Last month, Robert Schaulis of Andnowuknow interviewed Engage3 COO Edris Bemanian on his observations of pricing pressures from the likes of Amazon and Lidl. “The biggest trend is that pricing and assortments are becoming more dynamic and localized,” Edris says. He notes that e-commerce is now becoming a fundamental part of retailers’ strategies versus just a “me too” approach. Read the full article in Andnowuknow.com.
Big data and Artificial Intelligence (AI) are giving rise to new retail pricing strategies that were not possible just two years ago. The explosion of data available has provided the perfect storm for AI to thrive. Retailers are starting to differentiate themselves like hedge funds with high-speed pricing models and proprietary market data.
Find out how you can use accurate, localized competitive data and pricing analytics to execute your business strategies today. Register to download the white paper now.
Precise and Accurate Data
First and foremost, a competitive pricing platform must have the ability to collect precise and accurate pricing data. This allows retailers to target competitive shops, optimize frequency, and specify which items to focus on within regions or individual stores.
Rather than casting a wide net to see what useful data gets brought in, retailers must be able to get a global look at the actions of their competitors while also drilling down to store-specific opportunities. When they have both views, they can see clearly where they are winning and losing. Essentially, such a system puts both a telescope and a microscope into the hands of merchants and their pricing analysts, enabling them to comprehensively study their competitor’s universe. It allows them to reverse-engineer their competitor’s approach to pricing and to develop a targeted response, especially if they see a weakness.
Quality Assurance Workflow
A competitive pricing platform must also have a strong quality assurance workflow. With today’s mobile app-enabled technology, automated processes can greatly reduce manual errors and ensure that only quality data is being captured at shelf edge. Additionally, such apps can compare shelf data against historical records, flagging any SKU pricing that seems historically unreasonable. Advanced analytics can assure that the data being captured is accurate in terms of price, brand, sizing, and product attributes. This technology can eliminate much of the human error that has plagued competitive shop programs.
With the rise of private labels, competitive pricing platforms must be able to compare product attributes. In traditional competitive shop programs, as many as 40% of items go unaccounted for because there is no UPC match. To solve this problem, competitive pricing platforms must be able to utilize visual data capture technology and advanced character recognition to compare product attributes. This allows product linking to occur not just by UPC, but also by key attributes and statement of ingredient similarities, i.e. gluten-free and organic. This creates a more accurate picture of a competitor’s private label pricing strategy and their total value proposition.
Customized KVI Lists Based on Statistical Analysis
Historically, cost and timeliness have made it difficult to acquire quality competitive data. Given the dynamic nature of the retail environment, static KVI lists are not responsive enough to the realities of where to focus competitive pricing efforts across various geographies and store-specific categories. The retailer needs a pricing platform that allows them to shift from static KVI lists to ones that are easily customized by banner or even by specific store. Rather than taking a blanket approach, the critical decisions of where, what and when to comp shop should be based on strategic statistical analysis.
Merchants need the ability to drill down and understand the decisions competitors are making within specific regions, designated market areas (DMAs), cities and individual stores across their overall pricing strategy or within specific merchandise categories. This would enable merchants to lead their competition by being right on pricing with the right items that are important to customers at a localized level. Such flexibility in designing and executing a more targeted approach to competitor pricing would allow for significant savings in budgeted dollars for competitive shops. A retailer could go after the data they actually need when they need it, rather than spending dollars on costly full book programs.
Correlating Online and In-store Pricing
In today’s world of e-commerce, more and more retailers are taking an omni-channel approach to selling. A technology-enabled competitive pricing platform needs to take advantage of advanced web crawling algorithms to acquire this competitive data and correlate it against the data captured by auditors in physical store checks. This would enable a more efficient and cost-effective approach to acquiring competitive pricing data.
As advanced analytics enable faster and more accurate decision-making, organizations will need to change to more cross-functionally aligned metrics that strategically drive the financial success of a company. When considering today’s retail organizational structure, is what drives a merchant’s decisions the same as what motivates the employees in a pricing department? Having the data to make decisions regarding competitive pricing at the speed of retail requires a major step forward in enabling accurate pricing decisions to be made with a sense of urgency and strategic intent. However, to fully unlock its true impact to P&L, the retailer will benefit from progressive thinking around how to align objectives and an incentive structure that motivates and drives collaboration. This will enable different departments with complementary skill sets to pull the rope in the same direction and drive a total value proposition focused on the customer.
