Breaking Down Retail Myths: What Shoppers Really Think of Your Pricing Strategy
The balance of power has shifted dramatically away from retailers and firmly to shoppers in recent years, and retail pundits are abuzz with predictions, prognostications and prescriptions for anxious retailers: Focus on in-store experience! Keep prices consistent across all channels! Match competitors’ prices instantly or risk losing your customers! Beware of relying on automated algorithms to drive your pricing!
However, if control lies in the hands of today’s always-on shoppers, who have extensive details at their fingertips 24/7 and who don’t see “channels” but rather a complete shopping experience, we thought it would be worthwhile to take a breath and ask shoppers themselves what’s important. We had a hunch that some of the punditry might be off base, especially since we noticed a lot of discrepancies between what we observed in our customers’ data and popular belief. So we commissioned Forrester Consulting to do a survey of multichannel shoppers in five different countries — the U.S., U.K., Germany, France and Brazil — and indeed, there were some surprising, even myth-busting findings with big implications for retailers.
First, there’s been a lot of industry chatter about shoppers being suspicious of data science-driven algorithmic pricing. Yet in a sense that seems counterintuitive. Would tech-savvy shoppers, who for years have navigated and embraced Amazon.com, travel sites, and ride-sharing apps, really fear data science in retail pricing or did it pave the way for retailers? Forrester’s findings flew in the face of conventional wisdom. In fact, a surprising 78 percent of respondents said that they trust science more than retailers to provide fair prices.
Second, there’s the question that omnichannel retailers continually wrestle with pricing variances by channel. Are shoppers instantly offended by variations in the price of an item by channel? Will they instantly default to the cheapest channel for any item, making it difficult for retailers to compensate for cost variations?
Again, the findings were eye-opening. In fact, the survey found, most shoppers do not expect consistent pricing between in-store and online channels. In general, today’s shoppers anticipate lower prices online than what they will see in-store. The one exception was the grocery sector, where respondents reported that they expect either the same or less expensive prices in-store than online. Blind price consistency across channels isn't what shoppers demand.
That leads us to another area of interesting exploration. Today, retailers have an unprecedented amount of data at their fingertips from an astounding array of sources, along with affordable, sophisticated SaaS analytics offerings that enable them to get extremely granular insights into competitive elasticity, price sensitivity, costs by channel, and customer segmentation, all in near real time. Given those highly granular insights, and the fact that shoppers check prices more or less continually as they progress through they buying cycle, would a more data-driven approach to pricing be attractive to customers? The term “dynamic pricing” is used in retail in many different ways, but for these purposes let’s assume it's distinguished by relatively frequent price updates based on scientific algorithms and implemented at least to some extent in an automated fashion.
Consumers proved once again that in many ways they're ahead of retailers in their thinking. The survey found that consumers are very well-prepared for the concept of dynamic pricing. In fact, only 6 percent say they don’t think it's fair at all for prices to change dynamically.
The good news for retailers in all of this is that the technology is at their fingertips to allow them to offer fair pricing, when and where it matters, to shoppers while at the same time preserving margin and structure for long-term business health by knowing which items are not subject to the same level of elasticity and price sensitivity. In today’s data-driven landscape, the brands that use modern science to focus on shopper-centric pricing represent the future of successful retail. The shoppers have spoken!
Cheryl Sullivan is the chief strategy and marketing officer for Revionics, a provider of profit optimization services and solutions.
Related story: How to Create a Modern Markdown Strategy
Cheryl Sullivan is president and general manager of DemandTec by Acoustic, a company that offers lifecycle pricing solutions for retailers globally.