Boosting consumer confidence
With no end in sight to the slumping Canadian dollar and economy, pressure on price continues to mount in the retail sector – especially the grocery sector which is particularly susceptible to inflation.
The University of Guelph’s Food Institute expects the average Canadian household will spend an additional $345 on groceries in 2016. While this might seem like great news for retailers, the reality is that consumer confidence is on the decline. In fact, a recent survey conducted by Precima found that 99% of Canadians have noticed an increase in food prices, while a further 59% of Canadians are concerned about food price inflation over the next six months.
Category inflation, coupled with a decline in consumer confidence, has put enormous pressure on retailers’ margins. According to Statistics Canada, supermarkets and other grocery stores saw a 4.5% year-over-year decrease in sales in November, while the retail industry as a whole only grew 2.3%, the lowest annual growth since 2009.
Price inflation may be difficult to predict, but there are a number of steps that retailers can take to protect thin margins and retain shopper loyalty in today’s difficult economy. As a way to manage price changes, the need for retailers to leverage price analytics—including item-level elasticity, product importance and competitive prices—has never been more profound.
Highlight categories with high and low price elasticity
Consumer insight can help retailers determine what products or categories shoppers are most price sensitive to and where they look to buy on value and price. For example, customer-centric Key Value Categories (KVCs) and Key Value Items (KVIs), such as cheese, are impacted based on customer item loyalty and importance as well as price elasticity. By understanding what products are elastic or inelastic for your customers, you can understand what role they play in your product mix and which items to invest in to drive impact. This will allow you to identify the optimal price for each item and have an accurate forecast of volume, sales and profits.
In addition, customer-centric pricing is an incredibly powerful opportunity for private-label brands where customers are looking to balance quality, selection and value. For example, Precima recently helped a retailer improve bottled water sales and profit by identifying there was high switching between national brand and private brand, and significant focus on price and value.
Manage your Competitive Pricing Index
Rising commodity prices and customer sensitivity to increasing prices at the shelf creates a challenging scenario for retailers. Clearly, heightened price sensitivity requires retailers to sharpen their prices and competitive price position. But it can also risk eroding volume, sales or profit if the right analytics and tools are not applied to set price.
In the Precima survey, when asked how their shopping habits would change because of the economic downturn, 31% of respondents said they switch to cheaper grocery stores. But there is an opportunity – 64% said they regularly choose products based on flyer deals, coupons and discounts. Understanding where shoppers are looking for lower prices can help grocers increase basket size.
By capturing and integrating competitive prices within pricing models and optimization, retailers have an unprecedented opportunity to set prices based on customers’ willingness to pay within pricing rules and align to competitive price indices. In other words, they can optimize price distance based on strategy and science not just by gut or knee-jerk reaction.
Identify what’s important to your most valuable customers
There will always be products that are important or have higher loyalty for shoppers, though increasing prices may prompt loyal customers to shop around for the best price.
Deriving insight from shopper data can help retailers identify their key consumers, and highlight which products have high importance and elasticity among these groups. By understanding customer data, the most valuable customers will leave the store feeling gratified and willing to return.
Regardless of how the economy fluctuates, it’s imperative for retailers to develop a deep understanding of their customer. Consumer data can be turned into transformative solutions that can help business weather storms, such as commodity inflations, and make retailers more effective in their pricing and marketing strategies. Ultimately it can help them continue to deliver on their brand promises and influence the way consumers shop. It’s from that insight that retailers can develop a winning strategy.