Since the rise of online giants in the mid-1990s, retail has been in a state of chaotic upheaval. Retailers have been racing to cope with decreased shopper loyalty, a fast-changing array of online and physical competitors, and rapid changes in demand signals.
Yet that was a cakewalk compared to the chaos wrought by the global COVID-19 pandemic. Shoppers spooked by surging unemployment and economic uncertainty are acutely price sensitive. Long-stable KVIs (Key Value Items) are upended as demand patterns lurch into new territory. Supply chains, already buffeted by tariffs and trade wars, grew more unpredictable and contributed to widespread stock-outs. This perfect storm has decimated or even killed off many retailers.
Seven months into the COVID era, retailers are beginning cautiously to contemplate a post-pandemic landscape. As the path will be rocky with fits and starts as lockdowns expire and then are re-instated amid fresh outbreaks, now is the time for retailers to get prepared for shoppers’ preferences and behaviors post-COVID. But how can they prepare when they don’t know what to expect? To help understand what the world will look like post-COVID, we teamed up with research specialists at Ensemble IQ to ask the ultimate experts: the shoppers themselves. Here are five key themes we’ve identified and what retailers should do now to successfully navigate the next perfect storm.
Many Shoppers Driven Online by COVID will Stay Online.
The number of shoppers who say they primarily shop online has risen by 5x during the pandemic, from 7% to 35%, the study found. Post-COVID, 21% of shoppers say they’ll primarily shop online – almost triple the number of shoppers who relied primarily on online channels pre-COVID.
Retailers clearly need to be making online commerce a central part of their strategy going forward. This means thinking in terms of dynamically pricing to enable frequent price updates that reflect current shopper preferences, demand signals and competitive landscapes. To be successful retailers will need to become automated, and science driven, using technology that accurately gauge shopper, competitive and market signals in real time, recommend prices within retailer-defined business rules or parameters, and cascade prices through to shoppers in automated workflows that only invoke human reviews when exception management guidelines kick in.
Shoppers’ Already-Heightened Price Sensitivity will only Increase.
Shoppers spooked by a wobbly economy are paying more attention to prices than ever before. In fact, 34% shoppers ranked price as the most important factor contributing to their overall shopping experience, significantly more than product quality at 28% and product availability at 18%. These results held true across all retail formats. When shoppers project how important price will be compared to other factors post-COVID, 66% say price will be extremely or very important, a significant increase from the 61% who thought it was extremely or very important pre-COVID.
During COVID as well as post-COVID, retailers can’t afford to get pricing wrong and erode what little shopper loyalty persists – again making science-based insights into demand signals and price sensitivities a must-have rather than a nice-to-have.
What Little Trust Existed, Has Gone Out the Window.
Another added urgency is that shoppers, who in their heightened sensitivity are watching prices more closely than ever, often conclude that price increases are arbitrary and unfair and this has destroyed what little trust remained among shoppers. This came into stark focus when three out of four shoppers (74%) reported encountering unfair pricing during the pandemic. And a third of those who reported unfair prices at a retailer say they will not shop with that retailer again.
While it is believed that the vast majority of retailers did not stray into deliberate price gouging, this tells us that ultimately what matters is the shoppers’ perceptions of prices. To cope in the post-COVID world and in whatever fresh upheavals lie ahead, retailers must leverage AI-based science to know what items matter most to shoppers, dictating where prices need to be aggressive to meet shopper expectations. Equally important is using science to know where they can safely recover margins to sustain a healthy business for the long term.
Retailers Must Take a Fresh Look at KVIs and Category Strategies. Constantly.
Those patterns of fast-changing price sensitivities and preferences? They mean that long-held KVIs (Key Value Items) and category strategy assumptions are out the window. In a post-COVID world, shopper preferences and demand signals will continue to evolve at the pace of ecommerce. Retailers who regard category strategies and KVIs as something to be revisited once a quarter or even once a year will rapidly become out of step with their fickle shoppers. Rather than thinking of category strategy and KVI assessments as a one-off special project tapping internal and external experts, retailers need to change their thinking, their tools and their processes to view category strategies and KVIs dynamically, assessing what items are most price-relevant to shoppers now, and – once again – delivering the win-win of optimal category strategies and aggressive prices on KVIs balanced with margin recovery elsewhere in the assortment.
Yesterday’s Promotions Won’t Resonate with Shoppers Tomorrow.
We’ve already seen that shoppers post-COVID will be more often online, will remain extremely sensitive to price, and will be quick to judge – and leave – a retailer they perceive as price-gouging. What does this mean for retailer promotions? These price-spooked shoppers saw floods of promotions from desperate retailers during COVID-19, and they are even more likely to hold off buying until they receive a promotional offer post-COVID: 45%, in fact, compared to 35% who said they would be extremely or very likely to wait for a promotional offer before making a purchase.
Retailers who mindlessly repeat last year’s promotional plans will miss the boat, losing out to their more agile competitors who are more targeted in offering promotions that resonate with shoppers. Those agile competitors know to leverage promotion optimization science to adjust to fast-changing shopper preferences for the type of the promotion being offered and the channel in which it’s offered. For example, shoppers report that currently their top preference is for buy-one-get-one offers, which historically ranked third behind dollars-off and % off. In addition, shoppers prefer offers that do not require them to buy quantities to get the discount. Similar to everyday pricing, promotions need to be driven by science to ensure retailers are construct offers that align to shoppers and are most likely to achieve their stated business targets and goals.
Regardless of what the future holds, retail will never return to ‘normal’ after the chaotic pandemic era subsides, nor has it stabilized during the pandemic. A new normal will evolve over the months to come. Retailers who use this interlude to lay the groundwork for agile processes, current relevant price and promotion technologies, and dynamic pricing tuned to the pace of their business will have the resources to succeed where others will inevitably struggle or even fail.
Cheryl Sullivan is president of DemandTec, a provider of lifecycle pricing solutions that serves retailers and manufacturers in the consumer packaged goods industry. She has more than 30 years experience in the technology world.