A Pricing Reboot: How Optimization Science Can Recharge Your Omnichannel Pricing

In a retail landscape pivoting at last to a post-pandemic reality, retailers need to strategically recalibrate their pricing strategies for what lies ahead. One thing is clear: many of the shoppers who flocked to online channels during COVID will stay digital, and retailers must evolve their thinking accordingly. Shoppers impacted by the economic shocks of the pandemic remain in a heightened state of price sensitivity, and they're far more likely to compare prices before making a decision than in pre-pandemic times. This has made it an imperative for retailers to deliver compelling prices on the items that matter most to shoppers. Full lifecycle pricing science has been available to retailers for decades, making real-world, road-tested capabilities available in every phase, from everyday price to promotions to markdown and clearance.

A recent global consumer study uncovered a permanent shift towards online shopping. Pre-pandemic, 78 percent of consumers said they “often” or “almost always” shopped in-store, while post-pandemic, only 49 percent expect to shop in stores “often” or “almost always,” with only 28 percent of consumers stating they will shop in-store (pre-COVID 58 percent stated they will shop in-store). Fortunately, data science leveraging machine learning (ML) and artificial intelligence techniques can accurately separate true demand signals from the noise and make price recommendations that factor in shopper expectations and elasticity down at the channel level, or even more granularly based on shoppers’ locations, demographics and other attributes.

Similarly, shoppers now are geared toward responding to promotional offers in their smartphones, mobile apps or on a retailer’s website. The same study found that 55 percent of shoppers say they're “very likely” or “extremely likely” to respond to a promotional offer on their smartphone or in a mobile app, while only 42 percent feel the same about a mailer delivered to their home, and 41percent are very or extremely likely to respond to an in-store flyer. Here again, science can deliver deep, accurate insights into promotion effectiveness, enabling retailers to craft offers that matter with the vehicles that drive target response rates.

A compelling benefit of price science is the ability to not only deliver engaging prices and offers on items that matter most to shoppers, but also to know where else in the assortment retailers can safely recover margin to sustain a healthy business model. There's good news here for retailers as more shoppers than ever are buying private-label products, which typically yield relatively high margins. Not only are shoppers more likely to buy private-label products today than pre-pandemic, but in a reversal of perceptions from earlier eras, they perceive private label to be high quality. The recent global survey found that 81 percent of shoppers perceive private label to be higher or similar quality compared to national brands. With science-driven insights, retailers can do scenario planning to price and promote their private labels to more effectively attract and retain customers while meeting overall financial targets.

With shopper, competitor and market behaviors evolving faster than ever before, and with even once-stable fundamentals like key value items (KVIs) now constantly in flux, innovative retailers have the opportunity to move beyond human-speed manual approaches to lifecycle pricing. By embracing science, retailers can automate processes and respond intelligently and with agility to evolving behaviors at a very granular level. Modern science moves beyond earlier one-size-fits-all approaches to apply the best science for each retail situation. The result: pricing that's flexible, adaptable and efficient while delivering better overall performance.

Geoff Pofahl, Ph.D., is head of science at DemandTec, a single vendor that addresses lifecycle retail pricing solutions for retailers, providing the largest depth and breadth of proven lifecycle pricing solutions on the market.