Will personalized pricing ever make it to brick & mortar stores?
Through a special arrangement, what follows is a summary of an article from COLLOQUY, provider of loyalty-marketing publishing, education and research since 1990.
I doubt we’ll reach a point in the near- or medium-term future when grocers will deploy personalized pricing at the point-of-sale for every item to each customer. The risk of a public protest would be just too great.
But the technology is there and the strategy is in practice — in fact it pretty much copies the targeted-offer tactic that Amazon.com has made an art of delivering.
So how can personalized pricing information capture as much value for the customer as well as the retailer while minimizing the potential risks? The answer exists, in part, in past practices.
While not exactly personalized, coupons have been made available to some customers and not others for years. And digital coupons are making this process more widespread and personalized.
Source: Apple App Store
Safeway’s Just for U loyalty program gained significant personalization ground in 2012 with the addition of smartphone apps, which generate personalized digital coupons conveniently available to use at the point of purchase.
Just for U identifies products that particular customers like and then offers "Thank You" coupons for those products. These potential products can extend to items the customer likes as a result of affinities (bananas and cereal; soy milk and veggie burgers) or as a result of like-customer analysis (gauging similarities and differences in purchases among comparable shoppers).
In any case, the digital coupons persuade the customer to add new items to her basket. The upside potential of customers responding favorably to such technology is material, particularly with many mobile phone users indicating they’re open to receiving promotions, specials or coupons.
Another factor that will play an important role is online ordering. When a shopper orders groceries online, he or she signs in to the grocer’s website, at which point the retailer knows exactly who the customer is. Leveraging personalized pricing in this shopping context is much easier from a technology perspective. Anyone who has shopped on Amazon.com has likely seen the text "customers who bought this item also bought these other items." Layering in personalized pricing as part of this process is relatively straightforward.
The vision of personalized pricing making shelf prices irrelevant, as outlined by former Safeway CEO Steve Burd in 2013, may be way off into the future. But if retailers approach personalized pricing in an insight-informed and systematic way, I’d wager its presence might graduate to prevalence in the next few years.
Discussion Questions
Do you see digital coupons and online ordering paving the way to more personalized pricing options for retailers? Can retailers portray tailored pricing approaches as a benefit without being accused of unfairness?
Poll
BrainTrust
Ken Lonyai
Consultant, Strategist, Tech Innovator, UX Evangelist
Pricing/discount strategy is tricky enough before it gets personalized to individual users. If such a system rolls out it will be very difficult to manage fairly, particularly for retailers that have a huge number of SKUs from differing types of vendors. More risky in an age of mobile and social media is the potential for shoppers to learn that they are not receiving the same discounts as peers and to, rightly or wrongly, feel that they are being neglected or discriminated against. The potential mess might outweigh the benefits.
Technology advancements will assuredly allow retailers to capture micro-targeted audiences, even as we speak. There are some great pilot projects in partnership with some CPG brands that are breaking through some traditional barriers.
Once again, this smells of technology looking for an application. I have no quarrel with digital coupons (or real coupons) delivered to participating customers or online ordering suggestions (a la Amazon). But I’d walk away from a chain that charges less to the person next to me in line because of what they’d bought before.
Retailers can incentivize customers to make purchases and can reward them for doing so, but showing different prices for the same product at the register would lead to customer complaints. Retailers who use the incentive and reward approach need to be careful not to alienate consumers, as the backlash may be fierce.
Consumers are wise to retail pricing tactics, which is why traditional grocery has seen its share of market decline. Stores like Aldi, Trader Joe’s and Costco who offer low prices without loyalty program gimmicks are seeing their share of market grow. This is not a coincidence.
This sounds compelling but the fairness issue is very real as is the concept of managing pricing on thousands of SKUs in real time. On a continuum of prioritization, I suspect most grocers and their suppliers should first focus on developing and leveraging a jointly developed understanding of consumers and their purchase paths to inform more relevant promotions, content and an overall more satisfying shopping experience. With that in hand, layering in price variability on a shopper-by-shopper basis at the point of sale would probably be more favorably received.
