Category: Pricing Strategies

22 Feb 2019

Digiday: Retailers Experimenting with Dynamic Pricing Due to Amazon

Digiday: Retailers Experimenting with Dynamic Pricing Due to Amazon

In response to a recent investigative report about Target offering prices on its mobile app that differed depending on whether the customers were inside or outside the retailer’s physical locations, Suman Bhattacharyya of Digiday digs deeper into how the industry’s biggest retailers are experimenting with pricing.

In the article, Ken Ouimet, CEO of Engage3, discussed the evolution of retail pricing and the challenges involved. Everyday Low Price retailers like Walmart and Target are under pressure by Amazon’s pricing algorithms, which can make price changes millions of times per day. As a result, some retailers have resorted to applying similar algorithms to their online and in-app pricing. Although these pricing algorithms work well on an online platform, brick-and-mortar stores are having more trouble implementing it.

“In the 1970s, most retailers had national pricing,“ said Ouimet. “Today, pricing is much more localized; dynamic pricing lets you segment with time, and it’s not only about dynamic pricing but personalized pricing – the price will be different for every buyer, and the discounts will be different.”

Market leaders like Walmart and Target “are competing with Amazon with eyes wide open; they realize it’s a different game – in 15 minutes, a price can be old and it’s usually based on competition,” Ouimet said. “You can’t fight that pricing is becoming more localized, more dynamic, and personalized – in five to 10 years, everything you buy will be based on personalized offers.

Engage3’s mission is to create a retail ecosystem where consumers, retailers and manufacturers all win. They use data science so Consumers are only offered products they want, when they want it, and at a compelling price; Retailers maximize profits by targeting only high-intent consumers; and Manufacturers only invest in discount coupons that have ROI.

Read Digiday’s article here.

15 Feb 2019
Comp Shop Optimization

7 Tips to Optimize Your Competitive Shop Program


Competitive shop programs, also known as competitive price checks, are a retailer’s main method of gaining visibility into their competitors’ pricing. An increase in hard-to-match private labels and the entry of digital e-commerce pricing have introduced higher rates of errors and reduced their effectiveness.

With the right best practices, competitive shop programs can change from being a source of frustration to a source of strategic advantage.

Here are some tips on how to help optimize your competitive shops:


Tip 1: Match your KVI list to your competitors’ products.

More often than not, the data that comes back from a competitive price shop has significant errors. You can’t make good decisions based on bad data, and scenarios like this only puts merchandising and pricing departments at odds with each other. In order to get the right pricing data, you need the right product list.

By matching your KVI list to your competitors’ products first, you save time and effort for both online and in-store data collection. When collection auditors are free to collect prices, they can spend less time looking for products that are unavailable at the competing store. This has two benefits: decreasing the labor costs of the shop and increasing the quality of data.

Tip 2: Do full-books sparingly.

Full books are expensive. The top 10% of products sold typically represent 50% of the total sales dollars. Therefore, full book programs that invest as much in competitive shopping slow-moving items as in fast-moving products are not cost-effective. The problem with full-book shops is that they assign the same value to slow-moving goods and fast-moving goods. As a result, goods that only need to be price-checked yearly are lumped in with goods that change prices weekly–at a premium cost.

Our studies have shown that price change cadence for a lot of items at most retailers are not as frequent as most would think. This knowledge can free up upwards of 50% of budgets to achieve more strategic competitive visibility like assortment changes. You can request a sample price change analysis for a typical retailer here.

Full-book shop costs

On average, we recommend that full-book competitive shops be done between two to four times a year. This can be supplemented by precisely targeted competitive shops.

Tip 3: Match your private labels.

When price-checking a retailer of similar size, it’s advantageous to match your private label products to theirs prior to the competitive shop. By matching private label products and finding equivalents, the collected data becomes much more accurate.

Egg Comparison

For example, if two stores offer private label free-range eggs but one carries a dozen-egg carton and the other an 18-egg carton, it takes more time for an auditor to make this connection and collect the data. By linking the products beforehand, the auditing process is streamlined, and more accurate data comes back to you.

Without product matching, visibility into your competitors is compromised. Private label products offer a greater picture of a retailer’s pricing strategies, and serve as important markers for category trends.


To unlock the last 4 tips, register here.


