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Pricing is one of the most crucial factors influencing the buying decisions of today’s budget-conscious customers.
According to PwC, for 60% of consumers, price is the number one reason they buy anything.
Whether you run a small, mid-sized, or multinational CPG company, how much you charge for your products can make or break your business.
Therefore, it's critical for you to set the right price for your products to get the most out of every sale.
But identifying and setting the right retail pricing takes a lot of analysis and understanding the pulse of your customer.
You have to optimize your pricing strategy to find the most effective pricing point.
From product price, display, location, and promotion to competing pricing and consumer demand, you need to consider a range of factors in a retail store.
The perfect orchestration of these factors helps you navigate the complexities of the market, stay competitive, meet your customers' expectations, and maximize profitability.
Read on to learn more about retail price optimization, see the need for real-time product pricing, and discover the role of image recognition technology in tracking product pricing compliance.
Determining the Right Pricing - Challenges and Influencing Factors
Despite advancements in recent years to better manage pricing, many CPG companies still face several challenges when it comes to retail pricing.
One big challenge is the Global Inflation and Declining Real Wages that have plunged consumers into a cost-of-living crisis.
Among advanced G20 nations, inflation is consistently rising, leading consumers in many countries to believe that their own country is already experiencing a recession. They also anticipate that inflation, which reached its highest levels in 40 years in major economies in 2022, will stay high for the next two years.
Another significant reason is the Changing Buying Behavior of Customers. They are looking for promotions, shopping online for better prices, making fewer trips to physical stores, and cutting back on leisure spending.
Lastly, A Lack of Retail Store Insight and Real-time Visibility is a crucial issue. Since many CPG brands have a poor understanding of real-time in-store data analytics and have siloed data systems, they can’t make data-driven decisions on retail pricing.
They often lack accurate data on competitor pricing, customer responses, and sales promotions in the retail environment. With this information, they can set competitive prices for their products on store shelves.
CPG companies need to adjust quickly and empower their sales staff with tools and technologies for faster pricing and promotion decisions, all while maintaining profitability and gaining better organizational insights.
Factors Influencing Retail Pricing
Some common factors make pricing a complex puzzle for CPG brands. They must carefully balance all these considerations to set a price that both attracts customers and ensures profitability.
1. Cost of Production: CPG companies need to cover the costs of making their products. This includes raw materials, labor, packaging, and other expenses. If these costs go up, it might push the retail price higher.
2. Competition: Other brands selling similar products also affect pricing. Companies might lower prices to attract more customers if there are many comparable options. On the other hand, if a product is unique or in high demand, they might raise prices.
3. Consumer Demand: Understanding what customers are willing to pay is crucial. If a product is very popular, companies might increase the price because people are willing to pay more. But if demand is low, they might have to lower prices to sell more.
4. Brand Image: Some brands are known for being high-end or luxury so they can charge more for their products. Others might focus on being affordable, so they keep prices lower.
5. Distribution Costs: Getting products to stores costs money. If a company has to ship products long distances or if they use special packaging, it can increase the price.
6. Retailer Markup: Retailers also play a role. They add their own markup to the products they sell. Sometimes, they might negotiate with the CPG brands for lower wholesale prices, allowing them to sell at a lower retail price.
7. Promotions and Discounts: Companies often sell or offer coupons to attract customers. These discounts can affect the final price consumers pay.
8. Economic Factors: The overall economy can impact pricing too. In times of inflation or recession, companies might adjust prices to stay competitive or maintain profit margins.
What is Retail Price Optimization?
Retail price optimization is the process of using data analysis to understand how your customers will react to different pricing strategies for your company’s products in a retail store.
Price optimization allows CPG brands to make informed decisions by analyzing various factors such as customer & sales data, competitor pricing, operational costs, promotions, market trends, and more.
The goal of retail pricing optimization is to identify the best price point for any given product at any given location that will attract customers, maximize sales, and boost profits.
This often involves using advanced analytics and data-driven techniques to forecast demand, understand customer behavior, and identify pricing strategies that will enable you to find the perfect balance between various KPIs and differing price stages (initial, promotional, and discounted price)
Benefits of Price Optimization in Retail
1. Address price gaps: With retail price optimization, CPG brands can quickly see how changes in factors like current prices, sales margins, inventory levels, competitor pricing, and promotions impact their revenues. This helps them adjust real-time prices to meet their goals and boost sales.
