15 Jan 2019
Price Image

Using Price Image to Formulate Pricing Strategy

Price Image is how shoppers perceive a store’s pricing relative to its competitors. It is not the same as Price Index. Many more things go into establishing price image, including promotion programs, elasticities, seasonality, price ending numbers, and the overall design of a retailer store.

Price Index vs. Price Image

Price optimization solutions that are available today are based on rules and price indices that exclude your desired price image. What is needed are psychological models that measure your consumers’ perception of your pricing AND predict the impact of price changes on that image.

At its core, Price Image takes customer excitement into account. Whereas Price Index relies on historical data and plotting points, Price Image is predictive and non-linear – making it much more useful in making strategic pricing decisions. It incorporates psychological elements, making it a consumer-specific metric.

A Nobel Prize-Winning Approach

The calculation of Price Image was inspired at Engage3 by Markowitz’s Efficient Frontier Theory. It’s a theory  that has been successfully used for decades in managing financial portfolios and is now applied to retail pricing.It enables retailers to strategically manage competitive price adjustments so they can balance their profit goals with a desired price image in the market.

Efficient Frontier

What to Look For in a Strategic Pricing Solution

Price Image takes psychological factors and applies them to pricing data. The resulting models can be used to predict future profitability and are not reliant on historical data. Below is a list of what to look for in a strategic pricing solution:

  • Integration with clean, comprehensive, and accurate competitive intelligence data
  • Statistically-driven performance reporting that separates real pricing impact from market level “noise”
  • Streamlined workflow for competitive price recommendations and approvals
  • Alerts for incomplete or outdated competitive data for review
  • A visual price modeling tool to define the impact of strategic pricing alternatives
  • Competitor activity and movement callouts on highly elastic products
  • Makes price recommendations based on your objectives for:
    • Price image
    • Profitability
  • Allows Merchants and Pricing Teams define their strategy and show the financial tradeoffs for different alternatives

 

The predictive model is especially valuable in forecasting sales, because Price Image allows a retailer to see how its customers are responding to different pricing strategies. Greater visibility translates to higher profit margins and happier customers!

Learn more about how the Efficient Frontier Theory is applied to retail pricing in this video.

 

 

 

 

10 Jan 2019

CEO of Earth Fare Talks Shop With Ken Ouimet

At the inaugural GroceryShop event in Las Vegas late last year, Frank Scorpiniti, CEO of health and wellness store Earth Fare, sat down with Ken Ouimet, CEO of Engage3.

Frank talked about hiring a Chief Medical Officer for his stores, bringing more value to his health and wellness shoppers, and how he envisions a future of 1:1 customer-centric marketing using loyalty data in the very near future.

Following is their conversation:

Ken: Welcome, Frank, thanks for being here at the show with us today. What’d you think of the show?

Frank: The show’s been well organized, there’s an immense amount of emerging technology that really excites us for the potential to have it help Earth Fare continue to grow.

Ken: Is there any particular technology you’re most impressed with?

Frank: Well I spent some time on the exhibit floor and I was pretty impressed with what seems to be some off-the-shelf technologies to help us eventually create more attribute conversation with our customers, right on the sales shelf. And our customers are really seeking better health and wellness, so in order to tell a product story is something that we’re really looking forward to leveraging.

Ken: How would you communicate that to customers?

Frank: Well I think we have a lot of work to do to figure that out. That’s been a big challenge for us. As the leading grocer in North America with the cleanest product assortments, one of the biggest challenges we have is getting the message across to our customers about how unique our assortment really is, so I don’t have that solved yet.

Ken: One of the technologies that I was really impressed with was seeing the advances in the speech recognition.

Ken: At one end I saw something by Apple recently where it actually had a bot that could schedule a haircut for somebody, and get through all the navigation of a real conversation. I was curious to get your thoughts, as we get these digital assistants starting to have these capabilities that talk to people in real time, you see an opportunity where we could use technology to get back to the old store where the grocer knew the customer, and have a more intimate relationship with each consumer.

