The decision of where to shop is a personal one for consumers. And after years of record-high inflation, who can blame consumers for being less brand loyal and more price conscious than before? As a result, retailers that get pricing right and communicate value are in the driver’s seat, primed to improve their price image with shoppers and increase market share.
On the flip side are retailers that fail to listen to shoppers and miss the mark with their pricing strategies. In many cases, these retailers lack the science and analytics to understand what items are most important to shoppers and how differences in channels, locations, market conditions and competitive offerings can greatly influence the price shoppers are willing to pay.
When it comes to retail pricing, the stakes have never been higher. To better understand how the savviest retailers are responding to extremely complex pricing challenges, I connected with retail pricing expert Matt Pavich, senior director of retail innovation at Revionics, an Aptos Company.
Revionics technology supports the pricing strategies of many of the world’s top retailers, including five of the top 10 global supermarket chains, so I asked Matt to help me better understand how consumer price perception is changing and how artificial intelligence (AI) helps retailers optimize pricing decisions.
Gary Drenik: Inflation weighed heavily on the minds – and wallets – of consumers in 2022. While inflation continues to show signs of easing, many experts believe that the behaviors consumers adopted in response to inflation will carry forward in 2023. For example, a recent Prosper Insights & Analytics monthly US consumer survey shows that as a result of price increases, 41% of US adult shoppers are shopping for sales more often, 40% are buying more store brand/generic products and 30% are doing more comparative shopping online. Is this consistent with what behaviors Revionics’ retail clients are seeing from their end customers?
Prosper – Doing as a Result of Price Increases
Prosper Insights & Analytics
Matt Pavich: Yes, we are definitely seeing these trends and behaviors. Simply put, consumers want great prices and are willing to try new things (or new retailers) to get better value. Because of these trends, along with other evolving facets of retail, it is critical to have the right analytics not only to identify the most important items for consumers but also to offer shoppers the best prices and promotions on those items at all times, in all stores and across all channels.
Drenik: We’re in an era of price hypersensitivity, with consumers being much more attuned to price increases when it comes to things like food and other essentials. In fact, data from the recent Prosper Insights & Analytics survey shows that 64% of consumers have noticed price increases in groceries, 39% in health and beauty products, 37% in household cleaning and laundry products, and 29% in pet supplies, to name a few categories. Knowing consumers are scrutinizing prices, a lot of leading retailers are turning to science – particularly AI – to help them identify the right price, on the right product, at the right time. Briefly, can you describe how this technology works and how it helps retailers better cater to price-sensitive shoppers?
Prosper – Noticed Prices Increases in any of the Following
Prosper Insights & Analytics
Pavich: Sophisticated AI-based price optimization allows retailers to surgically balance price increases and decreases to find the right prices for consumers while supporting each retailer’s strategic objectives. AI enables retailers to monitor and adapt to evolving consumer demands, competitive positions, key trends and other inputs in real time. More important, AI learns and gets “smarter” with each pricing move and market shift, so retailers that successfully adopt a robust AI solution drive continuous improvement and get even better at pricing over time.
Drenik: Digging deeper into the science, what data inputs are required for AI systems to compute pricing recommendations at scale – even as consumer demand, local conditions and other factors continue to shift?
Pavich: The best AI solutions are flexible, scalable, dynamic and evolving. These solutions are able to translate consumer, competitor and market data into actionable insights and transparent pricing recommendations for high-impact results. The reality is that the technology has far surpassed where most retailers stand, and not every retailer is ready yet to adopt real-time dynamic pricing or offer personalized, omnichannel promotions. What does matter is that every retailer can benefit from an investment in a pricing solution and that those investments lead to very high ROIs, which can generally fund the next stage of maturity on their pricing journey. Revionics has customers with varying levels of data and has moved them all along the path to a more pricing-fluent state.
Drenik: Beyond inflation, retailers have had a lot of other headwinds to contend with – like labor shortages and supply chain constraints. When it comes to pricing, can science and technology help retailers better navigate these challenges as well?
Pavich: AI pricing is a critical advantage in helping retailers contend with market risk. Pricing is the fastest lever that a retailer can pull to impact its business, and the impacts reach across customer loyalty, profits, revenue, inventory levels, labor requirements, brand image, competitive positioning and more.
For instance, it can take months to fix a supply chain issue, but with one pricing move, a retailer can heat up or slow down demand or shift demand from Brand A into Brand B based on inventory constraints. Or in the case of labor, the best pricing solutions can prioritize pricing actions, maximize value per pricing move and provide all of the advanced analytics required to identify the impacts of making more or fewer pricing moves based on labor availability.
If there is one new constant in retail since 2020, it is that disruption is the new normal. Science-driven pricing remains the best investment a retailer can make to be able to adjust as new disruptions occur.
Drenik: What other retail pricing trends do you expect to dominate headlines and retailers’ technology roadmaps in 2023?
Pavich: Last year, retailers were heavily focused on everyday pricing due to inflation-based cost increases. While this will continue to a degree in 2023, we expect to see a greater emphasis on promotions and markdown pricing. Some of the largest retailers in the country bled billions in profits due to inventory overages while others struggled to keep their shelves stocked. A sophisticated markdown solution can alleviate a lot of this pain. I also think in 2023 more retailers will take a closer look at the cost/benefit of adopting electronic shelf labels (ESLs) and dynamic pricing. Labor challenges coupled with the need for more competitive pricing moves in an omnichannel market are making the business case for ESLs and dynamic pricing more attractive every day. We’ll see more early adopters of these technologies in 2023, while influencing other retailers to make the shift in the years ahead.
Drenik: Matt, thank you for these insights on what’s influencing price perception and how retailers are investing in advanced technologies to build a cohesive and customer-centric pricing strategy. It’s clear that retailers are under more pressure than ever to perfect their approach to pricing and promotions, but with the right strategy, technology and processes, there is some real opportunity to delight customers and leapfrog the competition.