Other than in support of a sale or promotion, retailers are generally reluctant to change prices randomly because of the potential for adverse customer reaction. In addition, most lack the ability to quickly change prices on the shelf in response to changing conditions. Furthermore, variable pricing requires the coordination of various operations, such as ensuring that the correct merchandise is on hand and in place, and changing related signage in the products’ vicinity. As stores continue to digitalize, and in-store price comparison-shopping continues to exert pressure on retailers, variable pricing will become a retail reality as it has in the airline and hotel industries. Key to such a strategy is digital signage that can quickly respond to changing merchandise placement and prices.
Variable pricing (VP) can be defined as a strategy by which prices change based on location, current demand, weather, competitor pricing (including online) and inventory levels and age amongst other factors. For example, the transportation service Uber uses dynamic pricing to raise prices during periods of peak demand. Another example is raising the price of select merchandise based on customer demographics. MGM Resorts International in Las Vegas, for instance, reports that it will raise prices on beer and cigarettes when a NASCAR convention is in town while it raises the price of healthy snacks when customers in its hotel properties are attending a bicycle convention.
VP will become more common as more retailers adopt digital signage that can instantly change displayed prices, adjust to merchandise placement on the shelf (as verified by RFID) and display promotional messages (further enhanced by mobile device interaction that can, for example, play a related how-to video). Prices will then adjust based on demand, inventory levels, competitor pricing, etc. For example, if local weather conditions are forecasting extremely hot temperatures, a retailer with excess bottled water inventory may choose to lower prices to quickly reduce stock. On the other hand, if store traffic is strong and sales of water are steady, they may determine to raise prices. Another example is if a grocer finds that certain meat or produce items are getting close to expiration (as determined by IoT device tagging). In that scenario, price reductions may stimulate demand and avoid the prospect of markdowns and the disposal of expired items.
According to John Lamb, Vice President of Marketing at Elo, “Stores across the globe are deploying interactive digital signage as a complement to the store associate for a multitude of uses including self-checkout, promoting product features, cross-selling and dynamically promoting seasonal merchandise. Incorporating a variable pricing model can allow stores to quickly quantify a product’s ideal price point, minimizing stock-outs or stock surplus.”
Central to the success of a VP strategy is the analytics behind which price changes are communicated to a digital screen. Data that correlates relationships between consumers (loyalty, traffic, demographic, etc.), inventory and POS systems needs to be coordinated. Consideration also needs to be given to the fact that consumers may need time to adjust to VP. Thus, a digitally advanced retailer may want to slowly introduce the concept to loyalty card-holders, app users, etc. Ultimately, as consumers become better-informed shoppers, retailers will need to respond more actively on pricing.
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 A variation on this theme is to have customers bid for products based on price, with the retailer responding with its acceptance/rejection of the price proposed.