Successive waves of pandemic have created havoc for retailers, as closures, reopenings and even some reclosures have occurred. These waves have created supply chain disruptions and inflationary pressures that have their own set of challenges. COVID-related economic uncertainty, further compounded by Brexit, caused already price-conscious shoppers to grow even more vigilant about comparing prices, particularly as they flocked to online channels where complete price transparency is a click away. A much-welcomed ray of sunshine is that many retailers saw their private label brands have grown – particularly in the UK, which leads other European markets in private label as share of overall consumer goods’ sales value.

Interestingly, private label has emerged in recent years from its reputation as a step down from quality relative to national brands to holding its own. A global shopper study revealed that an astonishing 80% of shoppers perceive private label items as being of similar or higher quality than their national brand counterparts.  Clearly consumers turn to brands they trust if they are priced attractively. As 2021 winds down and retailers look ahead to 2022, they have a golden opportunity to leverage advanced data science for pricing to thoughtfully revisit strategies for their private label items, which generally drive attractive margins.

Advertisement:
Craig Marion, VP, Global Product Management, DemandTec

Think Beyond Item Strategy with a More Holistic View

Today’s price and promotion optimization offerings incorporate AI-based data science to keep current with rapidly changing demand signals and price elasticities to keep pace with what items shoppers pay most attention to competitive pricing on – those Key Value Items (KVIs) that have outsize influence on a retailer’s price image. The rapid change in shopper behaviors over the last two years has also meant that once stable KVIs are themselves also in flux. Retailers are well-served by paying attention to analytics that keep them informed about current KVIs where they should price aggressively against competitors, while knowing exactly where they can safely recover margin elsewhere in the assortment on less-sensitive items. 

With that as a baseline, retailers also have the opportunity to step back from a myopic item-level focus to exploit data science insights into cross-item effects. Innovative merchants will look at halo effects to understand where they might go even more aggressive on prices for private label-item when the demand science reveals that it will drive basket through the sale of other high-margin items. Similarly, an informed retailer may decline to participate in or negotiate adjustments to a national brand trade deal if, for example, the deal undermines sales of its own high-margin private-label offerings, resulting in an overall net negative impact to the business.

The Data-Driven Approach Drives an Opportunity for Increased Collaboration

Taking advantage of autonomous pricing and promotion enabled by data-driven solutions means retailers can seamlessly adopt recommended prices and promotions from their AI science, within whatever guardrails or tolerances they set. This in turn frees up both pricing teams and merchants from labor-intensive, repetitive work and enables them to focus on more strategic business opportunities, including their private label strategies. 

Unshackled from mind-numbing spreadsheets, price strategists and merchants can collectively explore interactive what-if scenario capabilities to see exactly how shopper behaviors will respond to changes in prices or promotional offers. They can ‘turn the dial’ on an item’s strategy to shift the emphasis from, say, driving traffic to driving units or contributing to bottom-line profits and see how price recommendations change accordingly. Systematically managing relationships and the gap between national brands and private label allows retailers to understand the ripple effect price changes have across a product line. With retailers placing a greater premium on being highly responsive to real-time shopper, competitor and market dynamics, this impact on agility and timely updates delivers significant competitive advantage.

Innovative Retailers Are Positioned to Thrive

While the fast pace of change undoubtedly disrupts traditional multi-month rhythms and cycles in retail, those retailers who seize the moment to innovate can themselves become the disruptors. Evolution means opportunity, and retailers who act decisively to leverage proven pricing science report compelling ROI and better outcomes against business and financial targets. At a moment when so much of the retail landscape is uncertain, these proven tools can give retailers a sure path to enhanced success with their critical private-label offerings – and beyond.

DemandTec offers end-to-end, AI-powered lifecycle pricing for retailers globally. 


1 “2021 Outlook on Shopper Perceptions and Behaviors, Five Truths, No Lies,” a DemandTec-commissioned global shopper study, May 2021.

Advertisement