It’s time for the larger retail market to embrace “precision discounting”
A widely covered story in the UK crossed our desk last week. Asda and Morrisons, two larger grocers in Britain announced they would drop prices in response to consumer sensitivity due to inflation. As Reuters reported, “surging prices are causing the biggest squeeze on household incomes since at least the 1950s in Britain, where grocery price inflation hit 5.2% over the four weeks to March 20, the highest level since April 2012, industry data last month showed.” The article goes on to detail that Asda “would invest over 73 million pounds ($93 million) to cut the prices of over 100 items,” while Morrisons was “lowering prices on more than 500 essential products, which together cover 6% of its total volume sales.”
Reading this from my home office in San Antonio, it struck me that three things are familiar with this UK story. The first thing is that the pressure to reduce is happening everywhere. The evolving inflation story is a global reality. Here in the US, we are seeing the rise of discounters such as Aldi and Dollar General, forcing grocers to take a hard look at their everyday prices. In the meantime, the discounters are gobbling up market share. According to a recent story in Business Insider, “Aldi monthly customer visits are up over year over year and over 2019 levels, according to new data from foot traffic analysis firm Placer.ai. Monthly visits were up over 30% over the previous year from April through August 2021, with continued growth up through the most recent data from March 2022.”
The second point of familiarity is that the effects of this new reality are adversely similar.
While both Asda and Morrisons in the UK are lowering prices in response to consumer inflation worries, they are not doing it willy-nilly. We are talking about a select number of items in each case, not everything. More now than ever, grocers need to think about precision pricing. We have made the case for this in previous articles on pricing. But today, it might be helpful to recast the conversation as one about “precision promotions and discounting.”
Why this matters
As noted, the two UK grocers are focused on categories where it makes sense to cut and where it makes sense not to cut. How can they possibly do that in any meaningful way? What data and insight does the retailer have on current and changing consumer habits? Is this the kind of information that just any grocer can obtain in a timely way, or is this a capability that only the bigger grocers have, or can hope to have.
We have recently written that when it comes to retail pricing technology, we are entering a phase of great access and adoption that marks the democratization of pricing optimization. In recent times, the standard for optimization has been raised to the level of AI, where autonomous pricing technology has been able to offload myriad rote tasks without the compromise of human bias. What kind of human bias? The kind of human bias, for example, that can lead to profit-eroding pricing decisions.
The era of autonomously pricing – and autonomous discounting – will help grocers sort through the new set of pricing challenges, especially now that we are on the brink – according to so many economists – of a recession that promises to upend pricing further to the point where grocers may make fatal errors. They can avoid all that by keeping up with pricing tech – now available.
The key enabling capability is to first gain a precise and current understanding of the consumer.
This does not happen through the traditional methods of consumer studies that take months to develop and even longer to decipher. Winning in retail requires acute consumer demand and insights, even down to the moment in time when a decision to promote, discount, or to lower everyday prices for the opportunity to win new consumers and market share. Winners are upgrading their abilities to achieve these actionable insights, they are also deploying autonomous solutions that change prices, promotions and markdowns without arduous reviews and approval cycles. Current economic conditions present opportunities for retailers to be different and to stake their claims through improved pricing that does not follow the pack of passing along the costs to the consumer. The real question, will you seize the opportunity by doing things differently or will these opportunities pass you by.
We have designed a pricing and promotion health check that compares your current state to industry benchmarks. Reach out and we will provide this complimentary service to help you gain a view of where you stand compared to your competitors.
Reach out to get started!