Combined with other pricing solutions, these tips can stack to make the most out of your competitive shop programs. To learn more about how Engage3 uses artificial intelligence and machine learning for retail solutions, you can register to receive our White Paper here. Frank Scorpiniti, CEO of Earth Fare, also sat down with Engage3 founder Ken Ouimet to discuss the latest industry trends and technology at GroceryShop 2018 — watch the video here.

14 Feb 2019
Falling Prices

Falling Prices Store in Sacramento: A Review

The latest store turning heads in Northern California isn’t known for its purchase-tracking cameras or smart shelf tags—-it’s drawing crowds to its particle board bins. Engage3 visited Falling Prices for a full report on what the discounter has to offer.

Falling Prices, a store based in the Sacramento-area city of Carmichael, serves as a liquidator of Target and Amazon goods. The store is attracting customers through word of mouth and local news coverage, touting a unique pricing model. Though the store is only open 5 days a week, prices fall—as the store name suggests— from $6 to 25 cents throughout the week.

If any goods are left in the store by the end of Saturday, when everything is priced at 25 cents, they are thrown away. Interested shoppers have to balance savings and selection throughout the week before the store is restocked.

First Impressions

When I arrived in the parking lot, the thing I immediately noticed was the sign hanging from the storefront. “Falling Prices” was printed on a white banner held up by four ropes. It was a Thursday, or a $2 day at the store, and there was still a variety of items to search through.

Falling Prices Parking Lot
A full parking lot, largely due to the new Falling Prices store

Outside, one of the windowed walls displayed the price schedule and a list of the product types that the store carried. While standing outside, I noticed a steady stream of customers going in and out of the store, despite it being an ,early afternoon on a weekday.

Falling Prices Sign
An explanation and disclaimer outside of the store, as well as a category list

When I stepped inside, what caught my eye was the furniture in the store. Every piece of furniture, from bins to shelves to the checkout counter, was made from particle board. The shoppers paid no mind to the decor, and instead were busy sifting through the various bins.

The particle board bins were filled to the brim with shelf-stable food products and toys, among other items.  I could see dozens of shoppers wading through the bins, uncovering hidden objects, and placing them in their carts. Here, a four-pack of chocolate almond milk; there, children’s Halloween costumes of every size.

On the far end of the store was a section dedicated to holiday decorations. Wrapping paper, string lights, and home goods made up the bulk of the items here. Immediately next to this area was a bin full of showerhead replacements. Signage was unnecessary, as everyone in the store knew it was $2 Day at Falling Prices.

I continued through the aisles, stopping to search through the bins and pick up odd items. In my cart I carried a collection of bobbleheads, canned sparkling water, a pair of headphones, and a showerhead attachment from an earlier bin.

Showerheads at Falling Prices
Dozens of showerheads, all priced at $2

Despite the appearance of the store, I could feel the excitement of the shoppers around me. The combination of discounted items and a treasure hunt vibe made the store enjoyable to explore.

After taking a few pictures and retracing my steps through the aisles, I was ready to check out. The wait was on the longer side, but this was mainly from the sheer amount of items that customers ahead of me had picked up in the store. Each cart had 20 or more items inside, and I was tempted to go back and pick out a few more items.

I walked away from the store with more than I expected, both in purchases and in opinion. According to a news interview, the owner of the liquidation store is looking to expand to a second location. Bargain hunters may find stores of a similar kind popping up in the area, but competitors will struggle to find a pricing strategy clever enough to outdo Falling Prices.

Local news stations featured Falling Prices during its second week of opening, attracting a larger crowd of shoppers and more items to liquidate. In the video below from the KCRA 3 Facebook page, you can see a larger variety of the products available.

Falling Prices in Carmichael

😱 BARGAIN ALERT: 😱A new store in Carmichael is selling retail items that could otherwise be expensive for $6 and below!Get the details >> https://bit.ly/2sxw7Mm

Posted by KCRA 3 on Wednesday, January 16, 2019

This article is part of the Engage3 Visits series, where we explore concept stores and innovative retail technology. To learn more about our earlier visit to Sam’s Club Now in Dallas, you can read the blog here. For more information on our visit to Amazon 4-Star, the retailer’s customer-curated offering, you can click here.

