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Electronic Price Tags promise an exciting future for RGM

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Author: Peter Chapman

Electronic Price Tags promise an exciting future for RGM

I had a glimpse into the future yesterday – in the Asda at Stevenage.  I know, I never thought I’d say that either – but they’ve recently installed electronic shelf labels (or ESL’s) to most of their lines in the largest UK trial of this technology to date.  There are many benefits to ESL’s but so far they’ve not been deployed at scale in the UK Grocery market.  When this happens, it will revolutionise the ability to manage price instore, and by extension the ability to manage revenue growth.  Are you ready for this?

First – a little context on ESL’s, as they’ve been in grocery stores in European supermarkets for decades now and are increasingly used in the UK in fashion and discount stores.  They have many benefits over paper tags – the main one being the ability to change price centrally across an entire store estate within minutes.  This brings physical store pricing in line with online pricing where this happens already, and with central control comes the opportunity for AI as well.  There’s a small environmental benefit through less use of paper – so the only barrier for UK grocers until now is simply the huge one-off Capex bill.  But as ESL costs decline, online competition heats up and pricing management becomes ever more important, it is surely not long now before one – and then all – UK grocers roll this out. 

And when ESL’s are rolled out – it will revolutionise Revenue Management.

We’ve identified 4 primary areas of opportunity:

1. Pricing to Drive Sales

The key benefits here are the speed, frequency and store-level tweaking opportunities that ESL’s can offer to manage shelf prices.  Most products will have an increased ability to drive profitable sales:

  • Price Optimisation – the ability to measure price elasticity accurately will enable brands to reach optimal pricing by product far quicker than today
  • Price by Occasion – whether it’s chocolates for Mother’s Day, honey for Pancake day or beer and crisps for a World Cup weekend, occasion-based pricing will become the new normal
  • Price by Format – higher prices in smaller stores are not new, but ESL’s will enable a far more sophisticated set of price tiers than is possible today
  • Price by Demographic – will the locals in Kensington pay more than those in Tower Hamlets? Quite possibly yes for many categories – and this can now be exploited
  • Cross-the Street Pricing – retailers will exploit KPI prices to match or beat competitive stores on an increasingly frequent, local and time-sensitive basis

2. Promotion Enhancement

There are two clear opportunities on promotions:

  • Flash sales – 24-hour or 6-hour deals are common online, but historically have been virtually impossible to implement instore.  Not any more.
  • Discount optimisation during the event – price will increase or decrease to manage consumer demand, especially for new or short-stocked products

3. Supply Chain Optimisation

Less visible for shoppers – but greater flexibility on pricing will lead to much improved stock control in three specific areas. 

  • On Shelf Availability – pricing can be flexed to minimise OOS.  You want the last bottle of Bailey’s in the store?  It’s going to cost you…
  • Promotion stock management – too much stock, and the price drops to stimulate demand; too little and it gently rises to make the most of what’s left
  • Out of Date management – specifically for bakery, dairy, and fresh - ESL’s have the potential to drastically reduce wastage by temporarily reducing pricing until those ‘ready to eat now’ products have gone. 

4. Shelf Price Data exploitation. 

The connectivity of ESL’s will drive a new revenue stream for retailers to sell their historic Shelf Price data by store, by product, and by the minute.  Finally, suppliers will have a reliable and comprehensive source of shelf price data – although it’s scale means it will need careful management to be valuable.

 

These opportunities sound inspiring, but we’ve also identified some of the bigger challenges:  

  1. Managing Price Guideline Priorities – you’re overstocked, so the system wants to decrease pricing, but it’s nearing a peak consumption period when you can afford to price up.  Which one takes priority? The hierarchy of price influences need careful consideration
  2. Balancing Human and AI ownership – the multitude of commercial considerations for pricing make it difficult for AI to own this completely. Getting the right balance is critical to make the most of AI functionality
  3. Turning data lakes into insight – there will be millions of data points, so the challenge will be to find the nuggets of actionable insight
  4. Upgrading RGM Capability – the next generation of the RGM team will not be staffed by sales people ‘who can do excel’, but by data scientists with a good commercial understanding.  Getting the right capabilities will be crucial
  5. Upgrading RGM Tools and Systems – the increase in data quantity and speed of decision making means many businesses will need to upgrade their systems , if they want to exploit this as a competitive advantage

Now there are plenty of short-term challenges to be overcome in the next year or two before this becomes a reality, so you have some time to prepare.  But the future-thinking brands will prepare ahead of time by ensuring their core capabilities are strong:

  1. Principle-based, and insight-led Price Strategy
  2. Robust Promotion strategy, based on clear understanding of demand levers
  3.  Tools, Systems and Capability that are flexible for future change
  4. Strong and collaborative Customer Relationships

If you’d like to discuss how Sellex can help you with your core capabilities now or plan for an exciting RGM future, please contact us using the button below.

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