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‘Race to the Bottom’ Pricing is a Losing Run: Why Retailers Should Focus on Personalized Promotions Instead

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Low prices are important to consumers today, especially as the economy rights itself after the turmoil of the last year. Headlines still speak of rising grocery prices and the sticker shock that consumers experience. Furthermore, shopping journeys take place across multiple touch points in today’s omnichannel and mobile environment, and consumers have the ability to be more selective. Because of this, they are increasingly less loyal, making price important to them as they shop. 

According to insights from RSR Research, retail executives consistently say that the combination of aggressive competition and consumer price sensitivity make price a primary demand driver. But a “race to the bottom” approach to pricing with never-ending promotions will not win greater share of consumer wallets. Instead, personalized promotions are the key to driving long-term customer value and loyalty.

And promotions are top of mind at the moment. Truly, in my more than 10 years working in this industry, I’ve not had as many retailers wanting to talk about promotions as I have in the last six months.  

With that in mind, here are my observations from the promo conversations I’m having with retailers, highlighting the three evaluation lenses I recommend, plus how AI can help. 

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Retailers want to be community minded as they balance mass promotions with personalized offers.

Especially now, there’s a palpable consciousness to invest promotional dollars in the right places, on the right brands, using the best promotional tactics. Retailers desire assurance that they are putting promotional investments in the right place, driving value for the right customer segments to achieve maximum basket value. In short, no one wants to throw money at promotions that do little by the way of sales, margin or customer impact.

Another thing I’m hearing more clearly is that retailers want to allocate their spend effectively, finding a good balance between funds distributed for mass promotions versus those driving personalized offers. Putting coupons in the hands of the customer most likely to redeem them is key, but how much weight do retailers throw behind those targeted efforts compared to traditional in-store mass media offers?

Finally, I’m seeing that retailers are eager to be seen as the reliable local retailer for their communities. At a time when the local landscape might be marked by health or economic challenges, promotional mechanics become even more important in delivering a price point that meets the needs of shoppers. 

Mass promos and personalized offers work in tandem, and retailers are adopting a more integrated approach to managing them.

I’m increasingly seeing that retailers are breaking down promotional silos, seeing their marketing trade funds as a simple, single marketing entity, instead of abiding by hard-and-fast rules that separate mass promotions from targeted ones. Because of this, retailers are embracing AI to pull insights and make recommendations from across what was previously planned in two separate buckets. With the historical data that’s available, AI can make recommendations that speak to how best to leverage spend to drive the best holistic results.

When historical data is not available, as in the case of an outlier event like the COVID-19 pandemic, AI serves up in-the-moment learnings as the situation evolves. This enables companies to pivot quickly with timely and appropriate promotional responses, something that would be incredibly time-consuming and cumbersome to make sense of manually.

I previously mentioned three lenses through which we evaluate promotional targets and KPIs: sales impact, margin impact and customer impact. That third one, the impact on the customer, is the lens that I find many retailers don’t intuitively look through when evaluating their spend.

But when a retailer has the right insights to clearly see sales, margin and customer impact, they can make adjustments when the wrong tactic has been utilized or when a product might be over-discounted. Insights can also show where a mass promo is too niche or didn’t see enough coverage. That’s often when a personalized campaign might be the better route, or run in parallel. And AI capabilities can confirm if a personalized promotion is likely to be redeemed, building the confidence of retailers’ personalization efforts.

AI saves valuable time in personalization efforts, ensuring better investment in the right places.

Is personalization possible apart from AI? Well, of course it is. Coupons or personalized offers can be allocated at a segmentation level, such as loyalty segments or price-sensitive segments. Where AI steps in is to supplement that strategy-based work, boosting the promotional effectiveness with allocation recommendations. That’s reason enough to invest in AI capabilities, I think. Retailers set the strategy and then can ask of the science, “What are the right offers for these households, or this particular individual?” AI identifies the right offers for the right customers.

While you can personalize manually, AI saves a tremendous amount of manpower time, helping to drive scale and volume in a retailer’s personalization activity. To speak to this anecdotally, I recently worked alongside a retailer to switch its manual execution of personalized marketing to an automated workflow. In doing so, the retailer ramped up that time saving over its campaign plan for the year, saving nearly eight manned years in effort. If you think of what that means in terms of time, energy, scale and volume the organization can now execute, that’s a big ‘tick’ in the efficiency box.

Want to drive loyalty? Promote effectively, personalizing when possible.

Personalization goes beyond mass offers to keep a customer feeling valued. That’s difficult to do through mass promotions. Personalized promotions will drive loyalty in a way that simple and sweeping price reductions cannot. Retailers can leverage AI to target spending on those offers that will be most relevant to consumers, deploying promotions that have been evaluated, planned, forecast and optimized using AI. At the end of the day, keeping a customer-centric focus will ensure retailers have the endurance to run with an effective promotional strategy for years to come.   


Jonathan Tye-Walker serves as a Client Director for Symphony RetailAI, where he’s been for over 11 years. During his tenure, he has developed a deep understanding for the use of customer insights across all retail verticals. Having had positions in product development, pre-sales, solution consulting and now client leadership, Tye-Walker specializes in working with clients to create solutions to challenges that deliver value impact and growth. 

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