Strategic pricing is at the heart of retail competition. It has famously driven the business decisions of Amazon, Walmart, Lidl and Aldi that we see all over the news. But in order to develop more effective pricing strategies, retailers need a different approach to competitive pricing, one that addresses the historical challenges of competitive shop programs:
Problem 1: Low Completion and High Data Error Rates in Competitive Pricing Shops
Data capture has always been a labor-intensive, error-prone process. Price checkers match wrong items, capture the wrong price points (e.g. promotional vs. everyday retail) and encounter a variety of other issues. With quality assurance happening on the back end of the price-checking process, incorrect matches have the potential to pass through the system downstream to the retailer.
Problem 2: Like-product Comparison
Different assortment sizes and formulations pose challenges to price checkers who work from static comparison lists. With Amazon’s rapidly expanding penetration of the food retail market, center-store items are becoming more and more commoditized with price having a greater impact on consumer decisions. At the same time, specialty formats like Trader Joe’s and deep discounters such as Aldi and Lidl continue to execute on delivering cost-effective differentiated private label programs. The fresh side of the store is becoming the battleground where stores need to differentiate themselves. In order to do so, accurate competitive pricing programs that take into account size, quantity, formulations, and other attributes.
Problem 3: Lack of an Integrated Omni-channel Approach
As traditional retailers move further into e-commerce and online advertising, their approach to competitive pricing has, for the most part, remained a manual process, limited by the amount of labor resources to physically shop competitor markets. By using technology to automate competitive shops, they can deploy more labor to focus on unique assortments and integrate online and in-store activities. This creates a more comprehensive picture of competitor pricing strategies.
Problem 4: Static Lists, a One-Size-Fits-All Approach
Often, retail companies rely on lists of Key Value Items (KVI’s) to drive both their competitive shop programs and their pricing strategies. These lists are usually static and don’t take into account differences across competitors and their diverse locations. This approach can be extremely inefficient as auditors go to stores looking for items that may not be part of that specific store’s assortment. When this happens month after month, it quickly becomes costly.
Problem 5: Tactical, Not Strategic
It’s easy to fall into the trap of using competitive pricing programs to fill tactical rather than strategy needs. Competitive pricing programs should be used to understand not just the competitor’s price on individual SKUs but also their total pricing strategy across their footprint. With consistent, accurate and real-time data, a retailer has the ability to look at trends within the marketplace, understand the actions of competitors, and use predictive analytics to ensure that their value proposition remains relevant to the customer.
Problem 6: Expensive: Throwing Money Away on Full Book Shops
In order to gain a comprehensive view of a competitor’s pricing, competitive shop programs often focus on a large number of items and numerous stores. This is due in part to the challenges mentioned above regarding data accuracy and reliability of the manual process. To increase reliability, retailers often increase labor by checking more items in more stores or increasing the frequency of checks. This is expensive. The top 10% of products sold typically represent 50% of the total sales dollars. Therefore, full book programs that invest as much in competitive shopping slow-moving items as in fast-moving products are not cost-effective.
Problem 7: Wrong Measures and Incentives
A major internal challenge for the retailer can be its organizational design and HR support. People are fundamentally motivated based on how they are rewarded. However, merchants and pricing departments may be measured against completely different success criteria that but also work against each other. For example, when Pricing strives to maintain a company’s value proposition by driving towards a CPI index, this may run counter to the gross profit targets set by merchants. Progressive merchant leaders, with the support of HR, need to bring these departments together with aligned KPIs and metrics. Driving EBITDA should be everyone’s goal. Organizational structures and compensation schemes should encourage productive and aligned behaviors.
We’ll show you what to look for in a competitive pricing platform in our next blog. Stay tuned!
On December 14, 2017, I met with our CEO, Ken Ouimet, in front of the beautiful Mondavi Center in Davis. With big changes at Amazon and Walmart this past year, I asked him to describe the future that he sees for the retail industry.
Gartner identified Ken as one of the pioneers in the retail pricing optimization space. In this video, he shares his insights and enthusiasm for what’s ahead.
Industry-expert and Chief Architect of Brick Meets Click, Bill Bishop, hosted a highly-anticipated webinar session with Engage3 CEO Ken Ouimet and COO Edris Bemanian. “Surviving the Emerging Price War” provides in-depth insights, tangible examples and tips and tricks on how to compete effectively in the face of a brutal and imminent price war among retailer powerhouses. The webinar supplies all of the key ingredients in making up a retailer’s survival toolkit.