30 Jan 2019
Live Longer With Earth Fare

Increasing Profitability While Growing Price Image

Frank Scorpiniti, CEO of health and wellness store, Earth Fare, talks to Ken Ouimet about how they came up with a unique food philosophy of “Live Longer With Earth Fare,” and how they have been able to grow their price image while increasing enterprise profitability using data science.

Below is the transcript of their conversation:

Ken: A couple weeks ago you had me over for your store opening in Fort Mill, South Carolina. A really impressive store, I loved how it was that you just see it right off the road. How are customers perceiving prices in the stores?

Frank: Customers loved it, they love the store experience and we get a lot of feedback about the compelling value that we’re offering the consumer for the cleanest products available. So, they’re pretty impressed with our pricing these days.

Ken: That’s great.

Frank: We have been engaged with Engage3 to help us get better at our pricing for our customers in order to offer them compelling value while at the same time maintaining our margins, and that’s been really important for us, it’s helped advance our business in our customers eyes. In addition to that, we’ve been using artificial intelligence to help us with our weekly promotionals, to bring the best products to our customers at the right time, the right frequency, and the right price.

Ken: You have a marketing campaign, “Live Longer with Earth Fare—Blindfolded.” Very bold statement, can you tell us what that means?

Frank: We were very focused on trying to call out the value proposition of Earth Fare. Why should I shop at a place that has a food philosophy? And early on in the marketing and what we wanted to share our voice with our consumer we were trying to articulate each and every product, why it was beneficial, why it didn’t contain certain items, and that became very noisy. So, after working on it quite a long time, the brand mission of our businesses, it’s really to live a healthier, happier, and longer life. And so “Live Longer with Earth Fare” was born. And we say that you can if you want to be silly and take a risk, you could shop our aisles blindfolded knowing that nothing you ever take home to your family contains artificial chemicals, colors, emulsifiers, any chemical on the boot list. That’s hundreds of chemicals that we don’t allow in our store.

Ken: Do you see any other retailers coming up to those standards?

Frank: Interestingly enough, we are extremely excited because we’re the only ones in North America with this kind of food philosophy. It is very unique and I think it’s what gives us the ability to continue to grow in this voraciously competitive environment. We’re offering the consumer that they’re not able to get anywhere else.

Ken: That’s quite a service to the customer. How do you help them understand what you’re providing them? There’s companies like Kroger, Sprouts, a lot of other stores, Costco, are coming with organic products into this market.

Frank: What’s interesting, a lot of the other grocery retailers do have some of these products that are clean and healthier products, but in those instances you’re having to shop for those products across a minefield of products that are full of chemicals that are bad for you. And so, if the consumer has time to read every label in a store and carefully select without making a mistake.

Ken: And they have a three-year-old in the cart grabbing stuff.

Frank: Right, that’s a lot of time required. And so that’s the benefit is just get in don’t worry about reading labels. Everything in the store is clean and you’re going to find compelling value on every aisle.

Ken: When you think about your price image do you have, sort of, another similar objective with the price image?

Frank: Well, we’re continually trying to maintain and grow our price image to show our consumers compelling value, but some of what’s been exciting here at the show today is it seems that some of the technology now exists to bring together the opportunity, to create one-to-one marketing that is truly customer-centric. In other words, I think our teams could probably work together, Ken, to create offers that are customer-centric where they share into our loyalty database their health and wellness needs and we create unique offers for them. Rather than what oftentimes happens today where four or five or ten different offers are created and then we try to match customers to the offers. You mentioned earlier that 70% of people have some kind of food sensitivity, and probably most of them don’t know that. But the ones that do know what they need to avoid oftentimes know what to avoid but maybe not what to go after to even enhance their health even further. And I think collectively we could probably come to those recommendations and then for that individual give that customer a fantastic one-to-one price offer that we could create.

==end===

Engage3’s Competitive Price Response helps retailers like Earth Fare model and define the impact of strategic pricing alternatives. It is integrated with Engage3’s Competitive Intelligence Platform and could be used with Nielsen market pricing data, if available.

Price Image algorithms are based on Markowitz’s Nobel Prize Winning Efficient Frontier Theory. Watch how this theory is applied to retail pricing in this video.

