It used to be that inventory control was the unattainable goal in retail; today it is putting a price on what consumers are willing to pay.
Retailers have been testing a variety of options in an effort to either train shoppers to spend more or meet shoppers who demand to pay less. The apparel chains Express and New York & Co. are cutting back on deep discounts, while Macy’s is shopping the idea of a discount chain to complement its flagship department stores.
All these efforts respond to years of habitual discounting that has conditioned shoppers to ignore the suggested retail price. Markdowns are for mavens; full price is for fools. Why pay top dollar when in a week it will be 60 cents on the dollar? And while savvy shoppers wait, merchants fret over what the competition is doing. (Hint, it involves cutting prices.)
Perhaps retailers are looking to the wrong guidance. While they struggle over whether the price should go high or low, the answer may simply come down to Jane or Joe. I refer here to individual preferences, and personalized pricing strategies.
Though it sounds futuristic, the tactic is already in play. A number of retailers use loyalty program data to deliver time-sensitive, digital (app-based) promotions tailored to a specific shopper’s purchase preferences – if she buys organic bananas, it sends an offer for soy milk when she is in the store. As digital technologies advance and become more widely accepted, it’s not unrealistic to expect the mass-market discounting structure that has dominated retail for decades to fall from favor.
And it should. Compared with the sprightly nature of digital marketing, mass-market pricing feels as rigid as warehouse shelving in a big-box store. Mix in the advantages of beacon technology, and it feels as ho-hum as the rows of boxes crowding those aisles.
That said, one-to-one pricing comes with much responsibility. As retailers gain the tools to master the concept, the challenge also will shift, from high or low to how and who.
Express cuts deals; Macy’s seeks outlet
The need to change pricing structures is evident across sales floors and business sections nationwide. According to a recent report in the Washington Post, a range of merchants, from the tony Neiman Marcus to trendy Express, is pulling back on discounts.
“We are structuring many of our future promotions to be more targeted and, at times, less deep and less frequent,” Express CEO David Kornberg told analysts during a fourth-quarter earnings call. “This will help us communicate a clearer value proposition to our customer.”
Kornberg later added that pulling back on promotions is “one essential ingredient” to improving the merchandise margin.
Similarly, the specialty chains Guess, New York & Co. and Quiksilver have all said they plan to shift from mass, storewide promotions to targeted, category-specific deals.
Macy’s, meanwhile, is exploring the feasibility of discount outlets through which it can ship out its off-price or post-season fashions. The chain, which is setting industry standards in omni-channel merchandising, has established a new business organization to pursue the outlet concept, among other opportunities.
While both strategies may work well, they won’t be fully optimized unless they recognize the role of personalized pricing as a competitive device. The ingredients already exist through mobile technology, personalized shopping information, in-store beacons, databases and analytics. The industry just requires some brave pioneers to cut the path forward.
Which leads us to the how, and who, of intelligent personalized pricing. For now, the strategy’s success appears to vary by retail category. Some supermarkets, for instance, have so fine-tuned the practice they can send customized coupon books to individual shoppers based on previous purchases. In these cases, loyalty program data helps the merchant pinpoint specific preferences of repeat shoppers.
For instance, through a loyalty app’s unique identifier, a grocer can learn a particular shopper’s in-store browsing patterns and anticipate when she will approach the freezer case so it can dispatch a branded coupon for a product that complements something else she regularly buys.
Department stores and specialty chains, however, are less likely to see their shoppers with such frequency. In these cases, personalized promotions and discounts will likely be more effective on a category or seasonal basis. Merchants can invite subsets of shoppers to petite-only events, or send discount cards to encourage those who visit an average of twice a month to come in for a third time. Such campaigns would limit the discounts while providing an opportunity to more deeply engage that shopper with the brand.
I predict we will eventually see retailers shift their investments from large-scope, untargeted models in favor of digitally personalized pricing. They pretty much will have to in order to remain relevant with the increasingly canny consumer. For make no mistake, if all retailers continue to compete on price, only a few will succeed.
As Marcie Merriman of Ernst & Young put it to the The Washington Post: “They have to differentiate their brand in other ways, because otherwise, it’s a race to the bottom.”
Put another way, the price of retail success will never be found on a tag. It will be registered with the emotions of the consumer as she leaves the store.
This guest post came courtesy of Bryan Pearson. Bryan is the author of The Loyalty Leap For B2B and is president and CEO of the LoyaltyOne consultancy firm.
This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.