Frank: Why, I suppose that’s an opportunity, I think customers have a lot of questions in our stores. We have fantastic team members that, many of whom are lifestylers, they live the health and wellness lifestyle, but some of the questions are becoming more complicated about health, so the potential to have that kind of on-demand understanding and data could potentially create an experience for a customer that’s above what we can achieve today.

Ken: Yeah, I imagine as people become more aware of the foods they eat and the effects it has on their bodies, they’re getting more particular on what they eat.

Frank: Yes, consumers are starting to become very aware of the U.S. food supply and that over the years it’s had many, many more chemicals go into it. Some may say some of these products aren’t foods, maybe they’re stuffs with calories. We think that more Americans are looking for healthy foods to feed their family and feel good about what they’re doing.

Ken: I’ve seen a naturopath the last ten years and they routinely will take blood samples and test food sensitivity.

Frank: Yeah

Ken: And I was blown away when I asked them how many people were affected by food sensitivities, and he said it was roughly 70% is what they’re estimating, but only less than 5% are aware of it. There’s a lot of people out there that are affected but don’t know that they’re affected, and some of the athletes are starting to realize that they need to cut out the foods they’re sensitive to and their performance goes up. My brother has a doctor that, he has his office on top of a grocery store, and walks his customers through the aisles to show them what to eat. I’m just wondering, have you thought about having maybe even naturopaths. I know you have a medical officer, is that any direction you’re going?

Frank: We have a Chief Medical Officer, Dr. Angela Hind, and she keeps us on the cutting edge of making sure that we take out of our stores. We’re trying to keep away from things that make our customers sick, and she can only be in one place at one time. Some of the exciting stuff that I think is in our future, particularly with what you’re working on at Engage3, Ken, is our ability to take our loyalty data, where our customers share with us some of their needs around health, and be able to customer-centrically create one-to-one offers. And maybe that could take the place of the naturopath, probably not all the way to the extent your brother experiences or having a naturopath above a store, but the opportunity to guide a particular person with food sensitivities into things that are safe for them, say through an app that [ Earth Fare ] eventually could offer our customers, that could be an incredible experience that I don’t see happening today.

Ken: Yeah, I think there’s a real need for that, because you start looking at reading the labels for what fits your diet, that’s a lot of work. I would think as a consumer I would want something that navigates me around the store like the GPS navigates me around the city.

Frank: I think that could be just an incredible advancement in retail for [ Earth Fare ], we have a food philosophy that disallows a lot of artificial ingredients, and so we say to our customers, “We read the labels so you don’t have to.” That’s removing a lot of the chemicals, but to take it to the next level that you’re describing, then tailor the shop for each individual consumer, it really could excite our customer base. And they’re already looking for better health so it’s the right audience.

 

Engage3 Competitive Intelligence Platform helps retailers like Earth Fare improve their pricing performance and compete more profitably through data science & analytics. To learn more about voice-activated shopping and other innovations discussed at GroceryShop, watch this video of Tim Ouimet discussing the rise of agent-based shopping.

09 Jan 2019
Sam's Club Now

Sam’s Club Now: A Review

sams club now signageIn response to the opening of new Amazon Go stores, Walmart and Sam’s Club are doubling down on its retail technology with an experimental store location in Dallas.  At the end of October, the retailer announced its latest venture: Sam’s Club Now. The shopping experience is similar to Amazon’s cashier-less convenience stores but with a larger focus on customer engagement. Engage3 visited the Dallas store to see what Sam’s Club Now had to offer, and we were surprised by how similar it was to the retailer’s traditional locations.

Compared to the tech-forward Amazon Go stores, Walmart seems to put the human experience first, aided by technology. According to the Sam’s Club press release, “Our associates are key to bringing this experience to life…we’ve known for a long time our associates make the difference, and that won’t change just because shopping preferences evolve.” 

This latest offering by Sam’s Club is about one-fourth the size of its traditional stores and includes electronic shelf labels. The retailer suggested the possibility of camera technology in the future as well. Purchases are done through the Sam’s Club Now app which tracks the items in a customer’s cart. Once the app is downloaded, a shopper can make grocery lists, search for items throughout the store, and use augmented reality features on certain products.

