ZBD Solutions

Sainsbury's trials in-store price comparison scheme

Sainsbury’s announcement that it will trial its Brand Match scheme is typically well-considered and in stark contrast to the language and style at the start of the current price war.  The Asda CEO’s original ‘copper bottomed-guarantee’ at the beginning of this year, followed by Tesco’s ‘10% cheaper or double refund’ - and the subsequent rather embarrassing retraction – has done little to improve business or reputations.  Sainsbury’s measured response however – if rolled out – will give them hugely valuable ‘KVI’ price positioning as well as extremely cheap market intelligence.

To me it looks like the beginning of the next phase of this campaign: open and sustained price competitively rather than attention-grabbing.  It might be called ‘the consumer-benefit phase’.

Sainsbury’s recognise that they can only achieve their aim reputably with the aid of technology.  ‘Price match’ data on paper tickets is too quickly out of date and expensive to maintain.  A single point service, like Sainsbury’s Brand Match, is progress.  Ultimately however, retailers will want to put their best and most persuasive information at the shelf-edge itself – where over 60% of buying decisions are made – with self-scanners, PDA apps or the new generation of graphic electronic shelf-edge labels.

And by the way, watch out for ‘guerrilla pricing’ Where there are long established price wars, soon someone will start to flex prices in select stores for short periods with the specific aim of wrong-footing the competition. 

Jann Naef
Product Marketing Director
Jann.naef@zbdsolutions.com

ASDA takes Tesco hostage

So my prediction in January that some retailers could make themselves a hostage to fortune with the current grocery price war turned out to be 100% right (‘copper-bottomed guarantee’ blog 13/01/11).  I just happened to be 100% wrong about who might be the loser. Tesco’s response to the ASDA initiative has caused them embarrassment and may look to have been ill-prepared.

Watchers of the ASDA-Tesco price war will have seen Tesco somewhat humiliated by their attempt to curtail Andy Clarke’s ASDA Price Guarantee; ‘If we're not 10% cheaper on your comparable grocery shopping we'll give you the difference. Guaranteed!’  In response, Tesco’s PriceCheck campaign promised ‘we’ll check the price of your grocery versus ASDA, then email you with your results. We’re confident you’ll find your shopping cheaper at Tesco, but if not, we’ll refund double the difference”. Tesco have now been forced to apply a bunch of caveats and limits to their offer.

Ingenious shoppers have been checking personal finance websites and conducting their own mystery shopping to create value baskets. One example published by journalist Rebecca Smithers, writing for guardian.co.uk, recently noted 4 bottles of wine and Cider, 2 bottles of moisturiser and a packet of mature cheddar (now that’s a party I’d go to…!) was a whopping £20.98 cheaper at ASDA: Tesco has been refunding claimants £41.96. There are plenty of claims noted on the web – including one from a Manchester shopper for £600.

As a result, there may be some pertinent questions asked within Tesco while they announce new limits on the PriceCheck campaign. How effective was Tesco’s competitor price monitoring, and what processes did they put in place to be able to respond to tactical or dynamic price changes?

ZBD’s light touch wireless communications system – ‘Bounce’ - enables an entire store to be easily equipped with 2-way communications coverage for a small number of ESLs - electronic shelf-edge displays. Just a couple of hundred ESLs in store would enable any retailer to track promoted and volatile products such as KVIs (known-value items) and keep them in line – in real-time - with competitor pricing.

ZBD’s fully graphic screens also mean that electronic shelf labels can be reassigned to new products in a moment – just as long as it takes to scan the new product and to scan the ESL display – beep-beep, job done. 

Jann Naef
Product Marketing Director
jann.naef@zbdsolutions.com

Micro-market pricing: The new price war

ASDA CEO Andy Clarke has offered a ‘copper-bottomed guarantee’ that they will give customers a voucher if their basket isn’t cheaper than their rivals.  We haven’t seen the small print yet on this offer yet, but it looks dramatic – and some might think it may make ASDA a hostage to fortune.

