Technology in the retail market could be the antidote to never-ending sales, writes Roy Horgan of Market Hub Technologies.
A race to the bottom on price
Arguably, many retailers are yet to confront the need for change. The currently favoured tactic to win back the consumer is excessive discounting, price matching and, frankly, inertia. We saw only this past Christmas how these tactics have failed to draw consumers back to the high street, with many preferring to shop in the online flash sales instead.
This ‘race to the bottom on price’ is bad for the producers, consumers and retailers. Research from McKinsey has suggested that a 1% increase in margin requires an 8% uplift in sales to compensate from the profit lost as a result of discounting.
As big chains race to indiscriminately cut prices, producers see their products devalued, stores see less of a margin, and consumers have a lower perception of the brand. Fundamentally though, a price cut doesn’t actually motivate a consumer to purchase any more volume than they originally intended, and this is especially true of supermarkets.
The powers of the high street cannot be denied though, and many still seek to make a physical purchase in-store, having done their research online. Of course bricks and mortar retail won’t die, but it does need to change. That change needs to be sustainable and can be informed by data which supermarket already have. Only 25% of the $4 trillion in retail pricing is supported by any kind of predictive analysis, and over 50% of discounting is ineffective. From our own work with clients we have discovered that, in many stores, more than 20% gross margin is being lost annually.
How can technology help?
With the introduction of dynamic pricing systems, retailers can begin to reclaim some of that margin. This technology provides retailers with a diagnostics toolkit which offers historic and future trading patterns to help individual stores identify margin and sales growth opportunities, waste reduction efficiencies, discount effectiveness strategies and demand planning forecasts.
In practice, these solutions can recommend a weekly finite list of prices and waste actions to take at an individual store level. This approach represents significant disruption to the way many retail stores operate, and presents a fundamental challenge to the endemic ‘race to the bottom’ culture. But these practical suggestions make sense to store managers and retail executives alike, and this incremental change can breed the larger culture shift necessary to reinvigorate the high street.
Many stores, from major retailers to convenience, are recognising the need for this change, and this solution is just one of the ways in which the high street can embrace digital tech to help get an edge over online and multi-channel outlets.
Ultimately, retailers don’t need to discount until they create stampedes at the doors. If every product has its prefect price, never-ending sales can become a thing of the past; retailers can retain their brand value, margins can be recouped, customers stay happy and the high street can start becoming competitive again.
Roy Horgan is founder of Market Hub Technologies.