 

The Sam’s Club Now Experience

sams club parking
Sam’s Club Now Parking

On arrival, the first thing we noticed was the curbside pickup spots outside of the store. Apart from smartphone integration, it seems that Sam’s Club is focused on ease and accessibility with this experimental store. 

Once you enter with your club membership, you encounter a large charging kiosk with instructions on how to shop in the store. In order to make any purchases, you would need both a membership and a smartphone capable of downloading the app. There were no cash transactions in the store, so we had to rely on the Sam’s Club Now app. Thankfully, it was easy to set up. After opening the app and creating an account, we were ready to start shopping.

Sam's Club Kiosk
Sam’s Club Now Information and Charging Kiosk help you get started

 

From the entrance, we made our way around the store, noticing the electronic shelf labels that were set up throughout the aisles. It resembled the larger warehouse locations, but with a focus on items that could be easily picked up and scanned. However, products were still displayed and stored in the traditional Sam’s Club warehouse style. The pallets, bulk items, and stacked shelves made it clear that this was a Sam’s Club store.

 

Amazon Go Store and Sam’s Club Now Comparison

We compiled some photos of AmazonGo (left) and Sam’s Club Now (right) to give a side-by-side comparison.

 

Beyond the center store, there were separate areas for dairy, meat, and produce. These refrigerated sections featured a more limited assortment than the retailer’s larger stores, but each area had enough space to add more products down the line.

Sam's Club Departments
Center Store is separate from the refrigerated sections

For checkout, the retailer is relying on its experience with the Scan & Go app introduced two years ago. The app we downloaded allowed us to scan each item in our cart and track its total. When we were ready to check out, the transaction happened in the Sam’s Club Now app. Once it was complete, the app generated an e-receipt which we had to show upon exiting. Associates near the exit scan a QR code generated by the Now app, putting the checkout experience somewhere in the middle of the spectrum from tracking cameras to human cashiers.

 

sams club ereceipt
Showing your e-receipt on your way out
Sam's Club Now Electronic Shelf Labels
Sam’s Club Now Electronic Shelf Labels

We were thoroughly impressed by the app integration and electronic shelf labels, especially with how large the store is compared to an Amazon Go convenience store.

Amazon Go and Sam’s Club Now are operating different store sizes, but the smartphone-focused technology looks to fill the same need for shoppers. Easier navigation in stores and convenient, secure payments are featured in both. While Sam’s Club Now may be a much larger space, this experimental offering shows that retail technology is exploding in popularity. With the recent announcement of Kroger and Microsoft’s partnership, the trend towards smart shopping continues to grow.

To read our review of the Amazon 4 Star Store in Berkeley, California, click here.

 

 

08 Jan 2019
Gartner

Gartner’s Market Guide for Unified Price, Promotion and Markdown Optimization Applications, Update 2018

Now more than ever, pricing based on solid data is necessary for retailers to succeed in this increasingly competitive market. This latest report from Gartner gives an overview of the different levels of pricing automation, and finds that most optimization service providers aren’t keeping up with the needs of retailers.

Gartner Curve
Tiers of Integrated Price Optimization by Gartner

Unlike most vendors in the space, Engage3 has developed a platform capable of bridging the gap between pricing models and algorithmically-driven pricing. Uniquely, Engage3 starts with the cleanest competitive data available, making sure that your optimizations are based on a solid foundation. Check out our cross-channel Competitive Intelligence Platform offering here.

We also combine decades of expertise in retail pricing with strategic insights made possible through data science. Our Competitive Price Response lets you manage your price image goals vis-a-vis your profitability goals. For more information on the theory of Efficient Frontier, the science behind our optimization schemes, watch the video here.

You can find the rest of Gartner’s report and their review of Engage3’s offerings here.

To learn more about how Engage3 leverages big data and machine learning in the UPPMO landscape, request our White Paper here.