So how will ASDA monitor competitor prices in all stores and how will they then implement local or national price changes to maintain its differential – or will it bother?  Will its shoppers become its ‘mystery-shoppers’?

It could add up to a difficult or expensive challenge.  If a competitor makes a regional or temporary price change, how will it respond – and how will it get its response to the shelf-edge without error, on-time, synchronised with its EPoS so as to avoid misleading consumers?

There are new technologies now to help drive competitive and dynamic promotional pricing – to automate this whole process. Cogenta (www.cogenta.com) is one of a new breed of B2B service providers that can gather and deliver competitor pricing from a range of store and online sources.  ZBD's graphic electronic shelf labels (www.zbdsolutions.com) can deliver this competitor pricing information – and responsive pricing – to the shelf-edge within minutes of it appearing in the public domain – in-store as well as online, synchronising multi-channel retailing.

Being competitive is now an order of magnitude more difficult than in the old days of ‘one size fits all’ pricing. Micro-market pricing is just part of retailers’ moving to more granular and scientific systems. This new price war – with estimates than price-cutting by the big 4 will save the consumer £500m in January – may become a war that will be influenced by some impressive new technology.

Jann Naef
Product Marketing Director
Jann.naef@zbdsolutions.com

Why are Price Wars ruinous?

At the risk of getting into a messy analogue, why are any wars messy?  Without exception, it is because the weapons used are ill-directed and based on poor intelligence. I won’t go on...

Price Wars are a bad thing for retailers.  There have been 2 or 3 occasions here in the UK in recent years where a Top 5 retailer’s share values have taken an immediate dive as a result of the announcement of a price offensive: ‘Thousands of Price Cuts to benefit consumers’.  The simple fact, though, is that most retailers simply do not have the means to assess whether any particular batch of price cuts has delivered the hoped-for business targets. 

There are too many inter-related factors: substitutions, cannibalisation, halo effects at the item, department and store level.  Even consumers could not tell you with accuracy whether any price campaigns have genuinely benefited them in the medium term.

Optimisation technologies can now provide scientific tools to propose and analyse promotional activity – but strangely, not all retailers are ready and willing, or indeed able, to adopt these new techniques.

The long-term winners in Price Wars – where everyone is fighting on several fronts – will have a set of attitudes as well as technologies quite distinct from those who will eventually lose out. 

Losing retailers will typically consider that price is not a strategic focus: their price decisions are fragmented across the business and hampered by poor communication.  These retailers have their price planning and tactics driven by the competition and tend to have little data available to support fact-based price recommendations.  And worst of all, there is limited or no visibility of the overall effects of their pricing decision and a culture of repeating past practices.  The simple fact that a 1% improvement in price will have between a two-fold and four-fold better impact on profit than either variable costs, fixed costs or sales volume may be understood but cannot be acted upon.

By contrast, leading-edge retailers do see pricing as strategic and one of their key marketplace differentiators (along with positioning, promotion, place, planning…).  To drive this, the price decision would typically be owned by a centralised group, with significant involvement from cross-functional groups, and with scientific/academic credentials.  Importantly, these retailers segment their estate by behaviours and pricing power – giving them price zones.  This enables them to evolve (and that’s the key word) pricing strategies supported by end-to-end planning and impact analysis: their smart guys may well wander around using terms like ‘heuristic models’.  Sales data is analysed at a granular level to provide insight into how consumer demand changes due to movements in price - and other factors: maybe external factors such as weather and events, or internal factors such as other category activities.  Price change impacts are continuously monitored and their tendency to deliver the retailer’s business objectives is continuously gauged.

KPMG/SPL’s assessment of Price Wars is damning. They are typically tactical and reactive – ‘knee-jerk’ to you and me - rather than positive re-merchandising or genuine clearance.  The resulting changes in behaviour erode ‘shopping experience’ - which is absolutely not in the retailer’s interest and untenable in the long-term.  Price War promotions make retailers’ future prospects less transparent and predictable and can simply result in ‘Sales-growth-by-value’ dropping – a trend that can’t be sustained ad infinitum.

