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Forrester Opportunity Snapshot: A Custom Study Commissioned By Revionics | October 2018

Retail Success Requires Personalized, AI-Driven Pricing Strategies

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OVERVIEW SITUATION CHALLENGES OPPORTUNITY CONCLUSIONS



Retailers Need Smarter Pricing Strategies To Effectively Execute PromotionsMost retailers have become misaligned with the expectations of digitally savvy consumers due to outdated pricing strategies and promotional missteps. Why? Because retailers do not understand what their customers want and the factors that lead to a purchase decision. Additionally, retailers’ archaic pricing strategies fail to deliver pricing optimization, which makes the experience relevant in a way that dovetails with the purchasing triggers for each unique consumer. With the addition of artificial intelligence and machine learning, retailers can increase customer loyalty and retention by offering the right price or promotion at the right time while protecting their margins.

In August 2018, Revionics commissioned Forrester Consulting to explore how retailers view their customers’ opinions on various discounts, markdowns, and promotions. Our study found that retailers must deliver transparent, customized pricing to consumers to remain competitive.

Geography› 47% US› 26% Brazil› 13% UK› 9% Germany› 4% France

Position› C-level: 12%› VP: 17%› Director: 30%› Manager: 40%

Top four categories:› 24% Electronics› 15% Apparel/

accessories/shoes› 12% Groceries› 11% Convenience

Annual Revenue› $100M to $199M: 18%› $200M to $299M: 19%› $300M to $399M: 14%› $400M to $499M: 9%› $500M to $599M: 14%› $1B to $5B: 16%› >$5B: 10%

IN THIS DOCUMENT

Retailer

Shopper

Note: Percentages may not total 100 because of rounding.

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71% of retailers think shoppers will be frustrated by frequent pricing changes, while 62% of shoppers are OK with frequent pricing changes as long as they are fair.

Retailers Still Embrace Legacy Practices — Like Price Matching Retailers are not in tune with what their shoppers want. Indeed, many expect their price-matching policies to solve their needs for custom pricing strategies. In fact, 76% of retailers market their price-matching policies to encourage customers to take advantage of their added value. However, only 17% of shoppers demand price matching.1 Additionally, 76% of retailers think shoppers are looking for the cheapest price, while only 17% of shoppers buy products at the cheapest price. In short, retailers underestimate the willingness of shoppers to pay a fair price.

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59% of shoppers said perceived arbitrary pricing would stop them from making a purchase.

Consumers Demand Transparent Pricing Strategies From Retailers Pricing transparency is critical for retailers’ success. The majority of retailers (78%) agree that arbitrary pricing (pricing that shoppers perceive as random or without cause/reason) would anger most shoppers. An April 2018 study confirmed: 47% of shoppers said they would feel angry if someone else’s personalized pricing was lower than their own.2

However, shoppers have been trained by mega-retailers to anticipate personalized pricing as part their memberships. By being transparent about their pricing, retailers can avoid angering shoppers because of the perception of arbitrary pricing.

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Retailers Underestimate Shopper Patience Ninety percent of retailers think most shoppers will wait less than a month for a discount on an item they want before purchasing. In reality, nearly half (48%) of shoppers said they would wait two months to as long as it takes for the price to reach what they are willing to pay.3 Shoppers are patient, making strategies like increasing prices based on availability unwise at best, and possibly failing to deliver on expected outcomes. At worst, these strategies may completely lose customers who give the loyalty to the firm that ultimately provides the price the customer wants.

Fifty-seven percent of retailers said they would raise their prices based on limited availability in the market. This is a road to lost revenue, as 31% of shoppers will wait as long as it takes for an item to reach a price they are willing to pay.

Only 9% of retailers believe shoppers will wait two months or more for the right price on an item they want to purchase.



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Retailers Must Understand The Factors That Trigger A Purchase Purchasing decisions are complex: Shoppers weigh not only the price of an item, but also its quality, convenience, availability, and more. While retailers and shoppers both rank price as the top priority, retailers underestimate shopper priorities when it comes to both quality and variety. In some retail categories, these factors rank even more important than price. Machine learning and AI can be invaluable in these cases to determine the best promotional strategies and offers.

