Given retail’s constant immigration to mobile and e-commerce, you may be questioning how retail will seem in the future. Here are several things you can expect to see based on current technology that’s in the act.
Retail has continuously been transformed over only a short period of time, so in order to get a hold of a big part of the market, industry leaders have been taking full advantage of technology.
We had a chat with Alexandr Galkin, the CEO, and co-founder of the retail price optimization company Competera, to learn more about what things are changing as well as how to ensure that your business is taking on every opportunity to expand.
So many media articles have detailed the fall of previous American retail leaders such as Toys R Us and Sears. In fact, since 2015 there have been 57 bankruptcies with more than half related to the massive growth in both online retail and technology. Is it the end for offline retail?
Brick and mortar have not seen the last of its days. In fact, based on a study by Deloitte, in 2018 the top 250 global retailers had made $4.53 trillion in comparison to the previous year’s earnings of $4.44 trillion, 90% of which were made possible thanks to offline retail. This goes to show how well brick-and-mortar stores are actually doing.
However, it is important to note that a few of the top American retailers had to file for bankruptcy and shut down some stores. Toys R Us, for instance, had to close 735 after having been in business for more than 60 years with 4,309 of them closed since the beginning of January of this year.
That being said, this was caused, in part, from the fact that they had started out with too much storage space; indeed they had more commercial square meters per customer than they had shoppers. They had also not seen various technological changes occur such as the growing world of online e-commerce.
In the end, Toys R Us had never created their channel, but instead, they had simply chosen Amazon as their only e-commerce channel, causing them to lose many customers in the process.
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What does the future of offline retail look like considering how fast the retail environment is changing?
Personalization and pricing are both keys if you’d like your company to continue operating in the future. Even those retailers which have been around for a while have a long ways to go from expert-based pricing all the way to completely personalized offers through customer clubs.
Therefore, the first thing that they should do is learn how to gather and maneuver huge amounts of data covering a wide variety of parameters as well as shift pricing from SKU-based to portfolio-based for several selling channels and then, later on, for various operations regions.
At the same time, those retailers who have been around for some time and that have been able to cover a number of markets have struggled with creating balanced pricing strategies due to the fact that they would have to take into consideration a lot of regional characteristics, lots of customers with different preferences, and a whole bunch of data, making it difficult to process it all.
With regards to selling in various markets, firms have to think about all of the various cultures, languages, assortments, price points, and costs, along with the purchasing power of the customers, too. This makes it difficult to optimize pricing strategies; however, it is not impossible.
Retailers will just need better managers as well as technology in order to gather and analyze all of that information that comes in different forms. The parameters include things like market, sales, seasonality, and customers, just to name a few.
So, in order to create very personalized offers, companies have to figure out how to gather, structure, and then process all of that data, regardless of what it is about. This would assist them in breaking down customers into smaller groups than they had ever been prior.
For instance, Walmart had taken a few steps down that path when they had understood that they were so close to letting that opportunity slip away from them. Therefore, in 2018, they had signed a deal with Microsoft last five years; it would let them run on Microsoft’s cloud while also grant them usage of its machine learning, artificial intelligence, as well as data innovation projects.
That being said, personalized offers only play a small role in a customer experience that is rewarding; creating a satisfactory customer journey is absolutely crucial.
How does technology impact business operations?
Retailers that are mature and in competitive markets are still dealing with structural problems that keep them from cracking the revenue ceiling. In fact, at so many different firms, the exact managers or even teams have to deal with purchasing as well as selling items, but this is simply impossible as each action requires a manager’s complete attention.
On top of that, managers have to work with KPIs that aren’t up-to-date and that is fused which creating more tasks that need to be done than needed, causing managers not to be to able to fulfill either action to the utmost of their abilities. In addition, the market is quite dynamic with retailers often having to deal with price wars that they end up losing as managers just don’t have enough time nor do they have enough competency to evaluate the outcomes of their pricing decisions.
That being said, large firms have already put both their buying and selling teams into two separate groups. Retailers have pinpointed independent KPIs and they have brought forward technology to make managers better at evaluating lots of data, assisting them with creating the correct price perception. Now, the best way to create a solid price perception is by forecasting both demand and sales depending on a number of data points.
