Play to win and ‘not to lose’
By Rajashree R, Tata Consultancy Services
With the holiday shopping season in full swing, today’s consumer presents an array of new challenges to retailers. Shoppers are increasingly channel agnostic, technologically savvy, upwardly mobile and naturally tend to gravitate towards the retailer and channel that offers the most value with maximum convenience. In such a complex and rapidly evolving environment, pricing emerges as the biggest game-changer to draw consumers into a sale. With the proliferation of social media and mobility, price transparency becomes an inevitable phenomenon leading to newer trends like ‘showrooming,’ which occurs when a customer examines merchandise in a traditional brick-and-mortar store, but then shops online getting at a lower price for the same item. The new retail landscape has thus shifted from competition with the store next door to a “global mall” of players operating online. Retailers are faced with a decidedly reactive approach just to maintain status quo. In order to outperform the competition however, retailers must instead embrace a “play to win” mentality — rather than a “not to lose” mind set.
Holiday Shopping
Market researchers and retailers expects showrooming and digital price comparison to play a very critical role this 2013 holiday season, with more than 90% of smartphone shoppers to compare prices while in-store. So majority of omni-channel and brick-and-mortar retailers implemented varied price match strategies as to bring in more traffic in their stores. A large general merchandise retailer, for example, offers price match guarantee with their online and bigger competitive rivals, whereas a specialty and an apparel retailers offering price match only on their in-store purchases. Going a step further, a large discount retailer extended price match guarantee even for purchases prior to thanksgiving (dates vary by category). A hi-tech retailer, which never offered big discounts in earlier seasons as well announced price match for up to 10% off on their products comparing against legitimate resellers. Another specialty retailer offers price match on specific categories and exclusive discounts for membership. However, the intimidating question being how many had their decisions supported by deep analytics to validate the impact their strategies could bring on their top and bottom line and their margins.
Pricing: The Changing Elements
Today’s on-demand consumer is looking for more options at minimum price, with a promise of top quality service levels regardless of where or how they are shopping. The marketplace at the same time is becoming extremely competitive in delivering the best price with great a deal of agility — essentially in real time. With different channels having different operating dynamics, retailers are struggling to shift focus from a product-centric approach to a customer-centric model in their pricing strategies across channels with a greater emphasis on perceived values like reliability, quality, experience and timeliness. As customers grow savvier, retailers need to provide the highest level of in-channel experience while dealing with issues of price consistency and fulfillment specific to each individual channel.
Challenges Retailers Face
While there is a pressing need for agility, traditional brick-and-mortar stores are carrying significant baggage in the way of legacy processes and applications that limit their ability to compete with online retailers. Retailers like Amazon.com invest about 6% of their revenue in technology and innovations, propelling them ahead of the competition. Some of the challenges faced by retailers in their pursuits to be agile include:
Cross Channel Consistency: Legacy architecture, ill-equipped point of sale (POS) technology and limited in-store labor bandwidth are potential bottlenecks.
Competitive Landscape: Insufficient competitive intelligence to track the increasing competition and derive meaningful insights to make smart pricing decisions.
Price Optimization: Inability of systems to analyze and consume new metrics like customer elasticity, shipping cost elasticity etc.
Managing Complexity: Inefficient technology to move beyond key value items and match items across and within channels in the absence of a robust item-master with rich attributes.
Data Availability and Integrity: Lack of knowledge about price point history, competitive intelligence data and procurement data to collectively aid in pricing decisions.
Organizational Challenges: Siloed methodology for store and online pricing needs rather than an integrated approach that leverages the unique benefits of each channel.
Pricing Transformation
The core of the transformation lies in the key pillars of people, process and technology. Adoption of new models that treat every customer uniquely, apart from finding avenues to reduce costs while increasing consistency in common operations, will improve the process significantly. Managing organizational data along with increased assessment metrics and new data sources like customer demographics and loyalty is critical for a seamless flow of valuable information that leads to customer insights. Other key technological aids in achieving the desired results include innovations in downstream systems like an intelligent POS, enhanced intelligence through machine learning and leveraging digital labels. At an organizational level, sharing of key performance indicators (KPIs) across channels, utilizing an integrated planning based environment will eliminate conflict of interest within the ecosystem.
Pricing Capabilities Retailers to Adopt
In light of the shift from being product-centric to customer-centric, as we gear up for the transformation, we must now visit the individual point capabilities that a next generation pricing regime must have:
- Dynamic price changes
- Enhanced competitive intelligence
- Omni-channel price consistency and transparency
- Price localization
- Price personalization
In order to achieve these capabilities, retailers need to first reach other milestones like an intelligent POS for intraday refresh, agile shelf labelling, channel specific competitive shopping, and the ability to comprehend and react to channel specific customer price elasticity. Some of the changes can be attained easily, while others might require a lot of complex executions around multiple systems.
Conclusion
Retailers today are grappling with the issue of increasing complexity in their business operations that result from the advent of technology, the socio-economic environment and the global spread of supply chain. To be able to lead the competition, retailers require a pricing system and process transformation implementing the above point capabilities. Organizational synergies must be directed towards the newly emerging theme of deep customer-centricity to realize the full potential of the implementation. This requires investment in appropriate scalable technology apart from re-engineering some of the traditional processes and strategic re-alignment to accommodate the new rules of retailing.
Rajashree R, global head of retail solutions group, Tata Consultancy Services. She led the creation of the retail solutions group which has incubated innovative solutions in the areas of the POS, loyalty and big data-based merchandise optimization. She also conceptualize