To address the top two factors when choosing where to shop — price and quality — retailers must focus their attention on how they are communicating quality to their shoppers. The easiest ways are through merchant data and reviews. Further, 22% of shoppers indicate that variety is a priority while just 10% of retailers believe this. Retailers must understand the satisfaction triggers for each shopper. Without fully understanding shopper needs, retailers cannot operate at the same speed as their customers and competitors.

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Use AI To Automate Pricing ChangesWhen asked about their biggest challenges regarding pricing, 82% of retailers said that remaining competitive with other retailers, responding to the extreme pricing strategies of mega-retailers, and utilizing a more dynamic pricing strategy were of top concern. That’s the good news, but implementing these strategies has historically been a very manual process, making it difficult for retailers to offer their customers the best price at the right time.

Fortunately, retailers can address these challenges with AI. Sixty percent of retailers agree that frequent, dynamic pricing changes driven by AI data science would positively impact their shoppers’ experience. Additionally, we found that retailers are ready to automate their pricing: 76% believe AI-driven pricing would have a positive impact on shoppers.

77% of retailers agree they would see better results if they offered personalized prices and promotions.



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Combat Cultural And Organizational Challenges To Remain CompetitiveMany successful retailers have implemented AI solutions and experienced significant benefits, like increased margins, improved customer experience, and higher revenue. However, retailers still struggle with a variety of cultural and organizational challenges. Forty-two percent of AD&D professionals have no plans to invest in AI because they have no defined business case for AI investment, and another 39% are unclear on what AI can be used for in their businesses.4 The most common challenges include budget constraints, making organizational changes, and getting executive sponsorship to implement AI in pricing and promotional strategies.

To get executive sponsorship, retail leadership must provide a compelling use case to management, specifically pointing out where AI can reduce unnecessary waste by shedding bad promotions and poor pricing strategies. Cultural change is necessary through organizationwide education about the benefits and real capabilities of AI tools. Today’s AI tools enable a speed-to-value approach, allowing retailers to reap the same huge benefits in a shorter period of time. The use of AI tools can improve pricing strategies, making it a great place for retailers to start.



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ConclusionShoppers continue to be trained by mega-retailers to expect frequent pricing changes and personalized prices, making it difficult for retailers to compete. Shoppers like the idea of personalized pricing, as long as it is not arbitrary. Transparency around personalized pricing is necessary and can lead to increased customer satisfaction and loyalty. Artificial intelligence is the only way forward for retailers. While overcoming challenges like budget constraints and organizational change might seem daunting, the benefits of AI to your pricing and promotional strategy will more than pay for itself. Adding AI will help you reduce unnecessary promotions and sell items at price points shoppers are willing to pay while also factoring in quality, variety, and more. By leveraging AI, retailers can personalize shoppers’ pricing and promotions, making them feel valued and driving improved loyalty.

Endnotes:

1 Source: A commissioned study conducted by Forrester Consulting on behalf of Revionics, March 2017

2 Source: A commissioned study conducted by Forrester Consulting on behalf of Revionics, April 2018

3 Source: A commissioned study conducted by Forrester Consulting on behalf of Revionics, September 2017

4 Forrester Analytics’ Q2 2016 Global State Of Artificial Intelligence Online Survey

METHODOLOGY

This Opportunity Snapshot was commissioned by Revionics. Forrester Consulting conducted a custom survey of 224 pricing and promotion decision makers at retail firms in the US, Brazil, the UK, Germany, and France. The survey was completed in August 2018.

Project Director:Sarah Brinks, Market Impact ConsultantContributing Research: Forrester’s eBusiness and Channel Strategy research group

ABOUT FORRESTER CONSULTINGForrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester’s Consulting services connect youdirectly with research analysts who apply expert insight to your specific business challenges. For more information, visit forrester.com/consulting.© 2018, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to forrester.com. E-38400



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Forrester Opportunity Snapshot: A Custom Study ... › ... › Retail...Pricing-Strategies.pdf · Retail Success Requires Personalized, AI -Driven Pricing Strategies ... Additionally,