Retailers are trying to balance discount offers that both meet customer expectations and maintain a profit margin, but according to statistics from Blue Yonder’s international consumer survey with Retail Week Connect, the customers have different demands.
In the research, some 79% of global shoppers say they are disappointed when their desired discounted item has sold out, while over half feel let down when the colour they want is not available in the sale. So, right away retailers are hurting their brands.
Another concerning statistic shows that a huge 81% of shoppers are disappointed by their size not being available at the discounted rate, so the reduction in prices has unintended consequences – namely, unhappy customers.
Today’s shoppers do want discounts, but they want these deals on their own terms with full availability of their preferred range, colours and size. And in today’s competitive retail environment, there are so many alternatives for disappointed customers who decide to take their business elsewhere.
How did retailers get here?
It’s no secret that retailers’ margins have been squeezed in recent years, with necessary investment in technology, rising business rates and the high cost of property among the financial headwinds taking their toll. Many businesses have also found themselves in an inescapable cycle of superfluous discounting as a result.
Pricing is a competitive weapon for all retailers as a way to claw back margin, but getting it wrong can turn off customers and damage their bottom lines.
Offering a compelling proposition before any discounting strategy begins is key to connecting with shoppers. Although discounts and end-of-season sales drive a high number of fashion purchases, shoppers will part with their money for full-price goods and 34% make a purchase simply because they like an item, regardless of cost.
There are some retailers that already understand consumer behaviour and are adapting their model based on these insights. OTTO, for example, is using Blue Yonder’s Price Optimization solution to measure the connection between price changes and demand patterns. Based on the results, OTTO can automatically determine sales-increasing or profit-increasing prices throughout the entire lifecycle of each and every product, for every season.
Optimizing pricing makes business sense
The prize for getting pricing correct is significant. Our Price Optimization solution, powered by Artificial Intelligence (AI), has helped fashion retailers improve profits by 5% and increase revenue by up to 15%.
The solution measures the relationship between price changes, customer demand and a retailer’s business strategy. Sales, competitor and other data is fed in, learned and automated into operational systems, allowing organisations to make key merchandising decisions based on facts.
Most of the models the technology industry has used in the past to calculate the impact of external factors on price elasticity are either not rolled out or simply just don’t work. They are not sophisticated enough and can’t respond quickly enough, but AI is changing the landscape.
Whether it is matching customer demand to the most relevant price points across all ranges, or helping retailers sell more at the price which yields the highest profit, the AI model’s power lies in its ability to learn, adapt and respond to market dynamics automatically.
Shoppers have developed their own strategies around what they are willing to pay, and retailers need to closely monitor what those behaviours are – and fast – while ensuring any pricing strategy they adopt does not have a negative impact on business growth.
To find out more about what consumers want from fashion retailers, download Blue Yonder’s new report with Retail Week Connect – Inside the Mind of the Fashion Consumer: 4 global insights that prove smarter pricing means higher profits.