So, Price Optimisation – implemented and supported properly – provides the opportunity to replace the old blunt tools and guesswork of price campaigns with surgical, learning technology that can respond to micro-market demand.  In practice, it really can respond to consumer reaction: providing dynamic, ‘real-time promotions’.

But the weak link in any technology is of course when it is reliant on people.  The majority of plane crashes are either caused by people, or by people reacting inappropriately to suddenly changing conditions.

With price and promotions, a scientific decision can easily be compromised - and any intended benefit lost by delays or errors.  Electronic display technology such as streaming media and graphic Electronic shelf-edge labels (graphic ESLs) can reinforce promotions.  When scientific Price and Promotions management is coupled with an unrestricted shelf display system, Price Wars need never break out.

Jann Naef
Product Marketing Director
Jann.naef@zbdsolutions.com

epaper for retail: A powerful tool for convenience and forecourt stores

We already know the main reasons why retailers make the decision to invest in electronic shelf labels: labour savings, improved efficiencies. But a growing number of convenience stores and forecourt retailers are looking to adopt our epaper solution as they recognise its potential beyond far and beyond the usual benefits.

It’s all in the name. Convenience stores are quite simply, convenient. Whether they’re located in the middle of town, or within a petrol station off a busy main road, their customers are all looking for the same things:  a small store, conveniently located, offering a broad range of products with the benefit of extended opening hours. They’re not likely to do their weekly shopping there, but they all expect short queues, quick service and they will pay a premium for that convenience.

Most convenience stores or forecourt shops serve different types of customers during the trading week – predominantly business travellers during the week; and families at weekends. How can retailers target their promotions and optimise pricing for these customers more effectively to improve margins?  Increasing prices of core products at particular times sounds like the answer, but putting this into practice is another matter. The reality of frequently updating paper labels is highly labour-intensive, and most retailers cannot justify the resources. Customers are expecting a fast throughput, they don’t want to see staff on the shopfloor updating paper labels.

Implementing electronic shelf labels enables stores to maintain pricing from a central point and without staff intervention, allowing retailers to implement more profitable pricing strategies quickly and easily. Time of day pricing promotions can be introduced without staff downtime, and can be particularly effective for stores operating 24 hours a day. Because the process is automated, prices can be updated almost instantly.

Whether it’s targeting wine promotions at the after-work crowd or introducing lunch meal deals aimed at the business traveller, electronic shelf labels empower retailers to change promotions and optimise pricing instantly, helping them to utilise their convenience to increase their margins and profitability. And all whilst displaying standard product and pricing information that you would expect from a standard paper label. It’s not surprising that the ROI for electronic shelf labels within these stores can be just a few months.

We’ll be attending the Insight NACS Future of International Convenience & Petroleum Retailing event in London in September if you’d like to meet with us and find out more.  http://www.insightreport.co.uk/conferences/ficr2010/ 

Sarah Hool
Marketing Manager
Sarah.hool@zbdsolutions.com

VAT rate set to change again?

Whether the UK will retain the 20% VAT seems likely, but it is not certain.  In any event, it is the third VAT change since November 2008.  Rightly or wrongly, the government clearly sees VAT as a legitimate lever to steer the economy, and Retailers may therefore expect further changes over the next parliament or two.

At ZBD, we talk to retailers about the real operational costs of maintaining correct, synchronised pricing and the costs of implementing changes, including promotions, on time.  To do this – as well as modelling all of the other manual in-store processes that graphic ESL (electronic shelf labels) can eliminate or improve – we use a comprehensive ROI modelling tool: now in Version 8 and soon to be launched as an in-house toolset to ZBD’s clients and partners in USA and Europe.

Using this model, we can calculate a realistic cost for making a single VAT change.  For a typical non-food store with 30,000 products this could be around £25,000 – a figure which comprises the cost of additional labour & materials, as well as a quantification of sales losses arising from the ‘price discrepancy period’ (the period during price changes when manual shelf-edge ticket are at variance with the price at the checkout).  If the retailer wants to avoid these losses, he can always plan and execute a department-by-department price-change exercise outside trading hours: Management effort and staff overtime would probably leave him similarly out of pocket.