Attorneys general in many states already pay close attention to the accuracy of UPC scanning vs. shelf pricing and sale signs. It’s in the interest of fairness, and it would be hard for any retailer to develop a systemic “workaround.” There are already plenty of ways (in terms of loyalty cards, bounceback coupons and the like) to manage price differentiation without inviting legal scrutiny or bad publicity.
Again with the personalized pricing options. How about giving all your customers a great deal on all the bargains you bring into your stores? Am I skeptical? Yes, but there is nothing wrong with reaching out to specific loyal customer and offering them a deal on certain things they prefer, especially if it is a top quality perishable item.
Churches and organizations also get special deals for their dinners and events, and this goes on everywhere that I know of. But it is a slippery slope playing games with price, as it could cause some uproar in a small community like mine. I think again that as an owner I want all my customers talking up the great deals they get to their friends and getting them to stop in for the same deal at the same price. Win-win for the store that does this.
I think CVS does a great job of personalizing coupons but this is really the only way I see tailored pricing working. It is such a complicated field and the risk of offending shoppers and causing a PR nightmare is too great.
Most retail channels have their hands full just getting mass pricing correct without adding the complexities of pricing at the individual level. Certainly technology is enabling different levels of “investment” in various customers via coupons, special discounts and other cost containment vehicles.
However, retailers are reliant upon pricing being the driving force behind predictive margin results which then drive EBITDA. When more variables are introduced into pricing the result is (at least in the short run) less predictable outcomes, especially in an offline (physical store) environment. As we all know, retailers do not like unpredictable outcomes.
Online, where the numbers are smaller (albeit growing), there is a better opportunity to deliver personalized pricing. It can be done more stealthy so that shoppers are not in open competition for better pricing (which can be a disaster) and price changes and offers are much more conducive to fluidity.
In the online world, much can be learned by experimenting with individual pricing before any such effort is attempted in the offline (physical store) world — one more really good reason for retailers to develop an online presence.
Just this week a RetailWire discussion revealed 85 percent of shoppers use coupons to buy the same stuff and digital is ineffective in getting shoppers to switch, so I don’t see how one can say it gets them to add new items to the basket.
Personalized pricing I predict would add zip to basket and worse, increase a flood of social media rants as shoppers discover the practice.
It’s not so much about fairness as it is about integrity.
During a lecture way back in graduate school I heard the renowned Canadian philosopher Marshall McLuhan (The Medium is the Message) say that “You can’t preach the gospel over a microphone.” The point being the medium and the message don’t match.
The same is true for technology-based “personalization” of ads, pricing, etc. Automated personalization is an oxymoron.
That’s not to say you can’t use technology to send coupons I might use, but it’s not “personal.” A Safeway Just-for-you (and 10 million others) special on bananas isn’t any more personal than buying your wife a vacuum for your anniversary. Sure it’s useful, but really.
My plea is we drop this facade of “personalization” since it’s becoming a way to justify a relentless flood of coupons to our inboxes and mailboxes. And it doesn’t ever stop. Call it what it is. Discount coupons, no more and no less.
A year ago I searched for a specific piece of hardware on Amazon and got what I wanted. Weekly if not more often I still get promotional pieces for that same item though I will never need one again for the rest of my life. I’m sure Amazon sees that as “personalization.”
Send coupons any way you want, but I don’t think the problem has ever been that we don’t have enough ways to deliver a coupon.
As for personalized pricing — why? Why do you want to make some customers happy and others hate you? A high-tech automated way to annoy some customers may be more efficient than doing it the old-fashioned way, but that isn’t exactly the objective.
I definitely believe consumers would be upset if they see other shoppers getting personalized discounts for similar items as them, but it goes both ways. Shoppers would love personalized coupons for themselves as well. Studies have shown that nearly 60% of shoppers want real time promotions and offers. I think the biggest problem facing retailers is that 90% of consumers would limit the access to certain types of data. Basically, they want personalization, they’re just wary of offering the necessary data. As long as all shoppers get different personalizations, I do not see unfairness. If anything, I believe that retailers should use personalization as a way to incentivize loyalty.