2. Cater to Customer Behavior: Price optimization tools allow CPG brands to forecast how customers will respond to different price points. Using data analytics and algorithms, they can tailor prices to specific customer groups, maximizing revenue while keeping customers happy.
3. Reduce pricing errors and ensure compliance: Price optimization solutions automate the pricing process, reducing the chance of errors and ensuring that pricing decisions are based on accurate data. This removes the need for manual predictions and adjustments, saving time and resources.
4. React to Market Changes Faster: With price optimization, CPG brands can respond swiftly to shifts in the market by analyzing purchasing trends and adjusting prices accordingly. Modern technology, such as image recognition software, allows for immediate updates to pricing structures, helping businesses stay competitive.
5. Maximize Profitability, offer attractive offers and discounts: CPG brands can find the right balance between maximizing profits and satisfying customers by leveraging analytics and market data. Aligning prices with customer expectations enhances satisfaction, loyalty, and trust, driving overall success in the market.
Why Retail Price Optimization is a Strategic Priority Post-Pandemic
Since the pandemic in 2020, there have been significant changes in the global retail landscape. One major aspect profoundly affected is retail pricing, mainly due to shifts in consumer behavior and market dynamics.
A notable change is the substantial increase in online shopping, as people preferred staying home for their purchases. This shift in shopping habits has influenced demand for various products and categories.
Besides, there has been a heightened sensitivity to prices, along with disruptions in the supply chain and changes in spending priorities. These factors have posed challenges for CPG brands in setting and maintaining optimal retail prices.
Consequently, CPG brands have felt the pressure to analyze customer data, review their product assortments, and adjust pricing strategies to stay competitive.
Why is this a strategic priority?
Because CPG brands need to adapt to the current shopping trends and ensure that their prices align with customer preferences. Additionally, they aim to recover from any financial losses incurred during the pandemic and remain ahead in a highly competitive market.
From traditional pricing optimization to cost-based pricing to competitive pricing, today several different retail pricing optimization techniques are available to you. But one of the most effective strategies you can use is real-time data to decide prices.
Accelerated technology adoption post-pandemic underscores the importance of investing in advanced pricing solutions to stay ahead in a rapidly evolving retail landscape.
Explore below to learn how real-time data on product pricing helps you make informed pricing decisions and successfully navigate the post-pandemic market's complexities.
Need For Real-Time Data on Product Pricing
Real-time rate optimization has long been seen as fiction – but not anymore.
Using AI-powered retail price optimization, you can automatically collect and analyze various insights such as retail store shelf displays, competitor pricing, customer behavior, sales promotion, and more.
Eventually, you can set the right price for your products to meet customers' readiness to pay and maximize profits.
Here are some top reasons for real-time retail price optimization:
1. Mapping Product Demand: Real-time data allows you to assess fluctuating product demand accurately. By understanding current trends and consumer preferences, you can adjust prices accordingly to meet customer needs and maximize sales.
2. Tracking Competitor Pricing: Monitoring competitor pricing, promotions, discounts, and offers in real-time provides valuable insights to stay competitive. You can adjust your pricing strategies to attract customers and maintain profitability by staying informed about market trends.
3.Planning Effective Product Launches: By mapping product demand and analyzing market dynamics and consumer behavior in real-time, you can optimize pricing strategies to generate excitement and drive sales during product launches.
4.Determining Sell Capacity Accurately: Understanding sell capacity is crucial for CPG brands to optimize inventory management and pricing strategies. Real-time data allows you to accurately evaluate sell capacity, ensuring that prices are set at levels that maximize revenue while minimizing excess inventory or stockouts.
Role of Image Recognition in Tracking Product Pricing Compliance
Manual retail store audits are often inefficient and prone to errors, with error rates sometimes surpassing 20%. However, image recognition technology allows you to streamline audits by obtaining reliable and accurate real-time information.
Moreover, the insights obtained through image recognition software can help monitor sales patterns. CPG brands can strategically boost the sales of key products by placing them closer to buyers, leveraging data on the performance of various brands and product types.