28 Jan 2019

26 Million Americans May Have Food Allergies: Retailers React

More adults are developing food allergies, and grocers are struggling to keep up with the needs of this food-sensitive group. In a study published by JAMA Network examining 40,443 individuals, researchers concluded that more than one in ten adults are food-allergic. Of those that were allergic, 45.3 percent were allergic to multiple foods, and nearly half reported developing their allergies as adults.

Health-focused grocery stores have long listed potential allergens on shelf labels, and the FDA requires that the “big eight” allergens be listed on packaging. However, as more adults develop allergies, these warnings may not be sufficient. Allergy-aware consumers are eager for clear labelling and warnings, whether they or a family member are the ones with the allergy. Their concerns are valid and urgent, as the number of people hospitalized from allergic reactions to food increased 350% in the last decade.

Show Trumps Tell

In a 2017 paper published in “Allergy, Asthma & Clinical Immunology,” scientists found that consumers preferred the use of symbols over words for allergen warnings. In the same study, people were asked if they were willing to pay extra for allergen information on all food packages. The results were overwhelming: 75% of respondents said they were willing to pay for this, on top of their monthly grocery bill (NCBI).

Shelf Labels with Gluten-Free warning
Gluten-Free shelf labels at a Texas retailer

“In terms of their willingness to pay, the majority of consistent respondents were willing to pay up to $10 extra per month for groceries for the inclusion of allergen labels on food,” reports the study. In other words, consumers are ready and willing to spend more for ease of shopping and peace of mind.

Beyond this, a significant number of survey-takers were willing to pay in the $10-50 range and even over $50. Consumers are willing to pay for the increased cost of food labelling, and may additionally improve their perception of allergy-conscious retailers.

Shelf Labels

Confusing allergen labelling presents an opportunity for retailers to fill the needs of their shoppers. Color-coded shelf labels and warnings make shopping simple for consumers with allergies and dietary restrictions. For this group of customers (which grows larger every year), clear allergen information contributes to their purchasing decisions.

Guide to in-store dietary labels
Shelf labels for dietary restrictions

Customers buying gluten-free products are even more discerning, as gluten doesn’t fall under the Food Allergen Protection Act in the United States. There is an added layer of difficulty when shopping, as food labelling for gluten is lacking compared to other allergens. The FDA only requires the identification of “ingredients that are — or contain any protein derived from — peanuts, tree nuts, shellfish, milk, eggs, wheat, fish or soybeans” (FDA).”

Retailers like PCC Natural Markets, based in Seattle, have taken the initiative ahead of the FDA by labelling gluten-free products with orange shelf tags. The color-coding system makes it easier for consumers with food sensitivities to navigate their aisles.

Current Methods

Whole Foods search filter
Whole Foods product search feature

Whole Foods recently increased their website functionally to account for allergies and dietary restrictions. Online shoppers can filter through products based on gluten-free, keto-friendly, and other attributes. The Amazon-owned grocer is one of the first major retailers to implement a product search system with dietary restrictions in mind, but other food-focused sites have had similar features for years.

In 2014, Pinterest users could start searching for recipes on the website based on their diet and  to exclude certain ingredients. The update made it easier for allergy-conscious home cooks to find recipes, but shopping for allergen-free products was still a cause for concern. Retailers have been comparatively slow to adopt the technology and filter through ingredient lists on a large scale, but health-forward stores like Whole Foods and Earth Fare are warming up to the idea. The Whole Foods website change will likely lead to future app development that allows consumers to search in-store.

What’s Next

Black and White sesame seeds
Black and white sesame, dangerous for those with the ninth most common food allergy

As allergy concerns continue to rise, consumers will be turning to retailers to help keep track of what is safe to eat and what is not. The increased number of sesame allergies is already affecting the market–the FDA is considering adding sesame, the ninth most common food allergy, to the list of necessary ingredient warnings. In the meantime, retailers have the ability to label these “fringe” allergies on shelves and websites. For the consumer with a sesame allergy, this means having a much safer shopping experience.

Frank Scorpiniti, CEO of Earth Fare, recently talked with Ken Ouimet of Engage3 on food allergies as well as many other topics. In addition to product searching, the two CEOs envision a store with full app integration to help consumers navigate aisles and avoid specific ingredients. To learn more about the future of app integration in retail, you can watch the video here.