With these three VAT changes, and perhaps a similar number over the future lifetime of the system (5-8 years), retailers will have already justified around half the cost of their investment in a graphic display system.  This is in additional to all the other day to day savings.

Jann Naef
Product Marketing Director
jann.naef@zbdsolutions.com

Are consumers being misled by promotions?

I spotted an interesting article in this week’s copy of The Grocer, which addressed the issue of how consumers are being misled by promotions (Bogofs threatened as the OFT eyes ‘misleading’ promotions), where it was suggested that pricing practices such as the bogof (buy one get one free) could be facing a regulatory slapdown.

The article highlighted the importance of making sure consumers aren’t hoodwinked by less than transparent promotions.  The OFT (Office of Fair Trading) is right to endeavour to give consumers better protection than ‘caveat emptor’. Mr Average is indeed very easily misled. The article listed the top five worst pricing practices, supplied by London Economics, which cited Drip pricing, Time-limited offers, Baiting, Sales and Complex pricing as the worst offenders.

In another example not noted in the article, even alert consumers may find they have been subtly duped but the prominence of savings in relation to actual price:, eg :’£1.50’ in bold lettering – with a not so bold qualification ‘saving’ compared with a relatively indistinct actual price of £2.99 – a real and common example from a reputable retailer.   However, a slapdown seems fairly unlikely.  Trading Standards, the Local Authority Trading Standards Services,  that administers the law, are much more inclined to encourage self-regulation and in the UK are typically lenient.  All retailers know that in the long run ‘compliance’ is in everyone’s interest: and ‘sharp practice’ in the long term builds cynicism and weakens loyalty, which leads to a situation where consumers administer compliance.

In my personal experience, the Trading Standards guiding principle for retailers is ‘do (pretty much) whatever you want, provided you don’t mislead’.  This was made very clear to me when I consulted OFT for their opinion on implementing daytime promotions using ESL (electronic shelf-edge labels).  I was surprised to find the department wrote to me at some length and confirmed they would be comfortable with this practice provided the consumer was properly informed at all times.

Whatever the subtleties of marketing though, as retail price and promotions become more dynamic, the risk of error and the need for automated compliance becomes greater, and it’s clear that ESL technology enforces compliance – and therefore the retailer’s long-term interests, by:

o Guaranteeing there are no inconsistencies between retailers’ various sub-systems because of manual activities and delays
o Providing consumer information that is clear and consistent, including brand messaging - if that is part of the retailer-brand deal
o Ensuring promotions are activated or deactivated as and when required
o Allowing tuning of promotions and micro-market pricing to match consumer responses
o Providing timely and accurate comparative price information or product information – reinforcing consumer confidence

This isn’t an issue that’s going to go away.  The need for compliance and accuracy become more of a challenge the more innovative and dynamic retailers become.

Jnn Naef
Director Product Marketing
Jann.naef@zbdsolutions.com

Lisbon plays host to ZBD's annual partner conference

We were delighted to welcome representatives from virtually all of our VISION partners in Lisbon last week for our 3rd annual partner conference. It was a productive and enjoyable couple of days, and thankfully, luck was on our side: the volcanic ash didn't impact our flights; nor did BA's scheduled strikes and we even experienced a mini-heatwave!

The partner conference provides us with the perfect opportunity to gather all of our partners together and give them an insight into the many developments at ZBD. The conference was a packed day, as always, and proved to be very interactive, as partners were keen to share their thoughts and experiences with us, and bounced ideas off one another. We invited some of our partners to present customer case studies to the rest of the group, where they have been successful in their territories which proved to be really valuable to the rest of our partner network.

The past year has been hugely successful for us, with the support and commitment of our partners, and we've made significant progress since last year's event in Tallinn, Estonia. We are lucky to be supported by a dynamic group of people who are all dedicated to pushing ZBD and our next generation of electronic shelf labels to the next level, and keen to share their experiences with our growing partner community. And judging by the enthusiasm shown by all partners, we'll be announcing more customer wins very soon.