18 Dec 2018
Aldi-store-733453

The Aldi Effect: Are Walmart prices higher in locations where there is no Aldi store?

When European retailer Aldi started opening stores up and down Britain in 2016, people who lived close to a new retailer location started noticing that the value of their homes went up by as much as £5,000. It was called the “Aldi Effect” by the local media and, soon enough, the vicinity of an Aldi store to a piece of property became a listing feature.

Aldi started putting up more stores all over the U.S. starting in 2011, with a total of 1,600 stores to date. And just like in the U.K., it would seem that there is yet another advantage to having an Aldi store in your neighborhood – lower prices for everyday groceries at your local Walmart store.

Walmart and their everyday low price (EDLP) approach has consistently driven a low price image across the U.S. With their limited assortment and private label focus, Aldi has also worked to deliver customer value through low prices. When both retailers are present in a market, they have demonstrated an ability to fight head-to-head for low-price leadership.

Engage3 collects and monitors grocery pricing in markets across the U.S., and identifies pricing patterns and market trends.

For this study, we created a basket of 50 grocery staples that were price checked at three Walmart locations within each of the four Texas markets studied – Austin, Dallas-Fort Worth, Houston, and San Antonio. Dallas and Houston have 36 and 50 Aldi store locations, respectively, while Austin only has 1 store location and San Antonio has none. The competitive landscape in Dallas-Fort Worth and Houston is much more robust, with not only Aldi in the mix, but Kroger and Safeway banners as well.

Our study revealed that in Austin where there is only 1 Aldi store location (north in Pflugerville), Walmart pricing for the basket of staples was 16.2% higher than in Dallas, and 17.6% higher than it was in Houston.

Aldi Report Austin

In San Antonio where Aldi has no store presence and where H-E-B and Walmart are the dominant grocery players, we found that the Walmart basket was between 21% and 22% higher than the exact basket in Dallas-Fort Worth and Houston, respectively.

Aldi Report San Antonio

 

While the average pricing differences in the four cities taken together were between 6% and 11%, some pricing disparity on items like peanut butter and mac and cheese were fairly significant. The chart below shows peanut butter at a Walmart store in Dallas-Fort Worth priced at $1.18, while the same jar was priced at $2.18 in Austin – a whopping 54% difference. Similarly, the mac and cheese, priced in the Dallas-Fort Worth stores at $0.34, was double the price at $0.68 each in Austin.

Aldi Report Table Austin DFW

The same pattern can be seen in Houston, where there are currently 50 Aldi stores. The chart below shows peanut butter at a Walmart store in Houston priced at $1.78, while the same jar was priced at $2.58 in San Antonio, or 45% more. The same mac and cheese, priced in the San Antonio store at $0.68, is 100% more expensive than in Houston at $0.34.


The market basket data used in this analysis is objective and precise. But while the same 50 items were used across all markets, the correlation of Aldi’s effect on a market is still subjective.  Based on Engage3’s observations of competitive pricing data across the U.S., we have determined consistent patterns of Aldi’s influence and effect on market pricing.

Pricing has always been like a chess game, where each retailer is reacting to their competitor’s moves, while trying to predict how their competitor will react to their maneuvers.  But, unlike chess, this game is often played with 3 or more players, and aggressive moves can make it difficult to discern strategy from reactive tactics.

For more information on how to build a strategic competitor assessment and market price monitoring program, watch our competitive pricing video here,  request our white paper on how to leverage AI and big data in competitive pricing here, or contact us at 530-231-5485.

 

 

17 Dec 2018
Grocery Bill

What’s Driving Up Your Grocery Bill? The Costs Explained.

Food Costs on the Rise

USA Today recently came out with a report about which grocery item costs have risen the most in the last ten years. The increases ranged from 26 percent to 92 percent during the period, and affected a wide variety of products – from shelf-stable to frozen items to fresh produce. The causes identified for the price increases are shortage, demand, and regulation, and each has an impact on your grocery bill.