15 Jan 2019
Price Image

Using Price Image to Formulate Pricing Strategy

Price Image is how shoppers perceive a store’s pricing relative to its competitors. It is not the same as Price Index. Many more things go into establishing price image, including promotion programs, elasticities, seasonality, price ending numbers, and the overall design of a retailer store.

Price Index vs. Price Image

Price optimization solutions that are available today are based on rules and price indices that exclude your desired price image. What is needed are psychological models that measure your consumers’ perception of your pricing AND predict the impact of price changes on that image.

At its core, Price Image takes customer excitement into account. Whereas Price Index relies on historical data and plotting points, Price Image is predictive and non-linear – making it much more useful in making strategic pricing decisions. It incorporates psychological elements, making it a consumer-specific metric.

A Nobel Prize-Winning Approach

The calculation of Price Image was inspired at Engage3 by Markowitz’s Efficient Frontier Theory. It’s a theory  that has been successfully used for decades in managing financial portfolios and is now applied to retail pricing.It enables retailers to strategically manage competitive price adjustments so they can balance their profit goals with a desired price image in the market.

Efficient Frontier

What to Look For in a Strategic Pricing Solution

Price Image takes psychological factors and applies them to pricing data. The resulting models can be used to predict future profitability and are not reliant on historical data. Below is a list of what to look for in a strategic pricing solution:

  • Integration with clean, comprehensive, and accurate competitive intelligence data
  • Statistically-driven performance reporting that separates real pricing impact from market level “noise”
  • Streamlined workflow for competitive price recommendations and approvals
  • Alerts for incomplete or outdated competitive data for review
  • A visual price modeling tool to define the impact of strategic pricing alternatives
  • Competitor activity and movement callouts on highly elastic products
  • Makes price recommendations based on your objectives for:
    • Price image
    • Profitability
  • Allows Merchants and Pricing Teams define their strategy and show the financial tradeoffs for different alternatives

 

The predictive model is especially valuable in forecasting sales, because Price Image allows a retailer to see how its customers are responding to different pricing strategies. Greater visibility translates to higher profit margins and happier customers!

Learn more about how the Efficient Frontier Theory is applied to retail pricing in this video.

 

 

 

 

10 Jan 2019
Earth Fare

CEO of Earth Fare Talks Shop With Ken Ouimet

At the inaugural GroceryShop event in Las Vegas late last year, Frank Scorpiniti, CEO of health and wellness store Earth Fare, sat down with Ken Ouimet, CEO of Engage3.

Frank talked about hiring a Chief Medical Officer for his stores, bringing more value to his health and wellness shoppers, and how he envisions a future of 1:1 customer-centric marketing using loyalty data in the very near future.

Following is their conversation:

Ken: Welcome, Frank, thanks for being here at the show with us today. What’d you think of the show?

Frank: The show’s been well organized, there’s an immense amount of emerging technology that really excites us for the potential to have it help Earth Fare continue to grow.

Ken: Is there any particular technology you’re most impressed with?

Frank: Well I spent some time on the exhibit floor and I was pretty impressed with what seems to be some off-the-shelf technologies to help us eventually create more attribute conversation with our customers, right on the sales shelf. And our customers are really seeking better health and wellness, so in order to tell a product story is something that we’re really looking forward to leveraging.

Ken: How would you communicate that to customers?

Frank: Well I think we have a lot of work to do to figure that out. That’s been a big challenge for us. As the leading grocer in North America with the cleanest product assortments, one of the biggest challenges we have is getting the message across to our customers about how unique our assortment really is, so I don’t have that solved yet.

Ken: One of the technologies that I was really impressed with was seeing the advances in the speech recognition.

Ken: At one end I saw something by Apple recently where it actually had a bot that could schedule a haircut for somebody, and get through all the navigation of a real conversation. I was curious to get your thoughts, as we get these digital assistants starting to have these capabilities that talk to people in real time, you see an opportunity where we could use technology to get back to the old store where the grocer knew the customer, and have a more intimate relationship with each consumer.

Frank: Why, I suppose that’s an opportunity, I think customers have a lot of questions in our stores. We have fantastic team members that, many of whom are lifestylers, they live the health and wellness lifestyle, but some of the questions are becoming more complicated about health, so the potential to have that kind of on-demand understanding and data could potentially create an experience for a customer that’s above what we can achieve today.

