Ken Ouimet, CEO and Founder of Engage3, sat down with Bill Bishop, Chief Architect at Brick Meets Click, at the National Grocers Association (NGA) Show in San Diego to discuss how retailers can compete with hard discounters like Aldi and Lidl. They exchanged views on the critical role of a store’s price image and offer insights about how personalized offers will replace mass market promotions. From custom e-mails to bots and electronic shelf tags, find out how Ken and Bill are envisioning personalization will look like in retail in the next 5-10 years.
Below is the transcript of their conversation.
Ken: A lot of retailers that I talk to, they’re really struggling with competing with Aldi and other hardline retailers. How can a high-low retailer compete on price image with these aggressive discounters?
Bill: Well, I think the first thing to recognize is that price image occurs in the mind of each individual shopper. So a retailer’s got to start thinking about how to change the impression of their prices a shopper at a time. The one way we’ve seen that work so far, and I’m sure there are others, is to take a look at what items are in the ad, identify the items in the ad that are purchased by a particular household, and to call attention to that. When you do that, you’re likely to have a set of prices that are quite a bit lower than what the discounter’s doing with their everyday low prices.
Ken: That’s smart, that’s a smart approach.
Bill: It’s one that’s proven to work and I know that it depends on having really good quality data to be able to know what prices are moving, which prices are important in a market, and to be able to make the assessment and build up to that kind of household by household change in attitude.
Ken: How do the retailers communicate those kinds of offers to the consumer?
Bill: The way that I’ve seen it work the best right now is knowing very few people get a paper today, and those that do, even fewer read it. So what they’ll do today is to take six to ten to twelve advertised items, put them in an email, and use those as the vehicle to communicate the items the consumer should be looking for when they go to the store and of course those prices are superior. So at the same time that they’re advertising item and price, they ought to be saying, “And check out these prices compared to any other place in town.”
Ken: I’m surprised, I didn’t know that email marketing would become that powerful over the newspaper.
Bill: Email marketing is an opt-in strategy that once a consumer trusts and becomes interested in the email, they’re actually running figuratively to the mailbox to open it and see what’s there this week. A lot of fun to watch.
Ken: Do you see the next step in that kind of strategy is to start moving away from mass-market offers and have personalized offers?
Bill: I think you’re going to see fewer and fewer mass market offers because frankly they’re expensive, they appeal under the best of circumstances to maybe 15% of the population or less–any individual mass market offer. And so there’ll probably be fewer of them and more and more will be done individually and as a consequence under the radar, which has some real advantages too.
Ken: Yeah that’d be huge in terms of managing your competitive position. What percentage of consumers with mass market offers, what percentage of consumers do you think change their behavior from the offer, and what percentage did you just give money away to?
Bill: That’s really the $64 question. When you offer a special price, are you changing people’s behavior or are you rewarding the customers? My own feeling is that both are very worthwhile because when you reward your best customers with a good price it’s a retention strategy that’s worth quite a bit to you as well. So I don’t worry nearly as much about it when we’re making those rewards because I think it brings the customers closer to you.
Ken: But what about when the customer doesn’t even see it, aren’t aware that they got a good price? I think of times when I’m in a hurry and I go to the store and I’m buying stuff, and the cashier tells me I just got 25% off something. I wasn’t even aware unless they told me.
Bill: Well, there’s a good opportunity for when the service side of the business comes in. And so if you’re in a hurry, you just pick up the items, and then when you check out the cashier says, “Thank you very much, sir. You saved $2.25 based on the special prices.” At least she’s reinforced the savings going on right there. You may not care even at that point, but the retailer’s taking a shot using the best resource they have to make the point on price reputation.
Ken: When I think of personalization, my belief is that in five to ten years, everything you buy is going to have a personalized offer. And I was just curious what you thought, where do you think personalization is going?
Bill: Personalization, I think, is going to be the big trend that affects grocery retailing over the next five or ten years. Our stores can’t support the mass market proposition, we’ve got out-of-stocks, and we’ve got not enough variety to satisfy customers. So personalized offers, targeted, but we know what people want to buy and we have that product both available and priced appropriately is the way the world is going to go. Now that’ll change the experience of a store, because you probably don’t have to go to the store to take advantage of that, but you’ll need other reasons to go to the store, and there will be other reasons–experience-based.
Ken: What challenges do you see for retailers over the next five years as they move into personalization? What are their biggest challenges?
Bill: Well, the biggest challenge is being able to find a good vehicle for personalization, for delivering that message. I mentioned e-commerce a little while ago, or email as a way to communicate, but one of the things–and I believe we’ve talked about this in the past–there’s probably some degree of discussion between the seller and the buyer as to what’s important and how important it is. I think bots will eventually be a basis for that kind of discussion leading to personalization, [and] they’re not there yet. So the introduction of bots to facilitate will be one thing. I also see that personalization will potentially be delivered right in the aisle on these new digital shelf strips. I mean, they’re going to be amazing, and if we can figure out who you are standing in front of the aisle, we can deliver a personalized price right to you in front of the cookie section or the soft drink section. So, we’re just on the edge and the nice thing about this show is it’s really exposed us to some incredible technology for delivering personalization.
Ken: Do you envision that different consumers will have different prices or it’ll be different discounts with the same shelf price?
Bill: Well, I think what we’re going to see is, today there’s a need to differentiate between the shelf price and the promoted price. And the reason is, the shelf price is on the shelf and the promoted price is when it’s on sale. When we get into a highly personalized world, the shelf isn’t going to be as relevant. So I think it’s going to be a combination of discounts or lower prices. I mean at the end of the day, the retailer wants to price–[to] change your behavior or hold your behavior without spending any more markdown dollars than they need to. And so whether that’s a discount or whether it’s a lower price, I’m not sure.
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Part 2 of this video will be posted in the next issue of the Engage3 newsletter, Pricing Trends. Subscribe here.