Skip to main content

Getting Prices Right in 2021

Getting Prices Right in 2021
In 2021, ongoing economic constraints promise to place an even higher focus on price.

Few things are as important as price when it comes to grocery shopping — but how to optimize those prices is undergoing significant change in 2021, and retailers who don’t get on board could face problems sooner rather than later.

Thanks in large part to the pandemic — but also cheaper technology — price and promotional optimization efforts are moving from manual processes to automation, which is often powered by machine learning or artificial intelligence (AI).

Even when the pandemic subsides and food retail gets back to normal — or as normal as will be possible after months of supply-chain hiccups, pantry loading and e-commerce growth — merchants that intelligently embrace price and promotional optimization will have an edge when it comes to dealing with new consumer habits.

Cheryl Sullivan, president of Boston-based pricing and promotional data and technology company DemandTec, sums up the situation and stakes better than most.

“Even in early 2018, many retailers considered science-driven price optimization as a nice-to-have,” she says. “By 2020, it was no longer viewed as a nice-to-have, yet retailers struggled to understand it. Fast-forward as we move into 2021, and retailers have begun not only to understand it, but to embrace it. With the onset of a pandemic that threw grocery into a tailspin, it’s clear that optimization is an absolute imperative.”

A recent study cited by Sullivan helps to illustrate her points.

In mid-2020, 60% of retailers said that they were focused on putting AI-powered pricing in place. In 2021, that technology will stand as a top priority for retailers that have not already progressed on the optimization journey, she notes.

“About the only thing that didn’t change was the importance of price – shoppers continue to rank it as the single most important factor in choosing where to shop, which it has consistently been for many years,” Sullivan adds. “It won’t come as a surprise that I see 2021 as a critical year for price optimization to take center stage for retailers.”

Private Label Pricing

A change that took place during the pandemic — a change still playing out, in fact — shows the importance of better food retail price optimization efforts, and how grocery store operators can use the technology to gain ground over rivals.

Before the pandemic, according to Sullivan, shoppers reported a 37% increase in their purchases of private label products. That increased to 44% during the pandemic — with that figure expected to go even higher in 2021 and after the COVID-19 outbreak fades. 

“Heightened price sensitivity, changing KVIs [known value items] and supply-chain hiccups that sometimes resulted in national-brand stockouts all combined to make shoppers more inclined to give store brands a try,” she explains. “As a result, shoppers are discovering that private label brands provide both high quality and value, and they are more interested in them than in the past. Retailers need to strategically consider the role of private label in their overall product mix, and price accordingly, which optimization can help you do effectively and quickly.”

Indeed, one sign of the increasing importance of price optimization comes from Washington, D.C.-based Datasembly, which describes itself as the leading provider of real-time product pricing, promotions and availability data for retailers and CPG brands. In the latter part of 2020, the company raised $10.3 million in a Series A funding round, and said that it counted as customers three of the top 10 CPG brands and two of the top five regional and national retailers.

Datasembly’s proprietary technology collects billions of grocery and retail product records from hundreds of thousands of locations every day, and the new funding will go toward accelerated product development, and expand sales and marketing efforts.

“Datasembly is changing the way retailers and CPGs can get and share pricing information, eliminating the need to visit stores in person or to settle for averaged data,” says founder and CEO Ben Reich. “Using real-time store-level pricing and promotions data, customers get unprecedented transparency between retailers, partners and suppliers. The top retailers and CPGs we’re already working with are reaping the benefits of the value we provide. Along with our two strategic investors, we have the talent and resources to continue to grow our customer base and solve the industry’s archaic pricing problem.”

New Realities

Eventually, consumers will return to stores even as online grocery shopping remains popular, says Matthew Pavich, managing director, global strategic consulting for Austin, Texas-based Revionics, another price optimization firm.

Getting Prices Right in 2021
Cheryl Sullivan of DemandTec sees 2021 as a critical year for price optimization to take center stage for retailers.

“People will always want to shop and interact with others, so some elements of 2020 will only last as long as there is a virus risk, but for the most part, the trends that grew last year will stay in place,” he notes.