Ken: Yeah, I imagine as people become more aware of the foods they eat and the effects it has on their bodies, they’re getting more particular on what they eat.

Frank: Yes, consumers are starting to become very aware of the U.S. food supply and that over the years it’s had many, many more chemicals go into it. Some may say some of these products aren’t foods, maybe they’re stuffs with calories. We think that more Americans are looking for healthy foods to feed their family and feel good about what they’re doing.

Ken: I’ve seen a naturopath the last ten years and they routinely will take blood samples and test food sensitivity.

Frank: Yeah

Ken: And I was blown away when I asked them how many people were affected by food sensitivities, and he said it was roughly 70% is what they’re estimating, but only less than 5% are aware of it. There’s a lot of people out there that are affected but don’t know that they’re affected, and some of the athletes are starting to realize that they need to cut out the foods they’re sensitive to and their performance goes up. My brother has a doctor that, he has his office on top of a grocery store, and walks his customers through the aisles to show them what to eat. I’m just wondering, have you thought about having maybe even naturopaths. I know you have a medical officer, is that any direction you’re going?

Frank: We have a Chief Medical Officer, Dr. Angela Hind, and she keeps us on the cutting edge of making sure that we take out of our stores. We’re trying to keep away from things that make our customers sick, and she can only be in one place at one time. Some of the exciting stuff that I think is in our future, particularly with what you’re working on at Engage3, Ken, is our ability to take our loyalty data, where our customers share with us some of their needs around health, and be able to customer-centrically create one-to-one offers. And maybe that could take the place of the naturopath, probably not all the way to the extent your brother experiences or having a naturopath above a store, but the opportunity to guide a particular person with food sensitivities into things that are safe for them, say through an app that [ Earth Fare ] eventually could offer our customers, that could be an incredible experience that I don’t see happening today.

Ken: Yeah, I think there’s a real need for that, because you start looking at reading the labels for what fits your diet, that’s a lot of work. I would think as a consumer I would want something that navigates me around the store like the GPS navigates me around the city.

Frank: I think that could be just an incredible advancement in retail for [ Earth Fare ], we have a food philosophy that disallows a lot of artificial ingredients, and so we say to our customers, “We read the labels so you don’t have to.” That’s removing a lot of the chemicals, but to take it to the next level that you’re describing, then tailor the shop for each individual consumer, it really could excite our customer base. And they’re already looking for better health so it’s the right audience.

===end===

Engage3 Competitive Intelligence Platform helps retailers like Earth Fare improve their pricing performance and compete more profitably through data science & analytics. To learn more about voice-activated shopping and other innovations discussed at GroceryShop, watch this video of Tim Ouimet discussing the rise of agent-based shopping.

08 Jan 2019
Gartner

Gartner’s Market Guide for Unified Price, Promotion and Markdown Optimization Applications, Update 2018

Now more than ever, pricing based on solid data is necessary for retailers to succeed in this increasingly competitive market. This latest report from Gartner gives an overview of the different levels of pricing automation, and finds that most optimization service providers aren’t keeping up with the needs of retailers.

Gartner Curve
Tiers of Integrated Price Optimization by Gartner

Unlike most vendors in the space, Engage3 has developed a platform capable of bridging the gap between pricing models and algorithmically-driven pricing. Uniquely, Engage3 starts with the cleanest competitive data available, making sure that your optimizations are based on a solid foundation. Check out our cross-channel Competitive Intelligence Platform offering here.

We also combine decades of expertise in retail pricing with strategic insights made possible through data science. Our Competitive Price Response lets you manage your price image goals vis-a-vis your profitability goals. For more information on the theory of Efficient Frontier, the science behind our optimization schemes, watch the video here.

You can find the rest of Gartner’s report and their review of Engage3’s offerings here.

To learn more about how Engage3 leverages big data and machine learning in the UPPMO landscape, request our White Paper here.

18 Dec 2018

The Aldi Effect: Are Walmart prices higher in locations where there is no Aldi store?

When European retailer Aldi started opening stores up and down Britain in 2016, people who lived close to a new retailer location started noticing that the value of their homes went up by as much as £5,000. It was called the “Aldi Effect” by the local media and, soon enough, the vicinity of an Aldi store to a piece of property became a listing feature.

