailers in 2020 compared to the previous year.
It’s time for retailers to evaluate their online pricing strategies. As discussed in a blog last year, some retailers prioritize consistent pricing strategies across online and in-store channels, while others set differing prices based on a variety of factors – such as local supply or competitive pressure. Regardless of which method is used, data that analyzes channels separately, as well as an aggregate, is powerful for establishing best pricing practices and a powerful pricing strategy to meet business needs.
Traditionally, retailers have often set their prices based on geography, format, competitive pricing or cost structure. Zone pricing allows retailers to tailor their price strategies into zones instead of geographies, incorporating factors like local laws or weather patterns.
However, as quarantines and lockdown began to take effect, consumers either shopped online or frequented stores in a closer proximity to their homes.
As consumer behavior and price sensitivity shifted as a result of the pandemic, retailers must consider if their current zone structures are still relevant. Their zone structures must be modified to meet new channel, local pricing and consumer demand needs. Using real-time data, zones can be reevaluated and restructured for more targeted efforts around pricing, promotions and markdowns.
Understanding your competition is a baseline to gauge where you stand in the market. For retailers looking to optimize their pricing, this is a critical first step. It provides a foundation for understanding consumers’ price perception, and can answer questions such as, “What are my loyal customers purchasing?” Or, “How is my private label performing versus my competitor’s comparable brand??”
However, COVID-19 introduced new and emerging competitors that a retailer might not have even considered in 2019. And this affects pricing strategy. Retailers can stay ahead of their competition with in-depth analytics and daily pricing updates to identify strategic pricing perception, revenue and margin opportunities, reacting faster to competitors in order to control their own relative positioning and gain market share.
While some product affinities always remain the same – such as hot dogs and buns, or bread with peanut butter and jelly – many relationships between products are completely different as a result of the drastic change in consumer behavior. For example, if a category was margin-enhancing before, it may be traffic-driving now.
At the beginning of the pandemic, a number of out-of-stock products led shoppers to substitute their usual items. According to McKinsey, 75% of American shoppers switched to new brands and shopped at new stores. Another factor that caused brand switching? Price sensitivity.
An affinity analysis is a key step to understanding business impacts around price changes. It provides retailers insights into how pricing, promotions and markdowns impact other products within the assortment. For example, promotions that involve two or more items – such as buy the first item, get a second item 50% off. Prices and their impacts don’t occur in a vacuum, so being able to constantly measure customer affinity is critical.
As we embrace the “next normal” in retail, we’ve come to understand that uncertainty and unpredictability are the name of the game. As a result, creating transparency and confidence around decision making is essential. Combining best practices with advanced affinity, competition, zones and omnichannel analytics can strengthen pricing strategy within an organization. Working with Revionics allows you to establish industry-leading pricing strategies that leverage AI to provide clear pricing recommendations that achieve strategic objectives.
If you’re interested in learning more about what you can do to succeed today and better prepare for the future, get in touch.
Matthew specializes in Pricing & Retail Strategy, Corporate Strategy & Customer Focused Solutions. Matt is a leader in Pricing Strategy Development, Business Strategy Development & overall Corporate Strategy. Matt has a strong merchant background and experience with C-Level presentations. He has 20+ years of experience in Retail encompassing Consulting, Buying, Pricing, and Marketing across a variety of retail verticals, industries, and regions. Having lived and worked in France, Germany, Hungary and South Africa (with additional long-term engagements in other markets), Matt has 8+ years of driving customer-focused success at Revionics.