Aligning Your Pricing Strategies in the New Normal of Heightened Shopper Sensitivity


Remember the early days of the pandemic when we all talked about when things would return to normal? Today it’s abundantly clear that, for retail at least, things will never return to their pre-COVID-19 status.

After months of layoffs and furloughs, economic chaos, and limited or nonexistent contact with people outside their “pod,” shoppers’ new behaviors are ingrained. This includes a dramatic shift to online channels, even for traditionally resistant demographics like older shoppers; less frequent shopping trips; and much keener price sensitivity. How should thoughtful retailers explore their pricing strategies in order to keep their shoppers engaged while also structuring for a long-term healthy business model?

To hear directly from retailers about what they’re experiencing today, and expecting in the future, DemandTec recently partnered with RIS News for “Smart Pricing Strategies for the Post-COVID World.” Awareness of heightened price sensitivity came through loud and clear. In fact, 72% of the respondents say shopper price sensitivity will increase and remain elevated even after COVID.

The implications for retail pricing are striking, and it’s worth digging in to unpack the findings — and what retailers should do about it.

1. The dramatic shift to online channels has significant implications for retail pricing, and more agility and competitive-aware pricing are needed. After multiple months of shopping almost solely via online channels, consumers have become very comfortable in their new digital world and are showing tell-tale signs that they will not automatically shift back to in-store preferences even after the virus threat recedes.

Retailers are fully aware of this, with a full 100% of retailers claiming it’s highly likely or fairly likely shoppers will maintain strong ecommerce dependence long-term. This creates a mandate for retailers to respond at digital speed with relevant prices and promotions that resonate with online shoppers, placing a stronger emphasis of automation and data science to help them.

In addition, just as there was no one-size-fits-all model for brick-and-mortar stores, there isn’t a one-size-fits-all across channels either.  Earlier research demonstrated that shoppers not only tolerate but expect variations in prices online vs. in-store.  This means it’s important for retailers to leverage science to tease out channel-specific price sensitivity levels, demand signals and competitive response to ensure their online pricing is personalized to that channel to remain relevant to their shoppers.

Online channel realities also demand that retailers take a more dynamic approach in their pricing and promotions, eliminating long lead times to determine pricing and promotions.

2. The increased volatility and velocity of retail in the new landscape means that manual, human-centered processes are not up to the task. Retailers readily acknowledge this reality, with 70% saying they are willing to take humans out of key processes and rely on AI-powered automation and dynamic pricing, while 60% say they are focused on putting AI-powered pricing in place.

This isn’t to say people are not necessary, but rather they are freed up to focus more on the strategic aspects of pricing. Fortunately, today’s advanced science-based pricing enables automated, dynamic workflows and processes that only call for human intervention with exception management. Retailers still have significant ground to cover to close this gap, with 90% reporting that they use manual or only semi-automated processes for pricing, promotions and markdowns.

3. The old approach to only occasionally revisiting KVIs won’t work in the future. These items, the ones that shoppers care most about, remained relatively stable pre-COVID but now we live in a world of uncertainty where items that matter most to shoppers can change faster than the speed light. Shopping patterns have shifted drastically and rapidly during COVID, with home cooking and baking skyrocketing and shelf-stable items in unprecedented demand as shopping frequencies decrease.

The result: 93% of retailers expect to re-assess KVIs in light of pandemic-driven shifts in price sensitivity. Long gone is the luxury of hunkering down in analytical projects to manually play with scientific models to tease out KVIs, followed by additional time tweaking your price optimization tools to consume them. Today, retailers must have KVI optimization as part of a price optimization solution, able to rapidly and systematically pick up on KVI shifts and adjust on the fly. It’s time retailers look for productized, real-time insights into shopper demand signals and price sensitivity so they can take a dynamic approach to their KVIs, keeping pace with a market that will remain volatile and unpredictable for the foreseeable future.

Retailers by their very nature must be finely tuned to shopper and market forces in order to provide meaningful assortment, prices and offers that keep their customers engaged and prevent competitive poaching. In times of uncertainty and unprecedented shopper behavior, competitive and market shifts, the retailers who boldly innovate with science-based technology and automated processes have an opportunity to prosper while giving shoppers prices they want on the items they care most about. Retailers who do not take decisive action risk becoming irrelevant.

Cheryl Sullivan is a proven retail and CPG innovation executive with 30 years’ experience leading teams delivering high-impact products for retailers worldwide. She earlier led Revionics’ corporate marketing and strategy and was senior director of product strategy for Oracle Retail across category management, pricing, promotion, and assortment and space solutions. She’s held executive positions at ems, Spectra Marketing, Intactix/JDA and i2 Technologies.

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