Why Omnichannel Grocers Need a Combined Pricing Playbook

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Brian Ross
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Tried-and-true goals still apply, but a unified pricing and promotions model is critical for food, drug and mass retailers who serve shoppers in stores and on-line

The dramatic acceleration of online grocery shopping behavior over the past 12 months, coupled with changes in the make-up of in-store trips, has created a cascade of consequences for retailers. While many grocers enjoyed periods of increased sales, shoppers have been exposed to delays, out-of-stocks, item substitutions, fewer deals, price swings and other service issues. What’s more, competition is intensifying, and shoppers are consolidating spend to fewer retailers.

While this is an exciting era for e-commerce at food, drug and mass merchants, shopper tolerance is running thin as they form new consumption habits. It could be a perilous time for retailers as they resume the battle for shopper loyalty and reassert their price-value positions in the foreseeable future.

At Precima, we are watching closely how price consciousness is shifting for the growing segment of shoppers who buy some or all their groceries and household goods online. Retailers need to pay active attention to price reputation across both channels in an integrated way. The moment calls for a new playbook for price and promotion that addresses the total store – physical and digital.

Recent industry research reveals an interplay of many forces at work:

Shift to digital. Between March and December 2020, more than 18 million consumer packaged goods shoppers in the U.S. went online to do their shopping, according to research from NielsenIQ. Some 40% of all shoppers ordered groceries online at least once.

Shock to loyalty. A new Consumer Sentiment Survey from McKinsey & Company found that 76% of consumers changed stores, changed brands or changed how they shop since the onset of the COVID-19 pandemic.

Quest for value. A 2021 survey by Inmar Intelligence found that 80 percent of shoppers are actively looking for grocery deals, including coupons and promotions. The researchers also found: 

  • 61 percent of shoppers switched purchase loyalty to less expensive brands since the start of the pandemic.
  • 92 percent of shoppers say grocery brands should be doing more to provide cost-savings options for consumers.

Perfect price memory. NielsenIQ found 29% of consumers considered the order history tool to be the most helpful website feature when shopping online. Awareness of order history might mean many more items, and potentially every item, are now known value items (KVIs) for those shoppers.

Price links to service quality. Incisiv and Precima research published in October 2020 revealed 66% of shoppers rate “low prices” as key indicators of customer service, while 63% of shoppers said personalized offers are key differentiators of customer experiences.

Price is not shoppers’ sole motivation. Shoppers were equally likely to switch between e-tailers if products were more expensive, delivery costs had increased or products were proven faulty or fake, researchers found in NielsenIQ’s Global E-commerce Syndicated Study.

These research findings are a lot to consider, but one thing seems certain – retailers need to take a fresh look at price strategy and pricing tools to ensure they are equipped to make decisions that maximize profitability, maintain competitiveness, and reinforce shopper trust.

How should retailers respond?

Tried-and-true goals will still apply for pricing and promotions – retailers must still optimize prices and promotions for perception, volume, loyalty and profit. Product affinities and interactions still matter, but the model becomes more intricate and subtle when many high-value shoppers interact both in stores and on-line.

The year ahead places an imperative on grocery retailers to tackle pricing with an omnichannel lens across the total store. In the new context, “total” means all categories and all points of contact. Some enduring truths about price may prove to be different when viewed from this new perspective. 

A sound, empirical, data-driven approach to pricing and promotion is needed more than ever this year as retailers re-consider past assumptions and work toward a value story that gives confidence to omnichannel shoppers. There is a great deal to learn, but retailers can hypothesize where some of the bigger insights may be uncovered.

Hypothesis 1: In-store shopping trips and online shopping trips are linked but not equivalent, even when they are made by the same individual shopper. The traditional myth that there is a “store shopper” and an “online shopper” has been disproven. The same loyal shoppers make decisions differently while in the store compared with when they use the digital app to place an order for pickup or delivery. The purpose of those trips may vary for the same shoppers on different occasions, but their expectations of the shopping experience will always increase. Retailers need to study shopping behavior with an omni lens to understand the difference in store versus online. There is much to learn about how these behaviors vary and the role of each channel within the overall shopper experience.

Hypothesis 2: For a growing proportion of shoppers, price perceptions are based on KVIs they interact with in both physical and digital interactions. Inconsistencies erode trust, and a more comprehensive, digitally-aided recall (like those order history features) makes shoppers less forgiving. Retailers need an omnichannel pricing strategy that manages prices shoppers see online vs. in store by market and by zone. This ensures delivering on shopper expectations and value while optimizing the competitive price position.

Hypothesis 3: Shopper-Centric price optimization will have increasing impact on loyalty.  As omni-shopping becomes the norm, shoppers will seek out retailers that best meet their shopping needs and deliver value in all encounters. As a foundation, this requires setting the optimal price both in-store and online, looking across the total store and covering all categories. Leading retailers will go one step further and complement data-driven omnichannel price optimization with personalized pricing and promotion. That means custom prices for individual shoppers on the categories, brands and items that matter most to them. Marrying a sound omnichannel pricing strategy with personalized prices is key to winning and meeting ever-changing market needs and delivering best value and price perception to shoppers.

The omnichannel pricing playbook

Now is a rare moment for the grocery business during which new price perceptions, new loyalties and new shopping habits are being simultaneously created – with influences from both in-store and online shopping experiences. Shoppers have never been more open to experimentation on brand and retail alternatives. And they have never had more tools available for them to check, compare and remember prices and deals.

It is essential for retailers to optimize their pricing and promotions in a unified and cogent manner that sends the right message to shoppers across the total omnichannel shopping platform. The goals are clear: Earn and ensure trust. Create and encourage enduring habits. Reinforce and reclaim loyalty. 

About the Author

Black and white photo of Brian Ross

Brian Ross

President

President of Precima, a NielsenIQ Company. Brian works with some of the world’s leading brands to deliver world-class customer-centric solutions through strategic consulting, industry-leading analytics and a next-generation technology platform. His vision and leadership helped launch Precima in 2008 as a three-person startup, and he has since grown it into a global leader in retail, B2B and CPG strategy and analytics with over 300 experts in Canada, the United States and Europe. With an extensive background in loyalty solutions, customer marketing and merchandising strategies, Brian oversees the strategic and operational management responsibilities, as well as relationships with customers and business partners.

Before Precima, Brian spent several years in management positions across LoyaltyOne businesses, notably providing client management and analytics support for key partners of the AIR MILES Reward Program. He used data-driven customer insights to develop successful programs for clients in grocery, pharmacy, department store, specialty retailing, financial services and consumer packaged goods. Brian shares his broad range of expertise and thought leadership in regular features in leading marketing publications, and is a frequent speaker at industry events and forums.