Any astute grocer is aware that in the competitive economic environment of today, leveraging technology, data, and analytics can be essential to differentiating oneself from rivals. Yet for food retailers, there is still a lot of untapped potential in taking these tools for price, promotion, and markdown optimization to the next level.
Although price, promotion, and markdown optimization may seem like common sense in the context of supermarket operations, most food retailers are not utilizing these effective resources. Kevin Sterneckert, chief strategy officer for San Carlos, California-based DemandTec by Acoustic, claims that is going to change as more supermarkets accept the need to sharpen pricing and promotions in light of the emergence of e-commerce and unheard-of industry issues.
Sterneckert observes that although there was inflation, there were no supply chain problems at the same time. “We did not experience labor problems simultaneously. Because the products were not available, we did not experience problems with supply and retail connections. Retailers are being forced to declare, “I need a better way to manage all of these cost changes and all of these things that are happening,” because everything is happening at once.
According to Matt Pavich, senior director of retail innovation at Alpharetta, Georgia-based Revionics, an Aptos company that offers artificial intelligence (AI)-powered pricing and promotion optimization software to retailers, it is important to move faster than the competition. While having the right prices and the predictive analytics to accurately forecast the impacts of strategy adjustments or individual pricing moves are important, it is also crucial to move faster than the competition.
The best food retailers, according to Pavich, “are adopting leading solutions and best practices to not only price better, but also price faster.” Pavich also points out that leveraging optimization can assist food retailers in finding the delicate balance of pricing moves to make sure that consumers in various markets are getting fantastic prices while taking cannibalization, halo effects, and profitability into account.
Why the Solutions Work?
DemandTec by Acoustic provides price, promotion, and markdown optimization solutions, all of which are based on AI and machine learning algorithms. Sterneckert claims that these advanced systems comprehend all the interactions between products and the quantifiable effects on demand, offering retailers a precise understanding of how price will affect consumer behavior.
This includes vendor information, product information, product features, and more. “We take in all of the transactions that happen at a given location, across all locations, all of the competitive data, even inclusive of the vendor information,” he says. For each specific SKU at every location, we develop an artificial intelligence and machine learning system using competitive price data.
According to Sterneckert, these insights provide retailers with knowledge on how to use optimization to boost their competitiveness and consumer appeal as well as their capacity to manage price changes in the face of inflation, supply chain interruptions, new store openings, and other factors. Because of this, customers of DemandTec by Acoustic’s promotion solution can anticipate a revenue increase of 1%–12% and a gross margin increase of 5%–20%, compared to users of the markdown solution who can anticipate a revenue rise of more than 5% and a gross margin increase of more than 10%.
The base price optimization tool from Revionics assists merchants in demystifying the complexities of pricing and gaining insight into the effects of each price adjustment, making it simpler to determine what pricing moves are most rational at any given moment. In contrast, promotion optimization simulates outcomes and adjusts promotional techniques to the most effective offers for advancing corporate objectives and boosting customer involvement. Food retailers can decrease waste and costs while increasing value and optimizing sell-through by using markdown optimization.
Revionics claims that its clients often see an increase in profits of 5% to 9% shortly after launch and an eight to ten times return on investment (ROI) year after year.
Retailers just cannot pass up the possibility of a price optimization solution, claims Pavich. It is safe to conclude that most food retailers who invest in a price optimization solution drive significant ROI, with a “break-even” frequently occurring between six months and one year. Nevertheless, actual outcomes may vary depending on the pricing strategies, priorities, and processes implemented.
Gaining traction
Prescriptive analytics, such as those used in pricing and promotion optimization, are anticipated to be quickly adopted by food merchants in the upcoming year, according to a report from Franklin, Tennessee-based IHL Group. The research and advising business cite wide campaigns that are frequently less effective if not personalized as well as inflation-driven changes in consumer behavior and demand that must be matched with real-time actions as reasons for the increase.
While not every grocery shop can implement every process right away, according to Pavich, the journey itself is self-funding, with each change generating substantial advantages that can pay for subsequent improvements. It takes serious investment in your people, your processes, your strategy, and your technology to become a pricing-fluent store, he claims.
DemandTec by Acoustic guides retailers through a painstaking process to get started, advising them to start with the price category that is the most difficult for them to manage, whether it be markdowns, promotions, or everyday pricing. According to Sterneckert, “We can set these up fairly quickly and get the prices on the shelf and the value occurring.” You can utilize the value’s increased profit, income, and volume to invest in one of the alternative alternatives.
No matter how food retailers begin their journeys towards price optimization, Sterneckert and Pavich agree that there is never a better time than the present to start the processes.
It is important to change more quickly than the competition in an increasingly dynamic and multichannel retail environment, says Pavich. “It is one thing to have the right prices and the predictive analytics to properly forecast the impacts of strategy adjustments or individual pricing moves,” he says.
