Artificial intelligence enables retailers to go beyond the standard promotions they’ve offered in the past to all shoppers to offers better tailored to consumer segments and competitive dynamics. Studies show consumers have come to expect changes in prices and variations in prices across channels.

Cheryl Sullivan, chief marketing and strategy officer, Revionics

Cheryl Sullivan, chief marketing and strategy officer, Revionics

At a time when retailers are under unprecedented pressure from new and entrenched competitors, both in-store and online, the market dynamics have never been more relentless. But in many ways, it is also a time of unprecedented opportunity: Retailers have more granular and fast-flowing data than ever before about shoppers, competitors and the market.

So it’s surprising, even shocking, that retailers continue to clog their shoppers’ channels with unwanted and ineffective offers. A series of recent Revionics-commissioned global shopper studies conducted by Forrester Consulting spotlighted many interesting findings, including that 52% of the weekly or monthly retail promotions go to customers who would happily have paid full price. At a time when retail margins are dwindling and every single dollar matters, this significant waste of promotional offers is jaw-dropping.

What’s even more shocking is that this is creating a customer satisfaction and retention issue because, as the research revealed, 37% of respondents who received offers on items they would have paid full price for said the offer had neutral or negative impact, with more than half of those respondents saying these unfocused offers make them less likely to shop that brand or store in the future.  Not only are retailers leaving margin money on the table, they also risk alienating the very shoppers they are trying to more deeply engage and build loyalty with.

Stop the Insanity

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How can retailers and e-retailers harness their growing data assets to stop the bleeding and engage shoppers in ways that really matter?  Today’s retail is now powered by artificial intelligence (AI).  Using the power of machine learning’s advanced data science, retailers are able to provide the most optimal channel-specific prices and offers that can be frequently updated to reflect fast-changing shopper, competitor and market signals.

74% of retail shoppers trust data science more than retailers to provide them with fair prices.

Despite some misguided conventional wisdom that says shoppers resist different pricing in different channels or find frequent price updates annoying, shoppers themselves are very tolerant of these data science applications. In fact, the research found that 74% of retail shoppers trust data science more than retailers to provide them with fair prices.

Retailers have struggled to maintain price consistency between online and their brick-and-mortar stores.  They have even gone as far as to implement price-matching policies to address discrepancies between their channels and to respond to competitive pricing.  It’s important for omnichannel retailers to realize that shoppers are not responsive to price-matching policies nor do they expect uniform pricing across channels, again counter to some of the “conventional wisdom” that is prevalent.

The research revealed that only 17% of shoppers will even ask for price-matching and most shoppers do not expect consistent pricing between online and in-store channels, with customers generally expecting less expensive prices online than in stores across nearly every retail sector. The notable exception is groceries, with shoppers expecting lower prices online there.

Again, today’s price optimization applies AI’s machine learning science to factor in competitive and shopper elasticities and model billions of scenarios in real-time, determining the optimal price or promotional offer sense for each item by channel/location. This data-driven pricing is particularly crucial because shoppers are extremely demanding and attuned to perceived fairness in pricing: 69% of shoppers report feeling angry when they encounter prices that are arbitrary and don’t make sense, and 53% say they will wait as long as it takes for a fair price.

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For online retailers, whose shoppers are presented with competitors’ offerings from the moment they begin searching for an item online, the need for AI pricing is critically important. Again, shoppers are in some ways ahead of mainstream retail in that today’s shoppers have been groomed to expect frequent price changes and are very tolerant of dynamic pricing that strives to maintain an optimal but fair price for the shopper. In fact, the research showed only 6% of shoppers say they don’t think it is fair at all for prices to change dynamically.

With AI price optimization capable of responding in real time to the fast-changing landscape, online retailers can provide finely crafted prices at the speed of their business cycles, while many brick-and-mortar stores equipped with ESLs [electronic shelf labels] can take advantage of intra-day promotions and nightly regular price changes across their full assortment, unimpeded by the friction of in-store labor.

Findings and Recommendations for Promotions

Many of the advantages of price optimization also apply in the realm of promotion optimization.  Retailers using AI science-based promotion software can provide carefully targeted, relevant offers by channel that incent the desired shopper behavior, whether it’s driving traffic, growing baskets, moving units, or contributing to overall margins and profitability through driving sales of non-promoted products with strong affinity to the product on offer.

We’ve already discussed the margin bleeding caused by wasteful promotional offers, yet many retailers default to repeating the same offers year after year or season after season just because they’ve always done it that way and are not sure what to change. A good first step for retailers is to apply AI promotional science to conduct a historical promotion performance analysis which can look at the full impact of promotions, including the halo and cannibalization effects of other products, to gain insights into what offers are really driving the business outcomes they want, and which are not only wasteful but potentially annoying to the very shoppers they want to attract. This kind of analysis yields near-instant ROI just by enabling retailers to know which promotions not to offer.

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That said, what kinds of offers are most appealing to retailers, and how often should retailers provide them?  Interestingly, shoppers have clearly differentiated preferences for promotional frequency depending on the frequency for which they shop for that type of item. So while 52% of shoppers want grocery offers weekly, only 12% want home furnishing offers weekly. Shoppers prefer dollars-off discounts to percent-off discounts or buy-one-get-one (BOGO) in nearly every category, with home furnishings and apparel/accessories as notable exceptions where they prefer dollars-off discounts. BOGO offers are best suited for frequently purchased items such as groceries, pet supplies and household essentials.

The Takeaway: Now is the Time

As one of the studies noted in its conclusion, “The research points to the critical importance of science-based pricing technology in meeting customers’ expectations. It also highlights the role of technology in delivering contextually relevant promotions and the importance of applied technology in selecting the right portfolio of price and promotion tactics.” It continues: “[Retailers] need powerful tools to devise the most attractive portfolio of pricing and promotion tactics to deliver a compelling proposition to each of their target markets.”

I’d add another point, and that the use of technology in delivering on-target prices and promotions has moved from the nice-to-have column squarely into the must-have NOW column for retailers, particularly those with significant online or pure e-retail models. When you are competing 24/7 with online options worldwide, from highly targeted specialty retailers to behemoths like Amazon, the pricing imperative is clear. Successful online retailers must thread the needle by offering competitive pricing and promotions where they matter most to customers. On the other hand, they must successfully leverage AI-based science to know where they can recover margins to structure for a sustainable business model—or risk the race to the bottom that has already doomed many retailers.

The good news is that many retailers already have implemented this win-win approach to pricing and are not only surviving but thriving as they see enhanced revenues, margins and profits that deliver substantial and sustainable ROI on their price and promotion optimization investments. Proven technology is in the field today—and retailers who do not take that step risk being left behind by those who do.

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Revionics provides price-optimization software for retailers.