I love to drive racecars. And one thing that I’ve learned is that when you are driving at 150 mph, you need data inputs faster so you can adapt and make smart, quick decisions. If not, you can make a mistake, and it can actually be pretty catastrophic.
In this uncertain environment, retailers are driving a version of a racecar. Theirs is headed onto an unfamiliar road where everything they have ever known, every process and model they have ever used, is no longer relevant. The past is no longer useful and there are no historical indicators to reference.
Right now, the vast majority of retailers and brands are not equipped with the data inputs they need to make smart decisions in real-time, particularly on pricing… and many are looking too hard and too long in their rearview mirror.
We are seeing the outcomes of that as more and more retailers and brands file for bankruptcy.
Why and what do they need to do TODAY?
Retailers have been groomed for decades or longer to rely upon the tried-and-true seasonal templates for insights into consumer preferences on styles, price points, spending appetite, and discounts.
With uncertainty permeating everything from stimulus and unemployment checks, to the course and duration of the pandemic, to election outcomes…
Retailers cannot rely on what they learned even moments before about consumer sentiment, because it could literally shift on a dime.
As an example, as we saw in a recent story by Marketwatch, “shoppers can usually count on this time of year for end-of-summer deals and back-to-school promotions, but the coronavirus pandemic has thrown the retail calendar out of whack…”
But most retailers simply are not getting this. Not even a little. You still flip on the TV or see the ads come across your feeds, and it’s like a time warp, 1985. While retailers have taken a more somber tone, they are still very clearly promoting back-to-school shopping and discounts in the same old way, even as cities like New York show more than a quarter (264,000) of students in that city alone will be doing school fully remote. Likewise, with everyone predicting a continued fall in apparel sales because of this, retailers are still using discounts and sales rather than aligning with what students actually need in the new environment.
I came across this opinion piece which goes so far as to call advertisers “tone deaf,” and notes that parents aren’t interested in buying backpacks and stocking up on back to school supplies. They’re shopping for hand sanitizer and masks that fit their kids.
We found in our own latest research that 52% of consumers we asked aren’t buying back to school at all. And discounting practices which once lured consumers in-store for deals aren’t working, as the majority of people are still afraid to shop in-store.
So, what can retailers do when the world is so fluid and past indicators are no longer relevant?
How about asking your customers what they need, and often?
Few retailers have mastered this like Walmart
I could argue that most consumers feel like they are driving in a speeding car into the unknown and the purchases they are focused on are mostly solving for immediate needs based on a moment in time. Simultaneously, they are facing financial unknowns, hardships and disruption.
Which means that elasticity of demand is in constant and continual motion. Consider the price of a bottle of water and what a consumer might spend for it on an average day. Now consider what that consumer might pay for that same bottle of water if they were in a desert and hadn’t had a drink for several days. Would they really need a discount?
Retailers who are busy looking at past purchase behavior are not considering the current environment.
I’m not saying that retailers should take advantage of consumer needs by jacking up prices, but they need to better understand what consumers are willing to pay, and not offer unnecessary discounts that leave money on the table. The only way to get a real signal on pricing is by understanding customers’ perspective on what their needs are in the short term.
The price elasticity of apparel has become massively apparent due to the pandemic. For example, right now, apparel is so elastic, unless it is need-based and there is a high desire, pricing is hard to figure out unless you ask your customers.
As we look ahead, it is imperative that retailers break the bad habit, even addiction, of the old ways that things have been done and get ready to live in the present.
When an environment is moving and changing so fast, you have to adapt. The way to do that is by employing mechanisms that feed information to you constantly. Right now, speed is the key differentiator and real-time consumer data is critical. It’s like air.
Retailers must use this information to close the gap and construct a new pricing model that incorporates fresh data, provides insight into what consumers need and how much they are willing to spend. And it must be delivered quickly and reevaluated often so products and pricing can be adjusted in a fluid and dynamic way. Relying upon seasonal models to steer the racecar is not just outdated. It’s a death wish.