This year brought so many unknowns and uncertainties in the retail world. Retailers everywhere were burdened with not only keeping their shelves stocked and businesses afloat, but also maintaining customer trust and competitive position.
Pricing is always a delicate balance between your financial objectives and the consumer’s expectations. But when you introduce a global pandemic, shifting shopping behaviors, supply chain issues and government regulations, retailers are forced to adapt to protect their price perception and their bottom line.
One of the first obstacles retailers had to pivot around was the changes in consumer preferences. Aside from toilet paper and hand sanitizer flying off the shelf, another dominant trend was the shift towards lower-end or entry level products. As consumers became more price conscious in an uncertain economic environment, brand preferences began to give way to low cost leaders.
“One of the major shifts that we saw was people were trying to save money,” said Danielle Neath, Retail Marketing and Merchandising Manager at TBC Corporation. “So, if they needed to buy tires, they were more often opting to buy the entry level products.”
Making the task for retailers even more difficult, consumer behavior continues to evolve as the months go by, creating a constant need for retailers to adjust and try to anticipate what trends are coming next. “With the shifting demand patterns, we are just doing our best to try to adapt from an assortment standpoint,” said Kellie Cardwell, Strategic Pricing Manager at Pilot Company. “From a pricing standpoint, we have to make sure not only that we have the right product, but that we also have the right pricing options.”
Battling ongoing behavior changes in an aggressive competitive environment, pricing becomes an even more important strategic facet of the retailer approach to the pandemic. While customers want lower costs on certain items, retailers have to find ways to win on margins elsewhere to drive profits. For some companies, this means protecting margins in specific stores or geographies. While others, like The Pilot Company, seek to make up the difference on different products or categories.
“Within our assortments we have key value items that we always maintain really competitive value-focused pricing on, and then that allows us to price the other more background items to capitalize on our profit goals,” Cardwell said. “It’s also so our guests know that they can always come to us and get a deal on something they need.”
It is exactly that customer-driven attitude that retailers need to focus on right now to preserve price perception. Companies cannot afford to be behind the curve on changing consumer demands and price sensitivities without risking their price image. Which of course, has only become more difficult over the last few months as supply shortages push retailer cost increases.
“In the beginning we really just avoided changing prices,” Cardwell said. “Particularly raising prices on anything that was related to the virus, because they are such high visibility items and we wanted to be cautious of our perception in the marketplace. What we try to do now is maintain consistency and have a balance between things that do appear to be a good value to our guests, as well as things that seem higher price, even if they're not high margin items.”
Of course, price perception isn’t just determined by your prices, but also your competitors. Competitive shopping is paramount to understanding the price point the market has to offer on comparable items. However, with store closures rampant across certain industries, shopping the market in-store became challenging and sometimes impossible. Here, retailers using web-based price comparison intelligence, like the Revionics Competitive Insights solution, held an advantage.
Both respected leaders in their industries, TBC Corporation and Pilot Company hold high standards for their pricing strategies and execution. However, as retail has opened back up and consumers returned to in-store shopping, new priorities arose for retailers around safety measures and operations. This presented challenges for retailers in making sure pricing processes could work in this new world with limited store capacity.
“With all the changing priorities, the store operators have a lot on their shoulders. As a result, we did see a bit of a drop in execution,” said Cardwell. “We kind of just took a step back and thought, okay, what's the best thing to do for the company and for our operators? So we did slow down a bit on our routine price changes to allow them some time to focus on all these other things that they were being tasked with.”
Ultimately, in times of disruption, retailers have to do what is right for the stores. Depending on where your operations are in adjusting to COVID-19, taking the optimal amount of price changes just may not be possible right now. However, as new routines are established, and new processes streamlined, more pricing changes will soon be able to follow.
As Warren Buffett said, ‘Price is what you pay, but value is what you get.’ Maintaining customer trust isn't so much about the prices you charge, but the value you provide. As long as retailers are focusing on providing value for consumers throughout this time, they will earn customer loyalty.
Maisie is a content marketer and copywriter specializing in B2B SaaS, ecommerce and retail. She's constantly in pursuit of the perfect combination of words, and a good donut.