Shortage

The most drastic price change in the shortage category included oils and fats, particularly peanut butter. Since 2008, the category has seen a 34.9% price increase, and coincides with peanut shortages throughout the U.S. The combination of smaller yields and consumer preferences has caused many families to reconsider buying peanut butter.

According to an investigative report by NPR in 2011, peanut butter manufacturers were paying almost double what they were before the shortage. Farmers were trading in their peanut fields for cotton, and droughts that year had peanuts soaring to astronomical prices. Trader Joe’s even pulled their private label peanut butter from shelves for a short time.

Organic Peanut Butter

On top of this, demand for the pantry staple rose sharply. Tiffany Arthur from the U.S. Department of Agriculture noted in the 2011 article that, “Peanut butter consumption…jumped by 10 percent since 2008. Usually it goes up just one or two percent in a regular year,” she said.  The shift in preference was an economic one. Peanuts are an inexpensive source of protein, and the U.S. recession shifted consumer tastes towards shelf-stable peanut butter. Though farmers have recovered from the shortages since that time, peanut butter hasn’t returned to its pre-shortage price.

Demand

Himalayan Salt

Salt and food seasonings went up by 36 percent, marking a change in the way people are cooking at home. One of the most significant additions to shoppers’ kitchens is Himalayan salt, which has recently grown in popularity. Supermarket shelves today are filled with different brands of this gourmet pink salt.

 

 

Canned VegetablesCanned vegetables have become a staple, partly due to the increase in food-borne illnesses and recalls. The latest Romaine lettuce scare, among other outbreaks, could be contributing to consumers buying more canned goods. Health-conscious shoppers are also buying and cooking more vegetables at home, and prices for canned green beans, corn, peas, and the like have gone up 26.9 percent as a result.

 

Demand for seafood has put pressure on the fish farming industry, as seen by the 41.4 percent increase in shelf-stable seafood prices and 28.7 percent increase for frozen products. Poultry and beef shortages have also contributed to higher fish consumption. On top of this, new diets focusing on healthy fats and meat-centric meals have helped this trend along.

Regulation

Apart from supply and demand, government intervention has played a large part in the increased cost of goods. The number one increase over the last ten years was for cigarettes, nearly doubling their price in the United States. From 2007 to 2017, cigarettes became 92.2% more expensive, primarily due to federal taxes on tobacco products. Research shows that a pack of cigarettes that, on average, sold for $4.91 in 2004 increased to $8.41 ten years later (24/7 Wall St.) The bulk of the cost is due to cigarette taxes like California’s, which raised the cigarette tax by 2 dollars per pack last year.

Cigarette Taxes

We may see more tobacco taxes in the near future because of mounting health concerns. The Campaign for Tobacco-Free Kids, an advocacy group, claims that every 10 percent increase in cigarette prices could lead to as much as a 5 percent decline in cigarette smoking, a statistic that contributed to support for the 2017 California tax. Out of all the grocery items whose prices went up in the last ten years, cigarettes and tobacco products are the most politically charged. Regardless, the costs and taxes show no signs of slowing down. According to the U.S. Bureau of Labor Statistics, prices for cigarettes were 171.55% higher in 2018 versus 2000, resulting in a $8.58 difference in value.

Effects On Your Grocery Bill

Though the cost of groceries has gone up at a higher rate than inflation, there is now a much greater variety of products to choose from. Organic foods have grown in popularity and specialty grocery stores are thriving in the current market. Apart from some items that have increased a dizzying amount such as cigarettes and prescription drugs, prices have remained relatively stable. In addition to all this, the private label trend in recent years has allowed for prices to remain at the level of inflation. For detailed information on private labels and similar categories, you can read our Q1 2018 Pricing Report here.

05 Dec 2018

The Rise of Agent-based Shopping

 

Retail is at a tipping point

This was a main theme at GroceryShop’s inaugural event last month in Las Vegas. The event was attended by over 2,200 retail and CPG executives and was billed as the industry’s leading event for innovation.

