The power of personalized pricing
In an industry that has a constant rumble of competitive pricing and price matching, grocery retailers are always looking for ways to get a leg up on the competition. Poor strategic choices can result in critical missed opportunities, which, in turn, cost retailers customers and money.
As the grocery industry becomes increasingly competitive, the focus needs to be on how to retain key customers and strategically shift out of the same pricing lane as competitors. For example, if one retailer lowers the price of water to $1.99, typically, the competition will lower their price to $1.95, and so on and so on. This pricing game will continue this way as long as there is transparency in retailer pricing. But what if there was a way to attract customers through pricing without being directly visible to competitors?
Personalized pricing strategies allow for retailers to create individualized pricing for key customers, key segments and key markets, instead of joining the “me too” race to the bottom seen with competitive pricing. It is with these strategies retailers optimize where and for what the most important customers care the most. This attracts and retains loyalty through relevant pricing strategy and, as it is based on internal insights and data, competitors cannot easily match the price. With 35% of North American retailers looking to create a more competitive image for their customers in 2016 this is one way to get ahead in the market and potentially hold the lead.
There is deep-rooted analysis that comes from individual customer insights to see where key shoppers place their values, needs and behaviours in store and online. These insights identify which consumers are willing to pay more for a certain product and which consumers would buy if the price were lower. A recent study by LoyaltyOne found 78% of Canadian shoppers would pay more for a quality product that was important to their needs and values. With flat pricing, retail marketers can’t raise prices when such demand is present or realize demand exists through lowering certain prices. Once insights are collected retailers can create hyperlocal store segmentations and targeted marketing campaigns that can be used to not only create personalized pricing for future offerings, but improve the customer relationship with the retailer.
This is not an easy task. When we look at the current environment, it is a tough time for retail. We are seeing a great emphasis on price and hypersensitivity in the market, with customers hunting for good prices and the industry seeing greater price competitiveness. However, given this economic outlook, there has never been a better time to think about dynamic, personalized pricing to assure customers that you are thinking about them through intentional, thoughtful pricing based on their ask, needs, and values.
Now is the time to make an investment in pricing—a smart investment. Making significant investments based on “gut” or looking for a quick fix will not deliver sustainable victories. Investing in pricing has major rewards, but comes with its fair share of great risk. Bad investments in price lead to lost sales and profit that can be incredibly hard to get back resulting in eroding market share and customer loyalty. Smart investments in the right prices on the right items for the right customers can drive a sustained 1 to 3% increase in sales and profits and build price perception and customer loyalty.
The future of grocery is seeing the traditional approach of straight competitive pricing and price-matching give way to strategic, customer-focused pricing strategies and investments. This dedicated approach to pricing and commitment to the customer will reap rewards for years to come.