Without champions at the top, game-changing technologies in pricing and promotions may go to waste
Planning for the future in CPG and retail can be daunting, particularly after a year that saw unprecedented upheaval in consumer behavior and disruptions in the supply chain. Yet in spite of a global pandemic, certain sectors in CPG and retail, namely grocery, saw some of their most successful quarters during COVID-19, as out of home dining, travel and entertainment were restricted.
How an industry moves on after a boom year is a major question facing brands and retailers in the grocery space. To get some more insight on the strategies that will define the industry in the coming years, I spoke with more than two dozen industry professionals at Groceryshop, an event that brought together experts on the brand, retail, and technology side of the discussion.
In part one of this series, this column explored new strategies for managing inventory post-pandemic, and how a rise in harnessing first-party data will be crucial to brands and retailers going forward as the industry embraces further digital strategies at a time when third-party cookies are being phased out.
The tech challenges facing grocery chains and brands seem like a major barrier to adopting new digital strategies, but the reality is that there are solutions that exist currently that are able to handle more intelligent, personalized pricing and promotions. Especially when looking at the development of AI over the last few years, we see a path forward for both sides of the retail and brand dichotomy that moves beyond the inefficiencies of broad-based discounting.
Which brings us to the old adage: You can bring a horse to water, but you can’t make him drink. If the barriers to changing pricing and promotions strategies to be smarter and more surgical aren’t technological, then they must be human. In order to move forward as an industry, we need champions at the top—those with vision to enact institutional change that will reverberate throughout an industry at risk of falling back into old habits.
How the Pandemic Gave The Industry an Opportunity to Reset
The thing about disruption, as with the case of the global pandemic, is it affords both brands and retailers a chance to redefine consumer expectations with respect to pricing and promotions.
“I think it’s one of those things where you see COVID as a blessing in disguise,” said Prashant Agarwal, founder of Impact Analytics. “COVID allows you to say, ‘I can’t do the same as last year.’ This is a great time to reset. You’re going to have the opportunity to reset your relationship with the customer as well as refinance internally around margins and the margin dollars you’re going to go do.”
After a year of minimal discounting because demand was so high—and supply precarious at times—brands and retailers are now in a position to alter strategies for years to come. But in order to make changes that will impact long-term strategies going forward, it requires action and investment in the technologies capable of handling these new strategies now.
“There’s quite a lot of pressure from CMOs, now, to rapidly make change,” said Richard Jones, CMO of Cheetah Digital.
This resetting of consumer expectations is going to present a unique challenge for brands and retailers, because there is pressure surrounding setting a baseline for success. Looking at 2021, with reopening measures and vaccinations, government stimulus check distribution and pent-up consumer demand, we may see unprecedented growth in the retail sector. The real test to change will occur in 2022; will brands look to a successful 2021 as their comp? And, should we return to sales numbers that more closely resemble pre-pandemic levels, will brands be satisfied with a significant decrease?
If the latter is true, and a successful 2021 becomes the new benchmark for success, it could pressure brands and retailers into a cycle of deep discounting in order to reach unrealistic figures that disregard margins.
“It’s a death march to permanent coupons and promotions,” Agarwal says. “You know it’s not good for you, but it’s like that chocolate cake. It’s going to feel good this quarter, but then I’ll worry about next quarter.”
We know the technology exists now to make pricing and promotions more intelligent going forward, and if we reset the expectations of consumers that deep discounting won’t be a driving force in retail, the industry has an opportunity to transform discounting strategies from here on out.
Now is the time for action, so when sales levels out post-pandemic irregularities, organizations are in a position to not fall back into old habits. So what’s stopping them?
We Need Champions At the Top
When it comes to instituting the changes necessary to transform an industry like retail that can sometimes be slow to adapt, it requires courage and action on the part of company leadership. Many in the industry know that a change needs to occur, but few are taking the necessary steps forward to move the needle.
“I think that 60 percent [of industry leaders] are talking the talk,” said Sarah Engel, CMO of January Digital. “You see it in their interviews, you hear it when they speak at virtual conferences, you hear it on earnings calls. I think about 30 percent are actually walking the walk. It is hard work. Organizational change is hard work. And for all the best intentions it is moving a lot more slowly than it needs to.”
When considering the institutional barriers to change, it’s important to consider fear as a motivating force. On one hand, fear can lead to inaction. CMOs and CEOs have to be accountable for showing some kind of growth. This inertia pushes against change, because perceived success of business-as-usual mass discounting is measurable, if only in the short term. The drive to longer-term growth strategies is a lot more difficult when pitting against immediate wins.
“You’re fighting an uphill battle against human nature,” said Agarwal.
Yet while fear can be a motivating factor for inaction, it can also be a motivator for change. There is a real fear of missing out if some businesses are optimizing their pricing and promotions strategies and others are left behind. There is a herd mentality that works, but it works both ways. After decades of trends driving deep discounts in order to keep up with competitors doing the same, once a critical mass of retailers begin to take a smarter approach to discounting, that becomes the new standard.
“There is a mindset shift that needs to occur to be truly data-driven, to have real customer understanding, to make decisions based on that. That is a pretty massive mindset shift for a lot of brands,” said Engel.
Also, beyond fear, there is also a desire for self-improvement. Leaders in the industry want to be innovators, and want to break through those barriers of inertia that keep the old ways of doing business in place.
“I think the other thing that you’re fighting, that is on your side, is the desire to improve yourself; the desire to be better,” said Agarwal. “We’re all living in a different world, I want to be sure that my skills are upskilled. Merchants are seeing this. Merchants are seeing that there are potentially less merchant jobs, so if I’m not as facile with the AI and what’s going on or that I’m just doing [what is] easy, I may not be doing anything.”
As we sit at this inflection point that may define the retail sector for the foreseeable future, now is the time for bold action from the retail and CPG industries. While the pandemic may provide a pretext, and an opportunity to reset, those in the industry with a desire to be at the vanguard of innovation need to work to push the industry forward. Because when champions break the mold of business as usual, it creates a domino effect for the entire industry.