Retailers, beware: science-based prices are no longer optional, says DemandTec

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By Cheryl Sullivan, president of DemandTec by Acoustic

Sullivan: only with AI-driven
price science can retailers
focus their pricing where it
matters most to shoppers

Retailers already buffeted by fierce competition, fickle shoppers and 24/7 complete price transparency face even more daunting challenges in the pandemic era. A recent DemandTec-commissioned global study polled shoppers in Brazil, France, Germany and UK and the U.S. and confirmed what many retailers already sense: heightened price sensitivity amid persistent economic uncertainty, and a dramatic uptick in online shopping. 

Many of these dramatic behaviour changes are likely to persist post-pandemic. For example, while relatively few shoppers in the U.K. (31%), France (27%) and Germany (22%) reported that they always or often shopped online pre-pandemic, a year from now those numbers are significantly elevated, at 55%, 60% and 65%, respectively.

What retailers may not have been aware of is the degree to which shoppers perceive retailers as insensitive in their pricing. A startling 74% of shoppers report having experienced ‘arbitrary or unfair prices’ during COVID – and many say they are unlikely to or definitely won’t shop with that retailer again. What additional details should retailers be aware of, and how can they operationalize their price strategies in response?

Heightened price sensitivity likely to persist, requiring science-driven pricing 

Queried about their current income v. pre-COVID, 41% of shoppers report lower current income, causing them to scrutinize prices more closely than ever. Moreover, counter to some long-held assumptions, shoppers have different price expectations for items online than they do for those same items in-store. Finally, there is additional complexity because the pandemic-era demand patterns around which items shoppers are most price-sensitive on, such as Key Value Items (KVIs), have changed dramatically as well.

Fortunately, retailers who leverage price optimization science gain the benefit of real-time insights into fast-evolving shopper demand signals and competitive sensitivities, not only by shopper segment but down to the store-item level. This is particularly important because, contrary to widely held retailer assumptions, shopper research reveals that they have clear expectations of different prices in different channels. 

Today’s price optimization science assesses demand signals and competitive elasticity by channel. The resulting price recommendations enable retailers to offer prices that will be engaging to shoppers in the channel of their choice, while balancing prices elsewhere in the assortment to meet overall margin and profit goals. Innovative price optimization technology also stays current with what the KVIs are at any given point in time, enabling retailers to focus their pricing priorities where they will have the most impact. This is critical given that another recent survey of retailers found that a whopping 93% plan to re-assess their KVIs in light of pandemic-driven price sensitivity shifts.

Retailers can’t afford to get it wrong 

The havoc wreaked by tectonic changes in COVID-era shopper demand has been exacerbated by chaos in the supply chains for retailers. At the same time, tariff wars and disintegrating trade relationships already buffeted retailers, and coronavirus outbreaks and lockdowns dramatically affected both availability and costs in multiple categories. Already suspicious shoppers who saw cost increases manifest in escalating prices on the digital or physical shelf rebelled. Their perception of seeing unfair or arbitrary prices at a retailer often translates into suspicion of price-gouging, and a third of the shoppers who perceived unfair pricing state they will not shop at that retailer again.

Only with automated, AI-driven price science can retailers stay current with volatile shopper, competitive and market behaviours, and focus their pricing where it matters most to shoppers. Human-constrained processes can’t scale to keep pace with the evolving retail landscape even in the best of times, much less during a global pandemic. 

The risk of losing long-time shoppers permanently because of clumsy, manual pricing practices is real, and it is significant. In contrast, those innovative retailers leading the way by embracing price science are those most positioned for long-term success.