Holiday Prep: Now is the Time to Enhance Your Online Pricing and Promotions
The all-important holiday season is always a time of intense focus for retailers, but this year it should command more strategic attention than ever. With the added chaos created by the pandemic, all kinds of unprecedented uncertainties loom over the 2020 holidays. Now is the time for retailers to take a fresh and strategic look at their holiday pricing, particularly for the increasingly important online channel.
Why Online Matters More Than Ever
As the pandemic unfolds, shoppers have flocked online at unprecedented rates, even in sectors (e.g., grocery) and demographic groups (e.g., baby boomers) that traditionally experienced relatively low e-commerce adoption. If COVID-19 abates by the holiday shopping season — and that's by no means a given — some of today’s online shoppers may revert to their pre-pandemic in-store preferences, but many will remain more comfortable with online as their primary channel. Here are some of the e-commerce challenges retailers need to address, as well as how to leverage science-based technology to overcome those challenges:
- Unpredictable Demand: We know that demand this year will be very different than in past holiday seasons, though no one knows in exactly what ways. Deep economic uncertainty, a trend toward more homemade crafts and home cooking instead of consumerism and prepared foods, a surge of interest in board games and puzzles — shopper preferences already have changed dramatically, so counting on previous years’ demand patterns and price preferences puts retailers at the risk of a big miss. Fortunately, retailers that use price optimization technology driven by artificial intelligence can get real-time insights into changing shopper signals, price sensitivities and competitive response. This enables them to offer the right prices on the right items, at the right times, while recovering margin elsewhere to maintain business health. It’s no longer sufficient to rely on historical data and human best-guess approaches.
- Channel-Specific Price Requirements: Prices can — and should — be different online for the majority of items than they are in a brick-and-mortar store. A common retailer misconception is that shoppers are suspicious of discrepancies between online and in-store prices, however, shopper research has shown that they have clear expectations for differences in prices between channels. While these vary widely by segment (for example, they expect lower or the same prices in-store for grocery, but lower prices online for electronics), it’s imperative for retailers to do their homework to understand shopper price sensitivities at the item-channel level. Particularly during the holiday season, retailers cannot run the risk of being out of sync with shoppers' expectations and lose their shot at dominating the holiday shopping list by driving those consumers to a competitor.
- Channel- and Media-Specific Promotion Requirements: Just as price optimization science yields insight at a granular, channel-item level, so too does promotion optimization science deliver channel-specific insights. The reality is that shoppers' promotional preferences on the same item vary notably when they shop online vs. in-store. These include differences in the type of offer they respond to in each channel (e.g., percent off vs. BOGO) and in how deep an offer needs to be to catch their attention and entice them to purchase. Additionally, promotional offers can be rendered useless if the retailer fails to reach shoppers using the right combination of promotional vehicles such as a printed circular, website, email, or social community. Retailers using science-based promotional technology can craft meaningful offers that reflect these distinct shopper preferences. Equally important, promotion optimization shows retailers which items they don’t need to offer a promotion on to attract shopper interest. This saves retailers from needless waste of precious margin dollars by creating ineffective and irrelevant offers.
- The Struggle for Accurate Forecasting: COVID has radically changed shoppers' behavior now and quite possibly forever. Research has shown through every recession that changes in consumer behavior carry forward. This means retailers can no longer depend upon historical data to plan and forecast their holiday season. This year, the need for accurate forecasting is critical; stockouts in the online channel create a significant risk of losing customers to competitors. One of the notable pandemic effects has been the rapid whiplash in shopper demand preferences, which in turn causes increased stockouts. Retailers that successfully navigate the COVID holiday season will be those that put their trust into science-driven technology to help them deliver prices and promotional offers that align with shoppers' expectations while also growing bottom-line results.
The current wild ride in the retail market is far from over, and retailers that embrace business agility and the power of predictive and prescriptive price and promotion science are best primed to succeed online. Change and uncertainty create stress, but science takes a continual objective and comprehensive look at real-time data, separating signals from the noise to guide retailers to the elusive win-win: prices and promotions that engage shoppers where it matters most while structuring for long-term business health and achieving financial goals.