Opinions about the tipping point were punctuated by Nielsen’s prediction: in 5-7 years, as many as 70% of U.S. consumers will regularly purchase consumer packaged goods online (“Digitally Engaged Food Shopper”). By 2022, they speculated consumers could spend $100 billion per year for online groceries (equal to $850/year/household).

For shoppers, digitization lowers barriers, making it easy to source product, compare buying options, find offers, transact, and take possession. For retailers, this means further downward pressure on price as competition evolves across more market segments than ever before: store, product, time, customer, channel, pickup and delivery options, cross-sell alliances, marketplaces and shopping apps.

 

Direct to consumer

Another big topic at the show was brands going Direct To Consumer (DTC) via Instacart, Amazon, and other platforms. For shoppers, it’s only getting easier as computers and AI get better at sourcing, comparing, and finding buying options that best meet a shopper’s current need. In this digital future, relevant offers will find a shopper based on her context (location, preferences, urgency, etc.). Margins will follow a retailer’s ability to make its assortment, offers, and delivery hyper-relevant to a shopper’s context.

 

Artificial Intelligence

Innovative retailers are leveraging AI to defend margins by segmenting markets better and by personalizing services and offers. In her talk, Google’s Laura Antonolli demonstrated Google’s AI-driven conversational assistant, in a machine-to-human interaction. Traditionally, a sales assistant’s role is to connect, understand, personalize and serve. In Laura’s demonstration, Google’s AI assistant searched for a hair salon, called to coordinate calendars for an appointment, and selected a haircut from an array of services.

 

Agent-based shopping

We are witnessing the rise of a new paradigm in retail – agent-based shopping. Laura said shopping agents and voice-activated search are a new battleground, stating that 22% of Google’s mobile search is voice. Forrester Research Analyst George Lawrie reported that “digital is no longer just a marketing channel, it’s now a sales channel.”

In one retail use-case, George shared that Alexa users spent, on average, £8 (eight British pounds) more per basket than at Morrisons. As of today, use cases for digital agents and household consumables are limited. That said, the promise ahead is for agents to create hyper-relevant offers and close sales based on an individual shopper’s context, values, and preferences.

 

Demand-side attributes

In large part, limitations come from the need to understand how shoppers compare substitutable product offerings and how those comparisons change under different pricing and offer scenarios. This applies to both within and beyond a retailer’s four walls. As an industry, we’re really good at supply-side product attribute data (i.e. weight, size & ordering info.). But we have yet to understand product attributes on the demand-side. Whether online or in-store, the old adage “price drives sales like no other factor” still holds true. From that perspective alone, comparability of pricing and offers within a category and across the marketplace are significant dimensions of demand-side attributes.

Comparability lies at the heart of understanding shopper values and preferences. As such, this represents a central value driver in any automated shopper feedback system. Without comparability information, offer personalization is largely blind to a shopper’s context, i.e., blind offers are not relevant.

 

Data takes a new turn

This brings me to a second take-away from the event. We are witnessing a fast acceleration in the variety of demand-side data elements offered by vendors in the space. At GroceryShop, these companies included: Engage3 (my company), Nielsen, Gladson, 1010data, EnterWorks, Label Insights and many more. Each of these companies offer unique data elements relating to different and new demand-side attributes.

As an example, Engage3 provides store-specific comparable pricing data. Nielsen provides measurement data aligned with many causal data elements. Label Insights provides detailed on-package attribute, ingredient and claim data. Data sharing and data feed integration between data vendors is also accelerating. These sharing and integration relationships open new paths to support the full promise of agent-based retailing.

Given the importance of product comparability, expect comparability to emerge as a primary focal point for integration. At Engage3, these sharing and integration relationships are beginning to yield new benefits, including:

All of this helps retailers automate and increase ROI from their pricing, offer generation, segmentation and personalization efforts.

In his talk, Earth Fare’s CEO, Frank Scorpiniti, spoke about AI as an “invisible advantage” that “removes repetition.” He reported that price promo and promo cadence all together yielded ROI of 300 basis points (3% of sales).” Adding “automation requires data quality” and that Engage3’s data has “near 100% accuracy.”

