Recently, retailers across the spectrum from grocery and drug to specialty and apparel have announced their intention to lower prices across various categories. At first glance, this trend appears to be a direct response to consumer pressures related to discretionary income. And recent bouts of inflation. While these are undoubtedly factors in this trend, there are several other underlying reasons worth considering.
The New Shopping Consumer
The shopping consumer has changed dramatically over the past four years, influenced heavily by the COVID pandemic. There is a growing sense of retail fatigue, where consumers prioritize convenience, price and in some cases mediocrity over unique and innovative products. This shift in consumer behavior could be driving retailers to focus more on price competitiveness rather than enhancing the consumers overall shopping experience.
The Role of Customer Experience
Customer experience has always been a vital component of retail success. However, if price becomes the ultimate deciding factor, the importance of customer experience could diminish. The rise of e-commerce, curbside pickup and last-mile micro-fulfillment suggests a broad shift towards convenience-driven shopping experiences. The once-prominent concept of the "Store of the Future" is being overshadowed by the need to manage lower margins, reduce shrink, increase market foot traffic and retain customer loyalty in a highly competitive environment.
Product Differentiation vs. Supply Chain Recovery
Another critical factor is the impact of the post-COVID recovery on supply chains and manufacturing. Product differentiation took a back seat as many companies focus on stabilizing their supply chains and manufacturing processes. The pandemic disrupted labor availability and consistency, leading to challenges in sourcing and production. In this context, maintaining a stable supply chain and improving in-stock positions might overshadow the pursuit of unique and differentiated products.
The Elusive Consumer Trend
Retailers might be grappling with a lack of clear consumer trends to anchor their strategies. There has long been a retail battle between hi-low and every-day-low pricing strategies, but hybrids of the two are now predominant. Without a significant trend to follow, market share becomes the key focus. In the absence of a clear direction from consumers, retailers may prioritize capturing and retaining market share through price reductions and promotions rather than investing in innovation and differentiation.
The Shift Away from Innovation
One potential explanation is that retailers have lost their focus on innovation. In the past, innovation was a cornerstone of retail success, driving product differentiation and attracting consumers looking for the latest and greatest. However, there’s a shift where innovation is no longer seen as a priority. This raises the question: Are retailers neglecting the importance of leading from the front or being complacent focused on the fight for commodity sales.
Dominance of Retail Giants
The growing dominance of retail giants like Walmart, Amazon, Target and Costco cannot be ignored. These juggernauts set the tone for pricing, often forcing smaller retailers to follow suit. The competitive pressure from these major players makes it challenging for others to maintain their margins while trying to keep up with the aggressive pricing strategies. Innovation and differentiation might seem less critical when the immediate battle is about pricing and survival.
Many of these explanations for lowering prices may prove to be extremely shortsighted, with a few that run counter to the base go-to-market strategies of the companies following them. Retailers are navigating a complex landscape where maintaining competitiveness requires a delicate balance between price, innovation and customer satisfaction. Pushing their business model too far in a new direction or carelessly reacting to perceived trends can result in the retailer’s being unable to return from a bad decision, which in today’s dynamic marketplace could quickly lead to lost sales, diminished brand and lost customers.
We will unpack where retailers and brands should invest for customer loyalty and increased market share in a future “leadership” article.
SPAR Group experts help retailers and brands turn their pricing, in-store merchandising and promotional challenges into opportunities every day. Contact us HERE to find out how.