Aldi started putting up more stores all over the U.S. starting in 2011, with a total of 1,600 stores to date. And just like in the U.K., it would seem that there is yet another advantage to having an Aldi store in your neighborhood – lower prices for everyday groceries at your local Walmart store.

Walmart and their everyday low price (EDLP) approach has consistently driven a low price image across the U.S. With their limited assortment and private label focus, Aldi has also worked to deliver customer value through low prices. When both retailers are present in a market, they have demonstrated an ability to fight head-to-head for low-price leadership.

Engage3 collects and monitors grocery pricing in markets across the U.S., and identifies pricing patterns and market trends.

For this study, we created a basket of 50 grocery staples that were price checked at three Walmart locations within each of the four Texas markets studied – Austin, Dallas-Fort Worth, Houston, and San Antonio. Dallas and Houston have 36 and 50 Aldi store locations, respectively, while Austin only has 1 store location and San Antonio has none. The competitive landscape in Dallas-Fort Worth and Houston is much more robust, with not only Aldi in the mix, but Kroger and Safeway banners as well.

Our study revealed that in Austin where there is only 1 Aldi store location (north in Pflugerville), Walmart pricing for the basket of staples was 16.2% higher than in Dallas, and 17.6% higher than it was in Houston.

Aldi Report Austin

In San Antonio where Aldi has no store presence and where H-E-B and Walmart are the dominant grocery players, we found that the Walmart basket was between 21% and 22% higher than the exact basket in Dallas-Fort Worth and Houston, respectively.

Aldi Report San Antonio

 

While the average pricing differences in the four cities taken together were between 6% and 11%, some pricing disparity on items like peanut butter and mac and cheese were fairly significant. The chart below shows peanut butter at a Walmart store in Dallas-Fort Worth priced at $1.18, while the same jar was priced at $2.18 in Austin – a whopping 54% difference. Similarly, the mac and cheese, priced in the Dallas-Fort Worth stores at $0.34, was double the price at $0.68 each in Austin.

Aldi Report Table Austin DFW

The same pattern can be seen in Houston, where there are currently 50 Aldi stores. The chart below shows peanut butter at a Walmart store in Houston priced at $1.78, while the same jar was priced at $2.58 in San Antonio, or 45% more. The same mac and cheese, priced in the San Antonio store at $0.68, is 100% more expensive than in Houston at $0.34.


The market basket data used in this analysis is objective and precise. But while the same 50 items were used across all markets, the correlation of Aldi’s effect on a market is still subjective.  Based on Engage3’s observations of competitive pricing data across the U.S., we have determined consistent patterns of Aldi’s influence and effect on market pricing.

Pricing has always been like a chess game, where each retailer is reacting to their competitor’s moves, while trying to predict how their competitor will react to their maneuvers.  But, unlike chess, this game is often played with 3 or more players, and aggressive moves can make it difficult to discern strategy from reactive tactics.

For more information on how to build a strategic competitor assessment and market price monitoring program, watch our competitive pricing video here,  request our white paper on how to leverage AI and big data in competitive pricing here, or contact us at 530-231-5485.

 

 

05 Dec 2018
Agent-based Shopping

The Rise of Agent-based Shopping

 

Retail is at a tipping point

This was a main theme at GroceryShop’s inaugural event last month in Las Vegas. The event was attended by over 2,200 retail and CPG executives and was billed as the industry’s leading event for innovation.

Opinions about the tipping point were punctuated by Nielsen’s prediction: in 5-7 years, as many as 70% of U.S. consumers will regularly purchase consumer packaged goods online (“Digitally Engaged Food Shopper”). By 2022, they speculated consumers could spend $100 billion per year for online groceries (equal to $850/year/household).

For shoppers, digitization lowers barriers, making it easy to source product, compare buying options, find offers, transact, and take possession. For retailers, this means further downward pressure on price as competition evolves across more market segments than ever before: store, product, time, customer, channel, pickup and delivery options, cross-sell alliances, marketplaces and shopping apps.