Getting data trustable is one step. Preparing integrated data for automation & advanced analytics is a step beyond. Supporting a client often means integrating a variety of data feeds from across a client organization with that of multiple data vendors. And building those feeds into a model is crucial so decisions can be automated in a controlled way.

Adding to the momentum, research dollars are beginning to flow as universities define research priorities in this space. One university we spoke with plans to create a center for excellence in food through the integration of personalized health, nutrition, and sustainability. Their effort would align both industry executives and academics from the business, engineering, supply chain, medicine & nutrition schools.

Agent-based shopping is set to emerge as a new battleground. Retailers that are positioned to make use of these new data feeds will climb the evolutionary path faster. Expect the industry to evolve rapidly in support of agent-based shopping.  It’s an amazing time to be in retail!

For more information on competitive pricing, go to our blog “What to look for in a competitive pricing platform.”

 

 

30 Nov 2018
Tariffs

Pricing in a Post-Tariff Market

Pricing in a Post-Tariff Market

As the markets closed on September 17th, the United States announced another round of tariffs against Chinese products. The tariffs, this time consisting of $200 billion worth of goods, were implemented on the 24th and will increase from 10% to 25% over the coming months. In return, China fired back with a list of 5,207 U.S. imports to be taxed, totaling $60 billion. National retailers like Walmart have responded by voicing concerns to US Trade Representative Robert Lighthizer and addressing potential costs to American consumers (CNN).

What started as a way of bolstering American business has become an all-out trade war between the two countries, with retailers in the crossfire. In such a situation, it can be difficult for affected retailers to implement new strategies quickly and effectively. Thankfully, with some insights into their competition and the national price leader, the most prepared retailers can come out on top.

 

Effects on Price Image

The prime question is this: who is going to pass on the cost to consumers first? Every retailer in the nation is waiting with bated breath for the answer. Private letters from Walmart and Target, among many others, have hinted at increased costs on the horizon, but there is no certainty of the first retailers to implement them (CNBC). The issue is that whoever passes the cost first hurts their price image the most. Items that were not hit by tariffs may still drop in sales because of the price adjustment, making the threat far greater than anticipated.

Still, this is only the beginning. The first retailer experiences the largest effects of the tariffs, but the next retailers to pass on the cost to consumers are also affected. This is where real-time competitive data can make a difference. Imagine that competing Store A raises the cost of a certain tinfoil to $8 in a market, and you are able to monitor that increase. From there, you can raise the price on that same product at your store to a lower price point than Store A. Though both products are affected by the tariff, your price image for tinfoil is maximized because 1) you were not the first in the market to raise the cost and 2) you are selling that product at a lower price than Store A.

 

Sliding Scale Tariffs

What makes these observations more crucial is the nature of the tariffs themselves. The increased cost for the latest affected products will go from 10% to 25% by January 1st, 2019, meaning that these small-scale retail battles will be happening on a weekly or even daily basis. Having up-to-date information on your competitors—both on a local and national scale—will translate to more victories.

The reality is that most retailers will face losses in the coming months because of tariffs, and stores hit especially hard by the increases have already taken steps to address them (USA Today). Accurate and timely competitive data can help to mitigate losses, especially when monitoring the national price leader. This is where store-level pricing is most important, because some price zones will be more heavily affected than others. Competitive data can inform a retailer when their competition is responding to tariff costs and how they can respond effectively. Implementing enterprise-level decisions in stores and going down to the local level can translate to a significant competitive edge in a post-tariff market.

 

A Watchful Eye

With the tariffs increasing to 25% by the end of the year, the market is racing to recover losses—the earlier a retailer can adopt a competitive strategy, the better. Because most retailers operate on low profit margins per item, an increase of even 10% on a product adds up quickly. In the case of a KVI, the increased cost to the retailer could negate any profit on that item, or even come at a loss. Figuring out a competitor’s pricing strategy and how often they update prices makes for valuable insights for decision-making.

