The Dynamic Duo: ESLs + Dynamic Pricing = Compelling ROI
The history of ESLs (Electronic Shelf Labels) goes back a couple of decades, to the early 1990s, starting in Europe and then seeing successful adoption by large retailers in the North American and European markets. During this period ESLs have come a long way regarding quality, usability and cost. Still, until very recently retailers were not entirely convinced of the ROI they provided. Designed initially to enable store labor cost savings, ESLs were viewed as a “nice to have” element of in-store innovation rather than an indispensable pillar of customer and commercial strategy.
ESLs have many benefits to a retailer: they ensure that the price is correctly and timely updated, they free up store staff from manual work to invest more time in customer service, they enrich on-shelf communication opportunities and increase engagement with the shopper, they are very environmentally friendly and, finally, they improve the store image. Unfortunately, it was difficult to associate these benefits to a specific increase in sales or margin. Therefore, retailers were struggling to calculate a convincing ROI that would trigger an accelerated adoption in broader markets.
What has changed? Recently we have seen an increasing number of retailers which are beginning to implement ESLs not only for merchandising and communication purposes but to leverage science-driven price optimization solutions allowing dynamic price changes to update prices competitively and strategically. Now the joint value and financial benefits of a combined solution – ESLs plus a strategic dynamic pricing approach – has become a much more compelling proposition for many retailers.
Today’s consumers are incredibly price sensitive, and a retailer’s success relies not just on having a strong brand and service ethos, but on being proactive and agile in your pricing and promotional strategy. Many European markets, and the UK in particular, are seeing more and more mutual influence between the channels, whereby online commerce is driving the velocity of price changes. Given a growing number competitors in each category, and a fluid and convoluted shopper journey, pricing now requires an entirely new set of competencies on behalf of the retailer.
What is dynamic pricing? It has been in the media spotlight for a while. Without dwelling on different interpretations of the terminology, we would like to share with you a holistic concept that features the most crucial retail use case and related compelling benefits. The term “dynamic” suggests a higher velocity of price changes. Unfortunately in some cases this has been erroneously linked with surge pricing – used by the likes of Uber to raise prices at a time of high demand – to suggest that retailers could similarly raise prices for in-demand goods. But in such a competitive retail market, the notion that a retailer would use dynamic pricing to simply raise prices is incorrect. In reality, dynamic pricing is a way to systematically make smarter and more informed price changes using automated science that is guided by business rules to maintain an optimal price – a price that consumers view as fair.
Dynamic Price Optimization allows retailers to use data science and insights into each item’s price elasticity as well as other demand signals to drive price changes at the right time and the right frequency. So, what might trigger new recommendations? It can be an external signal such as a change in consumer demand or price sensitivity, a competitor’s price changes, or any other relevant factor that the retailer is tracking. The system can account for variables. For example, competitor elasticity analysis allows the solution to understand which competitor impacts a retailer’s sales and is therefore meaningful for the retailer, and which competitors do not. The technology ensures that no signal is missed that could impact sales and allows the retailer to preserve a balance of fair and trusted prices in the eyes of the customer.
While we cannot predict the future, we can say that retail will only get more competitive, especially in the UK where traditional retail is being challenged not only by the new online competition but the continued loss of market share to new entrants in the discounter format. Being able to base pricing and promotions on real-time dynamic pricing solutions, and automating the distribution of updates to the shelf-edge, enables retailers with stores to price with the flexibility and speed needed in the new competitive realities. Such agility will be critical at a time when the phrase ‘survival of the swiftest’ could have been coined to describe the fast-moving and data-driven world that retail has become.