“When elephants start to dance, mice get trampled.” Ouimet began the webinar with an analogy that accurately reflects the current state of affairs in the retail industry prior to highlighting Amazon, Aldi, Lidl, and Walmart’s price commitments in the emerging price war. As these giants begin investing in their pricing, the “mice” that are forced to follow but fail to react strategically remain in the elephants’ path.
Ouimet continues with a five-step plan on how to survive in the face of a price war and be met with some form of success or resilience. His ideas center around the notion that “the best offense is a good defense.”
Understand your customer’s perspective.
Using competitive intelligence data shouldn’t be the only tool retailers leverage. Retailers must identify which items are most important to their local customers and understand what items they are comparing against at their competitors’ stores. It’s essential to utilize accurate product linking practices to compare products in the way that customers do with attributes.
By understanding the way customers value their products and perceive the changes retailers make to their pricing, retailers will unlock opportunities to move their customers up the loyalty ladder. Engage3 is collaborating with customers to bridge sales, market share, customer survey, and competitive intelligence data to identify the items that are most relevant to their customers in each market and refine retailers’ KVI lists to reflect this.
Gain visibility into your local competition.
If retailers don’t have visibility into local competition, then they simply can’t compete. Convenience stores have a high level of what Engage3 calls “localization” (geo-specific pricing), and drug stores have a lower level of localization. However, as a time-series analysis shows, localization scores have been increasing, and retailers like Safeway, Kroger, and Publix are developing higher levels of localization. Kroger, especially, has been met with a high level of success with localized assortments.
If competitors are not very localized, it provides an opportunity to strike hard and fast without any visibility. Engage3’s platform, in particular, takes price change frequency and competitor assortment localization into account when improving competitive intelligence programs over time.
Fly under the radar and attack where they aren’t looking.
One suggested tactic could be moving away from larger competitive zones and instead into micro-zones. A regional grocery retailer that scores very highly with consumers in regard to their price reputation was able to maintain their positive reputation by leveraging their smaller zones to take advantage of their competitors’ blind spots through a mix of lower prices to earn price reputation points while taking higher margin on other items by allocating across zones. Engage3’s Competitor Strategy Analytics reverse-engineers retailers’ pricing and assortment strategies to identify margin opportunities and competitors’ price zones.
Strike hard and fast.
It’s not enough for retailers to attack from hidden angles, but they must also have an element of speed behind them. Amazon has a high price change frequency on several items found in conventional grocery stores, and the juggernaut’s price change algorithms are highly responsive. Retailers are taking notice of Amazon’s practices and efficient strategies and are beginning to follow suit.
Retailers need to minimize the time it takes to respond to margin opportunities or price reputation risks by getting data that is as fresh as possible to maintain visibility. Engage3 has helped customers identify when retailers can confidently leverage online data to provide a faster signal to increase visibility and proactively identify opportunities.
Reinvest benefits to defend your turf.
The environment of a price war is pressing and inevitable, so the first step to surviving is determining how to invest optimally in your respective markets by efficiently monitoring the local competition. Once retailers can establish a robust process in a program, they should be able to reinvest those savings to identify additional margin or price opportunities.
The segment concluded with a last, but certainly important, strategic lever in fighting a price war: personalization. Ouimet believes that the future is personal and that personalization is unique in the way that it’s a highly desirable tool for consumers that also helps create a tighter relationship within retail communities. It provides more loyalty and more convenience for the consumer, and when applied to pricing, it becomes the ultimate segmentation and the most powerful means to “fly under the radar.”
The five-step plan is heavily reliant on updating competitive shop programs and price optimization strategies. According to Ouimet, those retailers seeking to constantly improve will be well prepared if there is a price war.
To register to watch the full webinar and find out more invaluable insights, click here.
Milk: it does a body good, but what does it do to your finances? Conventional wisdom has it that prices always rise, and milk is one of the most consistently expensive items in its aisle – everyone needs it for something, from breakfast to baking, so of course the price of milk is going to go up over time, right?
Well, kind of. In the first round of our Store Brand vs. National Brand Analyses, we examined promotional and regular pricing trends for Organic and Conventional milk, and while a few of these analyses turned up what we might expect – regular price trends for conventional milk are both positive, with nationally branded items showing a significantly steeper increase over the past year than store brands — we found several surprising results as well.
