Grocery retailers do not make the right pricing decisions to deliver a good customer experience and maintain margins

New research by Blue Yonder, provider of predictive applications for retail, has revealed that grocery retailers feel they are failing to make the right pricing decisions for customers. These are the findings from interviews of 750 grocery managers and directors across the globe covering their customer experience delivery.

The research revealed that grocery retailers across the globe are taking strides to get their pricing right: 52% of senior managers confirmed they have invested in price optimisation in the last two years, with 29% confirming that they will invest in the next two years. This research highlights the importance being placed on getting pricing right. Regardless, 25% feel they need better price optimisation to deliver a good customer experience.

This is not surprising as the research also reveals that a majority of grocery retailers still do not have adequate price optimisation in place:

  • Only 46% directors in the UK say they price based on external factors, such as competitor pricing
  • 54% do not automate pricing or base pricing on external factors in the UK
  • 27% of prices are set prices manually by managers in the UK

The speed of decisions is felt to be a critical barrier to the delivery of good customer service. Optimising the key strategic areas of pricing and replenishment with automated decisions, based on predictive analytics, enables retailers to combine the speed of their decisions with their KPIs (margins, volumes, markdowns). Retailers are not yet marrying the two in a responsive and transparent way. To do this, retailers need to utilise the data they have at their fingertips and analyse it to make sure their replenishment and pricing strategies match customer expectations.

Professor Michael Feindt, founder of Blue Yonder, says: "Pricing has always been a key strategic area in retail, but in the age of price wars and digital transparency, it has become a real differentiator. Through the rise of the discounters and online retailers, the buying power pendulum has swung in favour of the shopper. Price too high and you will put customers off, price too low and those already tight margins are squeezed even further. To survive in these hard times it is essential to determine the right price individually for each product at certain points in time, based on machine learning algorithms."

Retail is about striking the right balance between pricing, stock availability and waste. Accurate pricing based on real-time data and influencing factors such as weather, vacations and the right stock availability helps maximise revenue and margins and enables retailers to markdown pricing before risking write-offs. In an industry characterised by fine margins, the line between waste and pricing is crucial to get right and shouldn't be left to guesswork.

Professor Feindt continues: "Despite many grocery retailers using pricing tools, most feel they are not pricing appropriately. Only by delivering automated decisions based on predictive and data driven applications that measure price elasticity, will pricing strategies work. This is where advanced machine learning algorithms will separate the winners and the losers."

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