Here's how image recognition contributes to tracking product pricing compliance:
Automated Data Collection
With image-captured in-store features, image recognition technology enables you to automate the pricing data collection process.
You don’t need manual data entry to collect any internal or external store insights. This will help you reduce errors and get accurate and up-to-date pricing information.
Real-Time Monitoring
By continuously scanning images of products and their price tags, image recognition allows you to monitor pricing compliance in real-time.
You can easily identify and address discrepancies or violations and maintain pricing consistency across different locations and channels.
Identification of Price Changes
Image recognition algorithms can detect changes in product pricing displayed in images, even subtle variations such as discounts, promotions, or incorrect pricing labels.
This enables you to identify price updates and ensure pricing policy compliance quickly.
Competitor Analysis
You can also use this cutting-edge technology to monitor your competitor's pricing strategies.
With image recognition software, you can analyze product images and compare prices across different retailers or online platforms. This provides you with valuable insights into market trends and competitive pricing practices.
Enhanced Compliance Enforcement
By leveraging image recognition for tracking product pricing tag compliance, you can enforce pricing policies more effectively.
You can spot pricing mistakes, fix them, and make sure everyone follows the pricing guidelines across the entire supply chain.
How Shelf Watch Can Help CPGs In Optimizing Product Prices
ShelfWatch by Paralleldots, leveraging advanced AI-driven image recognition and price detection technology, offers a comprehensive solution for Consumer Packaged Goods (CPG) companies to optimize product prices effectively.
Here's how ShelfWatch can aid CPGs in optimizing product prices:
- Automated Shelf Monitoring: ShelfWatch leverages image recognition technology to detect and identify SKUs on store shelves automatically. This ensures accurate and real-time visibility into the entire product assortment, allowing CPGs to monitor product availability and placement efficiently.
- Price Detection and Analysis: The AI and AR-powered solution excels in price detection by following a systematic process. It identifies all SKUs in the picture, detects shelves, and then recognizes price displays. Through Optical Character Recognition (OCR), it comprehends the meaning of the price, attributing it to specific products. This process allows CPGs to gain granular insights into pricing strategies across different locations.
- Competitor Price Benchmarking: ShelfWatch goes beyond individual price points by providing a holistic view of the competitive landscape. It utilizes AI algorithms to analyze competitor pricing, enabling CPG brands to benchmark their prices against industry peers. This information is crucial for making informed pricing decisions and staying competitive in the market.
- Proactive Recommendations: ShelfWatch proactively recommends per-store sales, product offers, and competitive pricing. By considering factors such as competitor pricing, customer response, and sales promotions, ShelfWatch empowers CPGs to make data-driven decisions for optimizing product prices and maximizing revenue by considering factors such as competitor pricing, customer response, and sales promotions.
- Predictive Insights for Strategy Formulation: ShelfWatch offers predictive insights on new product launches, helping CPGs architect their in-store strategy compared to competitors. By understanding market trends and consumer behavior, CPGs can strategically position their products, anticipate demand, and adjust pricing strategies for maximum impact.
- Efficient Data Delivery and Reporting: Field teams can easily capture shelf images using guided grid capture, and ShelfWatch's AI automatically processes the data, delivering SKU-level insights on the share of shelf, positioning, compliance, and out-of-stock within minutes. The information is then sent to internal stakeholders through organized and filtered smart photo reporting, facilitating quick decision-making.
- Time and Cost Savings: With the automation of shelf monitoring and price detection, ShelfWatch significantly reduces the time and effort required for manual audits. This not only saves valuable resources but also allows CPGs to react swiftly to market changes, ensuring they are always one step ahead in pricing optimization.
Final Thoughts
Getting your retail pricing right is absolutely crucial for success in today's market. With so many factors at play - from changing consumer behaviors to global economic shifts - finding the perfect price point can be a real challenge.
That's where retail price optimization comes in. By using advanced technology like ShelfWatch by Paralleldots, you can stay on top of real-time data about your products' pricing and the market. This means you can make smarter decisions, boost sales, and outshine your competition.
Ready to take your retail game to the next level? See how ShelfWatch can help you optimize your product prices and drive more sales. Request a demo today and discover the power of real-time insights!
