Holiday prep: AI-driven promotions set store brands apart from competitors

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Holiday prep: AI-driven promotions set store brands apart from competitors

By Cheryl Sullivan, DemandTec - 06/26/2020

As retailers enter the 2020 holiday shopping season, they are dealing with an industry landscape that’s virtually unrecognizable from a year ago. In stark contrast with earlier seasons, this year's historical data about shoppers’ holiday preferences and behaviors are essentially meaningless. It’s hard to predict what shopper, market and competitive behaviors will be next week, let alone a few months from now. Will there be pent-up demand from families who have survived the worst of the COVID-19 economic shock and who have funds from unused vacation and summer camp budgets? Or will the overhand of economic contraction cause price sensitivities to remain sharply elevated?

Regardless, retailers’ private label brands have a critical role to play, this season more than ever when price sensitivity will almost certainly remain elevated. Successfully competing on store brands gives retailers the ability to provide products that shoppers perceive as value-oriented, while better sustaining their target margins.

Let’s take a look at how retailers, from grocers to general merchandise, can use science in their private label promotions to set themselves up for success in this all-important retail season. We know that just recycling last year’s promotion plans risks alienating shoppers whose habits have changed, and even losing those customers to more innovative competitors.

First, given that there are no vendor funds for a retailer’s private label promotions, they are by definition, self-funded. It’s critical that retailers craft promotions on those items they know their shoppers care most about and provide offers that are most likely to engage shoppers and therefore meet business goals. Retailers who leverage AI-based promotions can do what-if scenario analysis to know exactly what impact a planned promotion will have on uplift, units, margins, and ultimately the bottom line.

Retailers who rely on past behaviors to try to predict this year’s holiday preferences are at a considerable risk of a big miss.

Next, there is a need for meaningful insight into what offers and vehicles will best engage shoppers. Let’s say in the current climate, a BOGO on a private label brand fails to attract shoppers who are focused on keeping to a strict budget – and only a percent-off promotion will get their attention. Once again, retailers who rely on past behaviors to try to predict this year’s holiday preferences are at a considerable risk of a big miss. Instead, savvy retailers will apply AI-based capabilities to more accurately predict shoppers’ preference for specific offer types and vehicles for promoting their store brands.

The universe of KVIs this holiday season is likely to be fundamentally different from prior years. Several factors influence this wrenching break from the past:

  1. Smaller family gatherings. Get-togethers will likely be much smaller this year as shoppers remain reluctant to travel and family members whose jobs or lifestyles put them at higher risk of exposure minimize interactions with family members who are older or are otherwise more at risk of serious complications if they contract COVID-19.
  2. Reduced wallet size and increased price sensitivity. The sharp shock of the economic contraction will leave many shoppers with a heightened sense of economic insecurity. This is an opportunity for an increased role for store brands as shoppers formerly loyal to national brands will be more easily enticed to try out a store brand from a retailer they trust.
  3. Long-term changes to shopping habits. After months of shifting from going to a grocer three times a week to grocery shopping only every two weeks, whether online or in-store, shoppers have shifted to more disciplined, planned, and inflexible shopping patterns. And online shopping has been embraced more widely than ever, meaning that offers must be targeted in the right vehicles and channels to drive desired results.

If past KVIs are increasingly irrelevant this holiday season, then it’s imperative that retailers know which items truly matter to shoppers now. Science-based analytics can accurately reveal current shopper preferences that affect your store brand promotion strategies and tactics. Are shoppers more likely to do home baking this year than purchase bakery items? Then promotions on store brand eggs, milk, and baking supplies, which are now KVIs, play a more critical role. AI-based capabilities also factor in cross-item effects, including affinity and cannibalization, to look at the impact of a promotional offer holistically.

Ultimately science enables retailers to more accurately predict and forecast what impact a promotion will have on shopper response, enabling better execution against business goals. Leveraging science enables innovative retailers to truly unleash the power of their store brand items in the all-important holiday season.

 

Cheryl Sullivan is president of DemandTec by Acoustic.

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