Smart Pricing Strategies for the Post-COVID World

The worldwide health crisis turned the retail industry on its head ― stores closed, e-commerce soared, and shopper behavior evolved at a moment’s notice. But retailers are resilient and quickly altered operations and business strategies to keep pace with the changing marketplace. While some of the disruptions brought on by the pandemic will slowly fade, many of the changes will have lasting effects. For example, the ability to quickly, seamlessly and accurately change prices on in-demand SKUs with little to no human interaction has become a key differentiator, especially as shoppers continue to embrace digital shopping in droves. In this Targeted Research report we examine the specific technologies and strategies needed to take your pricing capabilities to the next level, and benchmark the industry’s maturity in this critical capability. Are you keeping pace with the industry’s leaders? Read on to find out! Consumer behavior, along with the competitive landscape and market trends, are always in flux. But thanks to the onset of COVID-19 they have been evolving at an increasingly rapid pace. Retailers report that over the next two years they expect consumer behavior (57%) and market trends (57%) to change much more rapidly compared to a year ago (Figure 1). None of those surveyed expect consumer behavior and market trends to change less rapidly than a year ago, and just 3% report that market trends will continue to evolve at the same rate. On the competitive landscape question, results are a little more diversified. Just 20% of respondents believe the competitive landscape will change much more rapidly, while 66% believe that change will happen somewhat more rapidly. In addition, 7% expect no change and another 7% actually expect the competitive landscape to change less rapidly in the future. Retailers are in unanimous agreement that consumer behavior will continue to change more rapidly well into the future. But what will be the long-term impact of those various shifts? Not surprisingly, retailers point to a continued dependence on e-com (63%) and home delivery (63%), and a steady reliance on curbside pickup (43%) as highly likely outcomes (Figure 2). In addition, retailers are optimistic on the continued loyalty of shoppers, with a resounding 63% believing that it is not very likely they will be more distrustful or exhibit decreased levels of loyalty. This is good news all around. On the pricing front, retailers are expecting an increase in price sensitivity tied to the overall downturn in the global economy brought on by the worldwide pandemic. Twenty percent of retailers believe it is highly likely that consumer price sensitivity will increase post-COVID-19, and another 53% believe it is fairly likely. About a quarter of those surveyed (27%) think that an increase in price sensitivity is not likely. The vast majority of retailers expect an increase of shopper price sensitivity as the industry rolls full-steam into COVID recovery. The most nimble and savvy among them will be relying on new pricing strategies and technology to capitalize on this increased price sensitivity to maintain meaningful relationships with loyal shoppers and syphon market share from competitors unwilling or unable to adjust their pricing approach. Not surprisingly, retailers named reassessing key value items (34%), stronger competitive pricing strategies (30%) and personalized pricing (20%) as major focus areas post-pandemic (Figure 3). These foundational pricing strategies were pivotal pre-pandemic and will remain vital focus areas into the future. In-store pricing investments like electronic pricing labels (ESLs) will take a back-burner post-pandemic as retailers continue to focus on their e-commerce capabilities as store traffic thins. In fact, 63% of those surveyed report that they will not be focusing on ESLs at all, and 33% report it will be a minor focus. The technology needed to accurately predict price sensitivity and change prices in real time has been available to retailers for years, and smart retailers have been leveraging it to realize a competitive advantage. However, changing prices to meet evolving market demand has traditionally been a very manual process, and remains so despite the availability of automated alternatives (Figure 4). In fact, many retailers are still relying on solely manual solutions for markdowns (57%), promotions (43%) and pricing (40%). And only the most tech-savvy retailers have gone fully automated, with just 7% reporting having the capability for pricing and promotions and 3% for markdowns. But with automated solutions available to take the burden off taxed retailers and allow employees to focus on tasks that truly require manual interaction, why haven’t retailers embraced science-based pricing in droves? The biggest barrier are the investment costs associated with the upgrade, with 90% of retailers citing costs as a significant barrier (Figure 5). The second most common barrier to preventing retailers from leveraging science-based pricing is a lack of resources (83%). COVID-19 has brought with it a host of new challenges for retailers, including how to effectively change prices with limited human involvement. We asked survey respondents if retailers will be more willing to take humans out of key pricing processes post-pandemic, and 70% said they believe they would be (Figure 6). Of those who agreed that retailers would be more willing to eliminate human involvement in pricing, 10% strongly agreed, 27% moderately agreed and 33% slightly agreed. While next-gen software has the capability to monitor the pricing landscape in real-time and make adjustments to the price of individual products by the minute, retailers have yet to fully embrace these capacities. In fact, when asked how often they are currently changing prices on in-demand SKUs, none of the survey respondents reported changing them multiple times per hour, or even once an hour (Figure 7). The shortest intervals reported were multiple times per day and once per day, which both tallied 3% of the vote. The most common price changing interval was monthly (47%) followed by weekly (33%). When asked how often they would ideally change prices on in-demand SKUs, retailers reported the same hesitance to change prices too often (Figure 8). Again, no respondents reported changing prices by the hour, and just 3% reporting daily or multiple times per day adjustments. The biggest difference between what retailers are currently doing and what they would ideally be doing in terms of price change frequency occurs at the monthly and weekly level. Currently, 33% of retailers are changing prices weekly on in-demand SKUs, but 57% report that would be the ideal cadence. Forty-seven percent report that they are changing prices monthly, but only 20% of retailers believe that is the ideal cadence. Methodology This study was conducted during the month of May and only senior executives from national or large regional retailers were invited to participate. The results do not include any store-level, field-level or regional employees. Only headquarters-level staff responses were included (Figures 9-11). Conclusion Experts report that the COVID-19 outbreak has accelerated retailer’s tech investment plans by at least three to five years. With shoppers flocking to e-commerce during the height of the pandemic and many projected to stay loyal digital shoppers, retailers are ramping up their digital rollouts to provide a dynamic, differentiated experience for consumers. The time is now for retailers to take a long, hard look at their pricing capabilities and begin developing and deploying AI-powered pricing solutions designed to automate pricing, freeing up key staff to focus on innovation while simultaneously pricing products competitively. Key Pricing Takeaways: Constant change is the new normal. Retailers are in unanimous agreement that consumer behavior will continue to change more rapidly now and into the future. They believe the biggest long-term impact on shopper behavior will be continued dependence on e-com, curbside pickup, home delivery and an increased price sensitivity. To address ongoing consumer price sensitivity, retailers plan to place a major focus on reassessing key value items, implementing stronger competitive pricing strategies and continuing to explore personalized pricing capabilities. A very small percentage of retailers are utilizing full automation for pricing (7%), promotion (7%) and markdowns (3%). The biggest barriers to onboarding these capabilities include investment costs (37%) and a lack of resources to take on a significant new project (33%). 70% of retailers believe that companies with manual pricing processes will be more willing to take humans out of key pricing processes and rely on AI-powered pricing automation and dynamic pricing post COVID-19. Currently 47% of retailers are changing prices on key SKUs on a monthly basis, but just 20% believe this is the correct cadence. Eighty percent believe prices should be changed at least once a week.

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