At any point in the timeline, a strong price image is necessary to drive traffic to your stores. As we get further into the year, keeping an eye on the local effects of tariffs will be as important as pricing on a national level, and accurate competitive data can make all the difference. With the right insights, the tariffs present a unique opportunity for retailers in the coming months. Click here to learn more about Engage3’s automated price monitoring and register to receive information.

27 Nov 2018
4-star

Amazon 4-Star Review

November 8, 2018 – BERKELEY, Calif.

With the launch of the latest store, Amazon now has three Amazon 4-star retail locations in the United States. The second store opened last week in Lone Tree, Colorado, surprising consumers that expected the Berkeley, California location to open first. Engage3 took a trip to the opening last week to see it in person, and here are some of our observations.

The Amazon 4-star in Berkeley opened its doors on November 5th to a short line of people, but soon the store was full of shoppers and press eager to see the products available. In the weeks leading up to the launch, I had read comments from small businesses in the area expressing their concern, but seeing it in person made it clear that the 4-star experience is not directly competing with these business owners.

Online Goes Offline

Compared to Amazon’s other retail ventures, 4-star is fairly tame; the concept of the store is to offer well-reviewed products from the online site in a brick-and-mortar location. No tracking cameras are set up and no cashier-free checkout is offered, making the store more like a traditional retailer than a cutting-edge convenience store competitor (Business Insider). We were allowed to openly browse the selection of products once inside.

What makes the store unique is how it approaches brick-and-mortar selling. Customer reviews are the basis for which items are sold in the store; if something is for sale, it means a large amount of online customers enjoyed the product. Amazon 4-star is also localized to the surrounding area, displaying a selection of products popular with Berkeley customers. These curated collections are available in the Lone Tree and Manhattan as well, and we will likely see this trend continue as more stores open.

4-star Welcome
The products in stock are all highly rated, pushing for quality over quantity.
4-star Books
Books and recommendations make up a large portion of the store, similar to Amazon Books.
4-star Trending
Items are curated for the surrounding area and based on popular orders.

Aside from the tables lined with trending purchases, the majority of items in the store were hanging on the walls with little separation. As soon as I left the table area, the number of items became overwhelming and difficult to sort through. If found myself looking at the curated collections more than anything else, and the shoppers around me were doing the same.

Compared to looking for gifts on the Amazon site, the experience of looking through seemingly endless shelves felt lacking. The categories were clearly displayed, but I had no interest of going row by row to look for something specific. A large Roomba vacuum exhibit dominated the back half of the store where the electronics were kept, and few customers were venturing into that territory. Shoppers focused on the curated tables and book displays instead. The scene reminded me of another brick-and-mortar bookseller in a condensed format.

To recreate the online shopping experience, recommended and related items appeared next to each other throughout the store. Online reviews and short descriptions accompanied many of the store’s products, but these when afterthoughts when compared to the Amazon Prime integration.

Gifts and Presence

While I went through the store, I noticed that many products have two price points: one for Prime members and one for non-members. The e-ink displays clearly tell a shopper the online rating for the product and how much they are saving with their membership. Every item had an Electronic Shelf Label that the employees could change when necessary.

The labels caught my attention, because they displays the online rating and number of reviews. Amazon was meticulous on this point, making sure every single item in the store had a dynamic label.

Many shoppers and news outlets are comparing the 4-star experience to existing “everything under one roof” retailers. The store has even been called a Millennial Brookstone (Forbes). However, what sets Amazon apart from these retailers is a focus on membership and community interaction.

The Berkeley location seemed more welcoming than Amazon’s other physical stores, especially compared to Amazon Go. Most of the customers in the store were curious families and couples, and it is refreshing to see the online retailer focus on more than their usual tech-savvy demographic.

Overall, the Amazon 4-star favors a traditional layout over revolutionary tech. It shares a target demographic with the retailer’s convenience stores, but offers a more reserved shopping experience. Even though the store was overwhelming at times, it felt warmer and more human than any of Amazon’s previous brick-and-mortar attempts. With its wide product selection, I can see holiday shoppers close to these stores turning to 4-star for their gift-giving.