Adaptable Pricing for Grocery Success
Bungee Tech
Helping retailers take control of product, category, and organization profitability. #retailpricing #pricinganalytics
Retailers are increasingly interested in dynamic pricing because it allows them to adjust prices based on real-time factors such as demand, supply, behavior, and competition. With dynamic pricing, a retailer could charge more for in-demand items or could adjust online prices to match or undercut competitors' offerings.
While dynamic pricing is fitting for some businesses, I don’t think it’s the best strategy for grocery retailers.
Let me tell you why:?
??Shoppers will notice random price adjustments and it will change their perception of your store. Shoppers expect the price of most grocery products to be consistent.??
??Store employees will have to physically remove all the price tags and replace them with new ones. That’s a lot of time and resources – not to mention the error potential.?
??And, as they say, “garbage in, garbage out.” If your data inputs are delayed or inaccurate, the reflected “dynamic” price won’t meet your strategy requirements or your profitability goals. As you know, product matching across perishables and private labels is no easy task.??
Adaptable Pricing
Instead, we think grocers should use adaptable pricing -- a more strategic use of dynamic pricing – where you use data and technology to automate workflows and identify pricing opportunities.
Instead of constantly changing prices (dynamic), the adaptable approach focuses on intentionally adjusting prices based on insights gained from your data (competitive intelligence, sales data, historic inputs). Retailers can optimize prices based on its strategy and rules while maintaining a more reliable experience for customers.
First, your foundational pricing strategy is crucial to success and profitability. Here are some common grocery retail pricing strategies:?
Everyday Low Pricing (EDLP): Some grocery chains aim to keep prices permanently low on high-demand items.?
Loss Leader: Some grocery stores sell select items at a loss in hopes that the shopper will buy other items with higher profit margins.?
Zone Strategy: Some supermarkets construct pricing profiles based on consumer buying habits which allows them to set prices by region.??
Value Based: Some grocery stores set prices based on worth and what the customer is ready to pay.?
Bundle: Some grocery retailers sell a group of related products together for a lower total price than buying each one separately to motivate the customer to purchase more.?
Promotional: Some grocers opt for BOGO, discounts, and special offers to get customers to buy products.?
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Regardless of your pricing strategy, here’s a few tips:?
-- Establish pricing guardrails. Streamline your operations, prevent sudden price fluctuations, and protect your profit margins.
-- Have data confidence. Understand where you stand in the market, see whether or not your price adjustments were executed.?
-- Keep organized. Keep track of your pricing analytics and automate any workflows to drive optimized results.?
Who Uses Dynamic Pricing??
Retail giants like Amazon are known for leveraging dynamic pricing to their advantage. Their sophisticated algorithms consider a multitude of factors when setting prices, including:?
A 2019 investigation found that Target app users paid higher prices when shopping in store versus shopping online because the shopper inside was more committed to a purchase.??
The key takeaway? Dynamic pricing thrives on fluctuating demand and limited inventory. This makes it a natural fit for industries like:?
Unlike the above, customers have pricing expectations for their grocery experience.?
Shoppers expect grocery prices to be relatively stable, and frequent fluctuations can be frustrating and create distrust. In 2023, the price of eggs dominated headlines – rightfully so - after prices skyrocketed by 70%. Just a few weeks ago, Trader Joe’s went viral for increasing the price of bananas from .19 cents to .23 cents.?Shoppers are paying attention.
The Future?
While dynamic pricing is a hot retail topic, it’s not universally applicable. Yet.??
Today's strategic grocery retailers are optimizing pricing success with a full lifecycle price engine.
At Bungee Tech, we advocate for grocery retailers to have a proactive, adaptable strategy. Learn more about our end-to-end price engine built for grocery retailers here >?