How consumer digital behavior, price sensitivity could impact private brands
The breathtaking impact of the global pandemic on retail is still reverberating, and it’s impossible to predict accurately how shopper behaviors will emerge as the pandemic recedes. One change seems all but certain, however, as many of the vast numbers of shoppers who switched to online channels during COVID-19 expect to remain online, even post-pandemic.
In two recent DemandTec-commissioned global shopper studies, shoppers themselves indicated this: 58% of respondents said they shopped “always” or “almost always” in-store before COVID, which dropped to just 24% during the outbreak. Asked about their projected post-COVID preferences, only 28% predicted they would shop "always' or "almost always" in-store. Given this profound shift, it’s time for retailers to step back and reconsider their channel-specific pricing and promotion strategies.
Shopper expectations and behaviors differ online
Many retailers who delay adopting channel-specific price and promotion science often default to offering identical prices online and in-store. But, our research shows that shoppers’ price expectations vary by channel. Moreover, online shoppers are far more likely to compare prices, and the economic uncertainty created by the pandemic has left shoppers in a state of heightened price sensitivity with more willingness to research prices before making a purchase.
Similarly, shoppers today are more likely to respond to promotional offers when they are delivered via a digital channel. The global study revealed that 55% of shoppers say they are likely to respond to offers delivered to their smartphone or via a mobile app, while 49% respond to offers on a store’s website. Only 42% said they would respond to an offer delivered via a home mailer.
Science-driven prices and promotions enable retailers to provide engaging prices and offers
With the power of today’s machine learning-based price and promotion science, retailers get price and promotion recommendations based on real-time insights into shopper price sensitivity — not just at the channel level, but down to the store-item level or, say, for online shoppers in a specific geographic area. The ability to separate true demand signals from the noise enables retailers to focus their price updates on the items where shoppers are the most price sensitive. Armed with these insights, category managers and their pricing teams can focus on delivering competitive prices on these key value items while at the same time knowing where else in the assortment they can safely recover margin to maintain a healthy bottom line.
Retailers can’t afford to get it wrong
Today’s price-sensitive shoppers have a strong sense of price fairness and a declining sense of loyalty to any one retailer. The earlier study revealed that 3 out of 4 shoppers (74%) say they encountered unfair or arbitrary pricing during the pandemic, and 56% of those shoppers saying they will not commit to returning to shop at that retailer. Delivering prices that don’t meet your shoppers’ expectations creates a risk of losing them to competitors — perhaps forever. But there’s good news too, particularly when it comes to store brands. With elevated price sensitivity and dramatic supply chain disruption, more shoppers than ever were willing to try private label products as an alternative to national brands. Even better, the newest study, just completed this spring, found that 81% of shoppers perceive private label brands as equivalent or better quality than national brands. Armed with science-driven insights, category managers and pricing teams can craft prices that attract shoppers to their store brands, growing their share of the overall basket with items that typically deliver strong margins.
In times of change, retailers must innovate
The rate of change in shopper, competitor and market behaviors was accelerating steadily even pre-pandemic, and the dramatic impact of COVID continues to shake up even entrenched behaviors, now and in the future. With change comes the opportunity to innovate, and retailers who leverage modern science to automate processes, respond to changes with more agility and craft relevant prices and offers for their shoppers’ current expectations can achieve the elusive win-win: deliver prices that matter on the items that are most important, while recapturing margin overall for a sustainable, healthy business model.
Craig Marion is the global head of product strategy for DemandTec lifestyle pricing solutions.