Let’s start with the major one: compared to store brands, the average price of nationally branded organic milk is plummeting, dropping by nearly a quarter per gallon over the past year. Store brand pricing has held steady at around $6.00 per gallon; but where nationally branded items once averaged close to $6.15, that average has fallen to $5.87 in the span of 14 months, now beating store brands. Promotional prices on organic milks are also dropping steadily, though store brands are outpacing national brands there.
The choice seems clear in one regard: if you’re an organic milk drinker, don’t just default to the store brand. It’s a good bet a gallon of Horizon might be easier on your wallet.
The Sherlock Holmes of Retail
The phrase “competitive intelligence” is tossed around among competitive retailers and pricing strategists looking to grow revenue and expand their reach. Formally defined, competitive intelligence is the act of defining, gathering, analyzing and distributing intelligence about products, customers and competitors in order to make strategic decisions.
But what this really sounds like is a socially and legally acceptable form of spying. Companies that use competitive intelligence methods are putting on their black ski masks and waiting in stakeout vans with binoculars, ready to observe and analyze their competitors every movement.
This kind of “spying” is actually one of the oldest forms of ensuring market competition and drives the system of exchange that our livelihoods depend on. A basic study of economics tells us that markets are sustained by simple supply and demand models. When the demand for new Legend of Zelda video game increases, Nintendo is smart enough to increase their prices and the quantity that they supply to legions of insatiable gamers.
Profitable choices and strategic pricing is dependent on looking at external factors and the ecosystem of markets around you. Companies who want to thrive in a competitive environment know that they have to study two major areas: their customers and their competition. The two share a magnetic-like attraction, linking them together and linking the success of the company with their push and pull.
But to simplify things even more, let’s take a look at the classic lemonade stand example. Sally spends her summer vacations selling lemonade for 2 dollars a cup and expects about 15 sympathetic parents to visit her stand and buy a daily cup. When another lemonade stand opens up across the street, Sally notices her customers waning.
Infuriated, she grabs a recording device, her binoculars and heat-resistant trench coat and hovers around her competitor’s stand only to discover that the other lemonade stand sells lemonade for 75 cents a cup.
Now armed with this information, Sally can re-re-price her lemonade at 75 cents or less and make an informed and strategic move to stay the queen of lemonade sales.
Retailers like Sally want information about the prices that their competitors are charging, so they’ll be able to assess their own prices and make adjustments accordingly. By expanding the scope of our lemonade example to include the millions of industries and retailers with a diverse range of products and services, it’s safe to say that we’re getting a little closer to the heart of competitive intelligence as it exists in the real-world marketplace today.
The (C)ompetitive (I)ntelligence spy tool kit can be broken down into a strategic four-step method:
- Plan. Companies need to crack open their laptops and begin their Google stalking. In other words, retailers need to have a plan for what information they feel will benefit them. If retailers are asking the right questions, they’re asking about their competitor’s mission and history or their competitor’s target customers. They’re asking about which products are being priced at what cost and what special feature of that product attracts customers. They’re asking about promotions and advertisements.
- Collect Data. Retailers accumulate information by utilizing competitive intelligence programs or platforms. CI tools like MissionControl address the largest questions retailers might have about how to be successfully competitive with their pricing strategies and promotions. MissionControl is just one of the many innovative technologies out there that retailers are latching onto. There are hundreds of free and private programs that help companies analyze features of their competitors such as Quantcast, Knowledge360 or CIRADAR.
- Analyze the Data. Put your smartest and brightest to work extracting information that can be beneficial to understanding your own business in relation to the other markets. Alternatively, there are companies out there like Engage3 that collect the data and help set strategy with advanced analytics and insights. For Sally, it was figuring out that 75 cents would steal the neighborhood moms away from her stand.
- Make Changes. Implementing new pricing strategies, promotional programs or re-evaluating inventory are some of the many ways retailers then act on the data they’ve acquired. Sally quickly made the change and started pricing her lemonade at 50 cents. It worked like a charm.
Using competitive intelligence is like being the Sherlock Holmes of retail, and it is amongst one of the fastest growing business strategies of the 21st century. As long as there are Sally’s in the world competing against other lemonade stands, competitive intelligence will continue to play an important role in the social and economic foundations of the retail industry.