 

Direct to consumer

Another big topic at the show was brands going Direct To Consumer (DTC) via Instacart, Amazon, and other platforms. For shoppers, it’s only getting easier as computers and AI get better at sourcing, comparing, and finding buying options that best meet a shopper’s current need. In this digital future, relevant offers will find a shopper based on her context (location, preferences, urgency, etc.). Margins will follow a retailer’s ability to make its assortment, offers, and delivery hyper-relevant to a shopper’s context.

 

Artificial Intelligence

Innovative retailers are leveraging AI to defend margins by segmenting markets better and by personalizing services and offers. In her talk, Google’s Laura Antonolli demonstrated Google’s AI-driven conversational assistant, in a machine-to-human interaction. Traditionally, a sales assistant’s role is to connect, understand, personalize and serve. In Laura’s demonstration, Google’s AI assistant searched for a hair salon, called to coordinate calendars for an appointment, and selected a haircut from an array of services.

 

Agent-based shopping

We are witnessing the rise of a new paradigm in retail – agent-based shopping. Laura said shopping agents and voice-activated search are a new battleground, stating that 22% of Google’s mobile search is voice. Forrester Research Analyst George Lawrie reported that “digital is no longer just a marketing channel, it’s now a sales channel.”

In one retail use-case, George shared that Alexa users spent, on average, £8 (eight British pounds) more per basket than at Morrisons. As of today, use cases for digital agents and household consumables are limited. That said, the promise ahead is for agents to create hyper-relevant offers and close sales based on an individual shopper’s context, values, and preferences.

 

Demand-side attributes

In large part, limitations come from the need to understand how shoppers compare substitutable product offerings and how those comparisons change under different pricing and offer scenarios. This applies to both within and beyond a retailer’s four walls. As an industry, we’re really good at supply-side product attribute data (i.e. weight, size & ordering info.). But we have yet to understand product attributes on the demand-side. Whether online or in-store, the old adage “price drives sales like no other factor” still holds true. From that perspective alone, comparability of pricing and offers within a category and across the marketplace are significant dimensions of demand-side attributes.

Comparability lies at the heart of understanding shopper values and preferences. As such, this represents a central value driver in any automated shopper feedback system. Without comparability information, offer personalization is largely blind to a shopper’s context, i.e., blind offers are not relevant.

 

Data takes a new turn

This brings me to a second take-away from the event. We are witnessing a fast acceleration in the variety of demand-side data elements offered by vendors in the space. At GroceryShop, these companies included: Engage3 (my company), Nielsen, Gladson, 1010data, EnterWorks, Label Insights and many more. Each of these companies offer unique data elements relating to different and new demand-side attributes.

As an example, Engage3 provides store-specific comparable pricing data. Nielsen provides measurement data aligned with many causal data elements. Label Insights provides detailed on-package attribute, ingredient and claim data. Data sharing and data feed integration between data vendors is also accelerating. These sharing and integration relationships open new paths to support the full promise of agent-based retailing.

Given the importance of product comparability, expect comparability to emerge as a primary focal point for integration. At Engage3, these sharing and integration relationships are beginning to yield new benefits, including:

All of this helps retailers automate and increase ROI from their pricing, offer generation, segmentation and personalization efforts.

In his talk, Earth Fare’s CEO, Frank Scorpiniti, spoke about AI as an “invisible advantage” that “removes repetition.” He reported that price promo and promo cadence all together yielded ROI of 300 basis points (3% of sales).” Adding “automation requires data quality” and that Engage3’s data has “near 100% accuracy.”

Getting data trustable is one step. Preparing integrated data for automation & advanced analytics is a step beyond. Supporting a client often means integrating a variety of data feeds from across a client organization with that of multiple data vendors. And building those feeds into a model is crucial so decisions can be automated in a controlled way.

Adding to the momentum, research dollars are beginning to flow as universities define research priorities in this space. One university we spoke with plans to create a center for excellence in food through the integration of personalized health, nutrition, and sustainability. Their effort would align both industry executives and academics from the business, engineering, supply chain, medicine & nutrition schools.

Agent-based shopping is set to emerge as a new battleground. Retailers that are positioned to make use of these new data feeds will climb the evolutionary path faster. Expect the industry to evolve rapidly in support of agent-based shopping.  It’s an amazing time to be in retail!

For more information on competitive pricing, go to our blog “What to look for in a competitive pricing platform.”