It was a privilege to sit in recently on a fast-moving and wide-ranging panel discussion on “Recovering Shopper Loyalty in the Post-COVID World.” Moderated by Mike Troy, Editorial Director of Progressive Grocer and Retail Leader, the panelists included DemandTec President Cheryl Sullivan, Tops Markets’ Director of Decision Support and Pricing Lenny Smith, and EnsembleIQ’s Senior Research Director Beth Brickel. If you missed the live session and want to catch it on replay, you can view it anytime here – and I’ve provided a recap of highlights below to enjoy meanwhile.
The session included highlights from a recent study that surveyed shoppers in the U.S., Europe and Latin America to get insights into their behaviors and priorities in the COVID era and beyond, in contrast to the retail world as we knew it pre-pandemic. With Beth walking us through the research methodology and findings, complemented by Cheryl’s views as a long-time retail industry observer and innovator and Lenny’s front-line experience as a retail price executive, we got great insights into the demand of the brave new world and how retailers need to operationally structure to meet those demands.
Beth highlighted how shoppers describe great economic stress and uncertainty in the pandemic, including widespread income declines, and many shoppers predict their incomes will further decline by a year from now. At the same time, they have dramatically shifted to shopping in online channels.
“Shoppers’ price sensitivity for products vary between online and in-store, and retailers are often faced with different competition who possess a different level of agility online. The only way to address this is through science and technology.”
Cheryl noted that these fundamental changes would persist for the long term, and she counsels, “The major challenge this introduces for retailers is that one size fits all pricing across channels won’t work. Shoppers’ price sensitivity for the product vary between online and in-store, and retailers are often faced with different competition who possess a different level of agility online. The only way to address this is through science and technology, which can quickly pick up on price sensitivity levels of products between these channels, adjust for the competitive nuances to ensure each product is optimally priced or promoted across all the shopper touchpoints.”
Lenny agreed, noting that at Tops, which is the largest private, for-profit employer in Western New York with 157 full-service supermarkets, “We saw a 300% increase in online shopping very rapidly.” He discussed the value of their strategic partnership with Instacart, which enabled them to rapidly scale to meet skyrocketing demand. They also turned to science to ensure they were pricing to be relevant to their growing online shopper base: “We really looked to our partnership with DemandTec to ensure that we were priced right on sensitive items to ensure that we were fulfilling the customers’ needs with the right price, and the right convenience in providing a contactless option, whether online delivery or curbside pickup.”
At a time when shopper price sensitivities are at record high levels and expected to continue to rise, Beth noted that shoppers have a strong perception of retailers setting arbitrary or unfair prices, with 74% reporting that they recently experienced price increases they consider arbitrary or unfair. This creates significant risks for retailers, particularly given that price continues to the be #1 factor in shoppers’ deciding where to shop.
Cheryl commented that leading pricing science can give retailers recommended prices that take into account price sensitivity for every item in the assortment, as well as business rules, category strategies and competitive nuances. Changing price sensitivities and demand patterns are also a factor in the sudden shift in the items shoppers are most price-sensitive on, or Key Value Items (KVIs).
Lenny observed that among Tops shoppers, “Customer price sensitivities were at an all-time high at the start of COVID with people out of work and in uncertain times, so they were really scrutinizing their spending habits.” He notes that Tops turns to price science to know precisely where they need to be aggressive on their pricing and to know where they can safely recover margins elsewhere in the assortment without alienating shoppers along the way. Similarly, rather than relying on past assumptions about KVIs, the Tops team is doing deep-dive analytics to understand newly critical categories, such as baking, on a week-to-week basis.
“We want to be cognizant of their sensitivities and be sure we preserve those levels of trust we worked so hard to earn, now and in the future.”
Supply chain disruptions and sharp cost increase in categories like fresh meats and home hygiene supplies have created additional havoc for retailers. In addition to using pricing science to keep key item prices in line with shopper expectations, Tops takes care to communicate very actively and openly with shoppers who ask about price changes, regardless of whether a shopper engages in the store or online. As Lenny notes, “We want to be cognizant of their sensitivities and be sure we preserve those levels of trust we worked so hard to earn, now and in the future.”
Stepping back to take the big-picture view, Lenny noted, “The great part about the DemandTec tool is it really helps us manage the overall cost and margins, and to manage effectively when a new cost increase comes in. If the price does have to change, the tool helps us know how to make the right changes and the right price to have a minimal impact but to be able to manage the margin – helping us to manage the retail prices and manage the costs.”
Beth next turned to a recap of how shoppers are increasingly turning to private-label brands and brands they know and trust. Cheryl noted that overall shopper loyalty continues to erode, and that earlier shopper perceptions that more price-friendly store brands sometimes were of inferior quality have changed. In today’s world, “Private label fits nicely into the two most important things shoppers care about – Price and Quality. The pandemic, and the economic challenges it has created, has propelled more shoppers to try private label products and recognize they can get quality without paying for national brands – which continue to carry the stigma of high quality but at a high price.”
Lenny concurred, observing that Tops carries both store brand and name brand items, and the mix was already a staple of their model pre-pandemic. Tops takes pride in offering a lot of locally produced items under the Tops brands, which reflects local pride among both shoppers and suppliers. Tops has seen a significant increase in household penetration in its private label, including center-store items.
Overall, it was a great, high-impact discussion with a record-breaking number of live audience members. If you missed it the first time, or want to hear the panel again to get new insights, I encourage you to access the replay.