ZBD's VISION partner network grows year on year, and 2010 saw us welcome new partners from Slovenia, Spain and Greece.

Sarah Hool
Marketing Manager
sarah.hool@zbdsolutions.com

A fresh solution for reducing product wastage

Further to our recent news announcements that Hungary's Unio Coop and CBA stores have implemented our electronic shelf labels within their fruit & Veg department, it's becoming more common for grocery retailers to deploy ESL within their 'fresh' departments. These departments, which offer perishable products, are often responsible for significant financial losses every year through the inability to sell products nearing their sell-by date.

One way of eliminating product wastage is to reduce prices and make pricing more attractive to customers. Where markdown prices usually displayed on paper labels can devalue the product, with ZBD's electronic shelf labels, price markdowns can be made in seconds, and are invisible, protecting retailers' margins at the same time.

It often isn't feasible for many retailers to udpate pricing manually, potentially several times a day. However, implementing electronic shelf labels within perishable departments enables stores to make price changes quickly and wirelessly, saving store staff from having to print out new paper labels and distribute them within store, which help to make the store more efficient. ESL should also enable the store to sell more products at a lower price, eliminating costly product wastage.

We know that not all grocery retailers are ready to go down the route of deploying electronic shelf labels storewide quite yet. But installing them within a department gives them a chance to test the benefits first hand, without having to commit to rolling the solution out.

These are just one of the cooperative retailers that we're working with, and we'll be announcing more very soon. 

Sarah Hool
Marketing Manager
sarah.hool@zbdsolutions.com

The grocery price war - whose side are you on?

There was apparently an Easter skirmish in the ongoing grocery price war in the UK: and hands up anyone who couldn’t buy rhubarb for love or money thanks to British chef Delia Smith’s rhubarb brulee recipe at Waitrose?

The BRC (British Retail Consortium) yesterday announced the lowest food inflation for 3 years with competition ‘even fiercer than usual’.  But apart from competition on known-value items, how do retailers determine where to apply cuts and promotions, and how do they measure the effectiveness of their tactics?

Price competition is of course a long-term campaign, with immediate price cuts playing second fiddle to consumer price perception.  And consumers are easily mistaken on price perception: The 2008 OC&C Price Perception report showed consumers consistently underestimate store pricing by 11.8% - although only about 4% for grocery, compared with 23.5% in fashion.

The long-term winners in ‘Price Wars’ – everyone is fighting on several fronts – will have a set of attitudes and technologies distinct from those who eventually lose out.  I was reminded of Accenture’s (the global management consulting, technology services and outsourcing company) excellent report of the distinction between what they politely call ‘conventional’ retailers versus the leading-edge:

The losers:
Typically they consider that price is not a strategic focus: price decisions are fragmented across the business hampered by poor communication.  These retailers have their price planning and tactics driven by the competition and tend to have little data available to support fact-based price recommendations.  And worst of all there is limited or no visibility of the overall effects of their pricing decision and a culture of repeating past practices.

The winners:
Leading-edge retailers do see pricing as strategic and one of the key marketplace differentiators (along with positioning, promotion, place, planning…).  To drive this, the price decision is owned by a centralised group, with significant involvement from cross-functional groups, and with scientific/academic credentials.  Importantly these retailers segment their estate by behaviours and pricing power – giving them price zones.  This enables them to evolve (and that’s the key word) pricing strategies supported by end-to-end planning and impact analysis: their smart guys may well wander around using terms like ‘heuristic models’.  Sales data is analysed at a granular level to provide insight into how consumer demand changes due to movements in price - and other factors: maybe external factors such as weather & events, or internal factors such as other category activities.  Price change impacts are continuously monitored and their tendency to deliver the retailer’s business objectives is continuously gauged.

Which side are you on? If you’re not using or evaluating price optimisation technologies and electronic shelf-edge displays the chances are you may not have the tools to win.

Jann Naef
Director of Product Marketing
jann.naef@zbdsolutions.com