Two examples of those newer trends? Grocery deliveries and curbside pickup. But keeping up with consumer demand for those services in 2021 and beyond, and keeping ahead of competitors, will require more food retailers to invest in software as a service (SaaS) or other forms of optimization technology. “Price optimization remains one of the best ways to translate what consumers like into viable actions to stay relevant as trends evolve over time,” Pavich says.

Such Saas technology can provide the benefit of a team to retailers that deploy those systems — a reflection of a larger trend in the food retail world in 2021, as business becomes ever more digital, and new and real-time data points accumulate more quickly.

“Retailers using SaaS pricing platforms also benefited from being part of a community of customers, having strategic partners who were able to monitor broader pricing trends and advise on best practices during very challenging times,” Pavich points out. “Imagine how Apollo 13 would have turned out if the crew didn’t have all of their instruments, gauges, and a room full of experts and scientists in Houston advising them and helping them through their crisis.”

Even if a particular food retailer isn’t quite ready to deploy new price and promotional optimization strategy — or has yet to earmark the money for doing so — work toward that goal can be completed now.

“The main thing that retailers should be doing is re-evaluating and refreshing their strategies to reflect the new realities of the current market,” Pavich advises. “This includes taking a new look at pricing zones, competitive indexes, KVIs, category pricing roles and other key aspects of their pricing strategy. High-quality analytics and industry best practices can help retailers build a pricing strategy to meet today’s needs while driving sustainable value in 2021 and beyond.”

Not Just AI

It’s hard to go even a day in the world of food retail without hearing about some new deployment of artificial intelligence, or fresh boasting about its near-term promise. That holds true when it comes to pricing and promotional optimization — but don’t make the mistake that everything is about AI.

Other technologies and processes also matter significantly, according to Maia Brenner, a data scientist for Tryolabs, a San Francisco-based data science consulting firm.

That includes machine learning — kind of like the less sophisticated but useful older cousin of AI. Brenner says that mastering price optimization in 2021 requires food retailer tech departments to either master machine-learning techniques or find a partner that can. To do that, retailers need to break past old habits and embrace the future. Many grocery operators proved they could do that in 2020 when they went full force with e-commerce and associated services. Now, that same attitude is required for better price optimization.

“Old statistical univariate forecasting tools aren’t sufficient, since forecasting future sales can’t be predicted only by having a look at last year’s or month’s sales,” Brenner observes. “Without doubt, handling new real-time structured or unstructured data sources also helps anticipate the future and make better decisions. For instance, price optimization technologies can be powered up with computer vision and natural language-processing techniques by providing more information to perform better recommendations and personalization.”

She also stresses the importance of investing in real-time data sources and crafting a pricing strategy with enough flexibility to be able to analyze all of that information and respond accordingly — and before competitors do.

Coming Changes

Another anticipated change serves to further underscore why food retailers this year need to take price optimization even more seriously than has been the case.

“In 2020, consumers took fewer trips, went to fewer retailers and spent more per trip,” notes Edris Bemanian, CEO of Engage3, a price optimization firm with offices in Davis, Calif., and Scottsdale, Ariz. “During this period, prices skyrocketed due to lack of supply, and a significant reduction in promotions driven by the lack of supply. At the same time, a greater percentage of sales than ever before shifted to e-commerce, and retailers had to be more sensitive to pricing actions that would be perceived as unethical or unfair.”

In 2021, according to Bemanian, ongoing economic constraints promise to place an even higher focus on price. “Price optimization will need to shift to be able to deal with smaller trip sizes, households with less money to spend on each trip, shifts to private label, and smaller pack sizes,” he predicts. “Historical price optimization models of increasing price to drive profit won’t work. Retailers will need to focus on the items that drive their price image to keep traffic up.”

In other words, the future is pretty much now when it comes to better pricing and promotions. The race toward better optimization could even prove more important in the longer term than the fight to win over online shoppers.

X
This ad will auto-close in 10 seconds