Some people may not realize that the Netherlands is the pioneer of the supermarket format in Europe. Most of the leading Dutch retail grocery brands go back almost 100 years. In the current retail landscape they are – despite being established, venerated brands – very modern and front-line in terms of technology: scanners, self-service checkout, omnichannel approach with all possible fulfillment options, digital communication, personalized loyalty programs, etc. They also have lots of innovative store formats, and with an online share of 9% of total retail volume (the third-highest in Europe), they continue to be a leading force.
So it was a privilege for Revionics to co-host a workshop in Utrecht with Capgemini last week and invite retailers from Benelux and beyond to hear from our esteemed presenters on “Facing the Future: Pricing and Promotion Trends for 2017.” The 27 retail executives in attendance (from Benelux and Germany) were lively and engaged in both the plenary and breakout sessions, and the interactive networking reception that followed was so stimulating that many stayed beyond the planned closing time. In addition to myself, featured presenters included Revionics Chief Marketing and Strategy Officer Cheryl Sullivan,
But back to the European retail landscape. Like the Dutch, many European grocers and other retailers are eager adopters of innovation technology. Yet the one area in which we see a bit of a lag is in pricing. That’s one reason I believe there was so much interest in the workshop content.
The Dutch retail market is very concentrated: the top two players make up almost 50 % of the market share. Right behind them are German discounters Lidl and Aldi, which are still somewhat small in the Netherlands compared to their presence in the neighboring German market, but they are putting considerable price and margin pressure on other grocery players.
Increased Competition Driving Need for Price and Promotion Tech
The impact of increased competition from discounters, along with the growing omnichannel trend, were the two main factors increasing the sense of urgency among Benelux retailers to take the first step in adapting data-driven technologies in the area of pricing and promotions.
In the workshop plenary session we discussed exactly this, including the growing importance of pricing to retailers, as evidenced by data from RSR Research showing many retailers placing a strategic priority on investing in price and promotion optimization solutions. Retailers can no longer regard science-based pricing as optional or a luxury – it is rapidly becoming a must-have to remain competitive.
During the pricing breakout session we explored the increasingly convolution shopper journey, requiring sophisticated new pricing approaches. Today’s tech-savvy shoppers want not the lowest price but a fair price, as a recently commissioned global shopper survey research from Forrester Consulting* powerfully demonstrates – only 17% of shoppers surveyed across the U.S., U.K., Germany, France and Brazil said they only shopped for the lowest price. And data science-powered pricing helped give them confidence in being offered the right price, with 78% of respondents saying that changing prices using data science is fair.
Discussion in this breakout centered on what exactly is dynamic pricing, which we define as offering higher-frequency targeted price changes depending on the retailer’s specific market and sector. There were also a lot of questions around how to be precise and targeted in competitive response, including the details around competitive elasticity and competitive response analysis. Finally, attendees were very intrigued by the Forrester findings around omnichannel pricing and how shoppers generally expect different pricing online v. in-store, depending on the sector.
To get full insight into the Forrester research, please register for our complementary webinar on June 14, featuring Revionics Chief Marketing and Strategy Officer Cheryl Sullivan and special guest George Lawrie, Forrester “Your Customers Have Spoken: Key Findings from 2017 Shopper Study.” All participants will receive a copy of the research findings.
In the promotion breakout session, we discussed how consumers want the best deal and will search for it and how many consumers remain loyal and responsive to specific channels and promotional vehicles. For retailers to remain relevant, they need to move away from old habits that lead to excess over promoting, repeating the same promotions they did last year, poor use of vendors’ funds and reaching customers in all the wrong places with offers that don’t matter to them. Retailers must be very strategic and targeted in their promotion planning and execution. Fortunately, today’s data science-based promotion analytics and optimization solutions achieve that goal while also giving very granular insights into the real net effect of promotions. The topic triggered a very in-depth interactive discussion around promotional effectiveness. Revionics shared several case studies with the group. These studies highlighted critical insight that was found to be consistent across retailers who first come to Revionics. Of special interest for the group was learning that on average the top 15% of promotions generated 85% of the promotional lift and the top 30% generated 90% of the promotional revenue. When then applying the impact of halo and cannibalization, a mere 5% of promotions provide 100% of the incremental profit. Learning from this insight and developing better future promotions using promotion optimization helps retailers build promotions that align to strategic objectives and improvements in their bottom line.
Important to Have Clearly Defined Price and Promotion Strategy
Overall many felt that over the next five years lines between “base” and “promotional” pricing will blur with a continuing evolution toward pricing that is local, dynamic and personal. It is more important than ever to have a clearly defined pricing/promotional strategy that maps to and supports your business strategy.
We at Revionics were pleased to team with Capgemini to host a lively, successful workshop and to collaborating to help bring innovation and change to Dutch, Belgian and Luxembourg retailers! If you’d like to discuss the transformative potential of price or promotion optimization in your retail business, please contact us
* Understanding Retail Customers’ Pricing Expectations and Tolerances, a May 2017 commissioned study conducted by Forrester Consulting on behalf of Revionics.