In other words, you’d need to get a whole lot of information, use technology to make predictions about both demand and sales, and then utilize them in order to go from SKU-based all the way to portfolio-based pricing and data-driven decisions.
In the case that retailers already have all of the data that they need, what do you mean by the next step revolving around switching over to portfolio-based pricing? Is it advantageous for companies? How so?
If managers are struggling between either purchasing or selling at the most optimal price, they often tend to just focus on establishing the best price for an item which has been coined as SKU-based pricing. This means that retail teams are not able to understand how the prices for a single item end up impacting the sales of either items in the portfolio, causing the sales of other products to be pulled down.
On the other hand, though, portfolio-based pricing, managers utilize both demand and sales predictions in order to figure out balanced prices and then create the proper price perception for the entire portfolio, ensuring that some items would increase rather than decrease the sales of other products. Based on my past experience, that method works very well in industries such as electronics, FMCG, as well as apparel.
In fact, Competera’s clients, such as a European electronics retailer, were able to see increases in revenue by 16%, while a UK retailer was able to see a boost in sales by 22%; this was all made possible through portfolio-based pricing. That being said, managers have to be vested by technology in order to make every calculation that they need to in a speedy enough manner.
Retailers that have been in the game for some time have been working with devoted consulting teams from the Big Four in order to forecast both demand and sales, outline the best promotional activities, as well as establish the best prices.
It is important to note, though, that that type of analysis does not end up being done in real-time often, despite the fact that technological solutions that are able to react to the needs of the market a whole lot faster already exist. In fact, several solutions are even able to offer both demand and sales predictions every week.
Why is customer experience important? How do you get it to catch the attention of customers? How have customer expectations changed?
Since the amount of offers that customers are able to choose from is only expanding, customers themselves are becoming a whole lot more demanding. On top of that, they have so many different devices that they can make purchases on, allowing them to buy regardless of the channel.
As a result, they want to purchase things as smooth and as fast as possible while also ensuring that the price is the best one and it doesn’t even matter which channel they end up using. Indeed, how much an item cost has always been at the heart of customer experiences since it is the first thing that they see after all.
In addition, it impacts a retailer’s perception in the eyes of the shoppers even in the case that they make they buy after because shoppers compare the experience that they end up getting with the amount of money that they put into it.
Retailers are able to provide shoppers with easy customer experience, but the question lies in how to actually accomplish that feat. It is no secret that people need people, therefore, retailers have understood that it is smarter to allow their managers to completely put their mind on customer interactions and customer-centric pricing strategies.
This is why retail first-movers are beginning to utilize technological solutions that take on tasks that take up a lot of time, are quite tedious, and have the ability to process huge amounts of data which people simply aren’t able to go through.
What type of technology should retailers use in order to create the proper price perception?
I think that technological solutions that revolve around machine learning algorithms make for the easiest and the clearest solutions for retailers since the algorithm is able to process a whole lot of data in order to figure out how each pricing decision impacts the entire portfolio.
It is also great for trying out different pricing and promotional strategies, is able to show the outcome of each pricing decision in actual time, and it is able to pinpoint which pricing scenarios are the best when it comes to increasing sales, based on the objectives of the firm.
So, what does the future look like?
Even though the technology is becoming much more available to many more kinds of businesses, big retailers like Walmart, Amazon, and even Google can utilize their financial resources into promoting their items as well as to into investing in research and design. As a result, it is really difficult to go head to head with them now.
For instance, I know a firm that is very close to becoming bankrupt after having lost half of its traffic in only three months simply because of changes within Google’s search algorithms.
Therefore, I feel like, in the future, businesses will be changing things up by providing limited items and services that you would not be able to find on Amazon or any of the other giants for that matter or, on the contrary, going completely onto Amazon. I could also see subscription clubs and prices being offered depending on the LTV of consumers, which is actually a strategy already being utilized in the states.
Thanks to a price management software, businesses that have a whole bunch of information regarding their customers will be able to figure out the most optimal personal price for each user depending on data about how much they have already spent and the amount that they are very likely to spend in the long term, taking into account the objectives of the company.
In addition, this strategy helps ensure that price discrimination is eliminated.