Consumers may be getting sticker shock at the rapidly changing prices of groceries and other items.
Mark Twain once famously said that if you don’t like the weather in New England, wait a minute.
Consumers may have a similar feeling when they run into rapidly changing prices of groceries and other items.
Retailers are using such methods as electronic price tags, which makes it easier to change the prices of items, and dynamic pricing, which allows for the automated adjustment of prices.
They cite such factor as rising labor and shipping costs and continuing shortages associated with the Covid-19 pandemic as reasons for employing these methods.
The strategy has been used by such large retailers as Amazon (AMZN) – Get Amazon.com, Inc. Report and Walmart (WMT) – Get Walmart Inc. Report for years to remain competitive with peers while protecting their margins.
Quicklizard Ltd., a company that sells software to help retailers automate their pricing strategies, said 75% of the roughly 100 retailers on its platform have increased how frequently they update prices in the past year, with nearly a third changing prices several times a day, up from 15% a year ago, the Wall Street Journal reported.
In a posting on the company’s website, Pini Mandel, co-founder and CEO, said “retailers must utilize pricing techniques to attract customers in a highly competitive environment.”
‘The Retail Landscape of the Future’
“Unlike traditional pricing techniques (such as cost-plus pricing, value-based pricing, and inventory-sensitive pricing), dynamic pricing and optimization allow merchants to create more complicated pricing strategies that align and support the company goals,” Mandel said.
The consulting firm McKinsey & Co. said in a report last year that dynamic pricing “is poised to become one of the core capabilities that sets winners apart in the retail landscape of the future.”
“It’s a staple of the travel industry: dynamic pricing is the norm for airline tickets, hotel rooms, and ride-sharing services,”the report said. “In e-commerce, Amazon has long been a leader in dynamic pricing; the company reprices millions of items as frequently as every few minutes”
But dynamic pricing isn’t just for travel companies or e-commerce giants, the McKinsey report said, nor does it necessarily require ultra-sophisticated software that changes every product’s price multiple times a day.
“Even traditional retailers can reap tremendous benefits from merchant-informed, data-driven algorithms that recommend price changes for selected products at some level of frequency,” the report said.
The report warned retailers that they should not insult their customers with haphazard pricing.
“Your prices shouldn’t fluctuate so dramatically that they confuse and alienate customers,” McKinsey said. “If customers perceive price changes as random, unfair, or disconnected from your value proposition, they’ll simply shop elsewhere.”
