digital labels

Advanced pricing platforms create competitive value strategies

Pricing remains the single most impactful lever that a retailer can pull to move the needle for the business.
Elizabeth Christenson
Editor, Retail Leader
Elizabeth Christenson profile picture

What this means: With consumers focused so much on value this year, shoppers are placing even more pressure on pricing and promotions at retail. But, pricing can often be a convoluted process within retail, and a need for more agile options arises. Agile pricing technologies such as digital shelves allow retailers to be more in control of their promotions throughout the organization.

woman looking at a package

Consumers care more about pricing than ever before due to heavy inflation, tighter budgets and economic uncertainty. Consumers are dealing with increased food costs at the same time as other expenses are rising, and this is why pricing transparency is so critical, as consumers research the best deal.

“They are looking for value, and shifting brand, product and channel preferences to find better ways to feed their families,” Matt Pavich, senior director of retail innovation at Revionics, told Retail Leader Pro.

When Revionics asked retailers in a recent report how concerned they were about consumers perceiving their pricing as unfair, 46% of retailers were very concerned and 15% were extremely concerned. Pricing confidence was fairly similar for essential retailers versus non-essential retailers, Revionics found. However, a major disconnect between marketing and retailer teams was found with the people most responsible for pricing — the merchants — being less confident across retail verticals.

"The inflationary environment made it very hard for essential retailers to solve the complexity of rising costs, increased competition and shifting demand patterns while also dealing with disruptions in supply chains and labor,” Pavich said. “Solving one of these issues is hard enough for one merchant across a range of products, but it becomes even harder when one considers additional channel complexities, and the business portfolio of a retailer as a whole, across multiple regions and formats.”

According to Revionics’ survey, more than half of all essential retailers are worried their pricing is perceived as unfair while three-quarters of them are struggling with margin. Only 22% of retailers in the survey said they were completely satisfied with the speed at which they could respond to competitive price changes. 

“Going beyond that, we’ve seen massive shifts in loyalty and share in the past year as consumers are looking for better deals,” Pavich said. “The retailers that don’t have advanced pricing tools are suffering while others are stealing their share. This isn’t just happening in the U.S., but globally. One example is a major market in Europe where one retailer captured 41% of all grocery shoppers who changed their top grocer in 2022 by offering better prices using sophisticated pricing practices."

Tech solutions

Technology is essential in helping retailers offer competitive, transparent prices to consumers.

woman looking at pricing

“Without even considering AI, technology is crucial for processing enormous amounts of competitive price data, consuming it and enabling retailers to react dynamically whenever a competitor changes a price,” Pavich said. “Electronic shelf labels (ESLs) are an example of how technology can enable retailers to react quicker to market conditions. Although speed is critical, finding the right price is even more important; that is where AI separates today’s winning retailers from those that are losing share.”

The best AI pricing and analytics platforms are able to find the right price for the right consumers in all locations and across all channels and evolve those prices dynamically as costs increase, competitors shift and consumer preferences evolve. 

“Instead of a one-size-fits-all approach to pricing, AI is able to ensure that consumers are getting the best prices on the products they care most about – which may vary by market, consumer segment and channel,” Pavich said. “On top of this, the best pricing algorithms are able to 'surgically balance' pricing to ensure the retailer can deliver winning prices on key price-perception item drivers while finding margin opportunities elsewhere.” 

Reliable forecasts and data help aid pricing transparency and retailer pricing confidence as well.

"Pricing remains the single most impactful lever that a retailer can pull to move the needle for the business,” Pavich said. “Pricing impacts revenue, units, profits, margin, inventory position, price perception, brand image, private label image and labor/operations. Not only does pricing impact multiple aspects of retail – it also is the fastest way to impact these areas. A retailer cannot fix a supply chain, labor or assortment issue overnight, but it can change pricing and see immediate impacts.” 

On top of this, pricing is both visible and critical to consumers. 

“Consumers don’t care about your supply chain costs or your operating margins – they do care about how much you charge them for a product,” Pavich said. “Because pricing is so essential to a retailer – it is critical that these organizations use the most sophisticated platforms available to properly forecast and predict the impact of a pricing move or a change in pricing strategy. Making strategic decisions without reliable forecasts or predictive analytics is a risk that retailers can’t afford, at a time when loyalty is record low.” 

Unfortunately, according to survey, not all retailers feel confident in their ability to predict results, and that confidence varies greatly between merchants and marketing, which illustrates a disconnect between the teams most relevant to building price perception and brand image.

Retailers last year primarily focused on their everyday or base pricing in a reactive manner as costs continued to rise. However, the data from Revionics’ survey showed no common approach among retailers in how they adjusted promotional strategies to account for rising inflation. Some retailers increased the depth of their promotions while others lowered theirs; some had more frequent promotions while others promoted less frequently. Half of all surveyed retailers were not confident with their promotional plans at all and a full 62% of those retailers admitted to “doing the same thing as the year before,” which Pavich said is not a winning approach when the landscape has shifted so much. 

This year retailers will have a greater focus on promotions and how to adjust those strategies and tactics. 

“Two additional pricing trends that will accelerate in 2023 versus prior years is the use of ESLs and more retailers adopting sophisticated price optimization solutions,” Pavich said. “The combination of labor shortages, more dynamic competitive pricing, increased omnichannel growth and rampant inflation has made the business case for ESLs much more palatable than in the past and the vast discrepancy of business results between 2022 winners and losers has highlighted the need for advanced pricing platforms, driving an uptick in interest from those retailers who fell behind."

What’s next: As AI infiltrates the retail industry, it can easily help solve pricing challenges. Often, pricing is a manual process for merchants and store teams, but AI can easily recommend and set pricing standards that create fewer errors and allow retailers to react quickly to pricing trends in the market.