Dear Friends,
In the latest edition of the Game Changer Expert Interview Series, BCG’s Javier Anta Callersten describes how advances in data and algorithms are enabling companies to make the transition from the Uniform Game to the Dynamic Game. You can watch the full video here.
In case you missed them, here are the other posts since last week’s newsletter.
Ham, bacon, and inflation
While bacon prices are surging, ham prices are on the decline. This intriguing discrepancy sheds light on the intricate dynamics of each market and consumers’ price sensitivities and behaviors. You can read the full post here.
Where is streaming headed?
In a competitive market where streaming services are raising prices to invest in more quality content, companies such as Spotify and Netflix face challenges with portfolio management across tiers. You can read the full post here.
What CMOs think about GenAI
They remain optimistic, according to BCG’s latest survey, but their expectations have become more pragmatic as they learn which initiatives have an immediate impact and which ones will take longer to scale. You can read the full post here.
A cherry paradox
California’s cherry growers have a great crop at a time when costs have risen sharply and demand is weaker than expected. That has implications on prices and profits. You can read the full post here.
The price tag has been around since the mid-1800’s when marketing pioneer John Wanamaker introduced them at his store in Philadelphia. Their digital counterparts – the electronic shelf labels or ESLs – have been around since the 1990s, but have only recently reached a combination of durability, sophistication, and relevance that could see them deployed on a much larger scale. In this week’s newsletter my Game Changer co-author Arnab Sinha and my BCG colleague Sebastian Bak join me to look at Walmart’s decision to roll out ESLs across its system by 2026.
How Walmart is rethinking the price tag
Walmart plans to roll out ESLs to 2,300 stores by 2026, marking a massive shift in the way the retailer manages prices. ESLs bring three major advantages for retailers: lower labor costs, much faster implementation of price changes, and the ability to price dynamically.
The third advantage mentioned above will receive much of the scrutiny, because many companies have announced plans to either experiment with dynamic pricing or invest in the infrastructure to do so, such as the restaurant chain Wendy’s announcement of electronic menu boards. But no one should downplay the improvements in cost savings and efficiency.
A study released in 2018 estimated that retailers collectively spend over $100 billion annually to make manual changes to price tags and promotional signage in stores. Almost two thirds of the retailers in that study said that the labor-intensive manual process prevents them from making all the price changes they would like to. An ESL not only eliminates most of that manual labor and the associated costs, but also allows retailers to implement price changes faster. In the online post that accompanied Walmart’s announcement of the move, the company said that when it uses ESLs, a “price change that used to take an associate two days to update now takes only minutes.”
Efficiency matters now more than ever, as AI-driven advancements in analytics enable retailers to respond quickly to competitor price moves, cost price inflation, or changes in customer behavior. With these AI-powered platforms, retailers can translate their strategic choices into optimal prices for each product and store, because they can “read and react” and make near real-time pricing updates from a single source of truth.
It seems awkward that the downstream implementation of price updates from state-of-the-art tools would still involve the manual replacement of paper labels, store by store and shelf by shelf. Now that the physical and technical quality of the ESLs has improved, the timing seems ideal for integrating them into an otherwise seamless digital process for managing prices.
Signage still matters
The success of retail promotions still depends on consumer perception, which in turn depends on the visual cues that consumers see at the store shelf. Each promotion’s value proposition must have a direct and clear appeal, reflected in the retailer’s choices of media, content, and in-store messaging. Future versions of ESLs could enhance the shelf experience by providing consumers with additional product information or other incentives.
At least for now, an ESL cannot replace or replicate the visual impact of additional signage. This makes the use of ESLs more appropriate for retailers with an everyday low price (EDLP) strategy, such as dollar stores, hard discounters, and Walmart, than for high-low retailers who need the promotional signage (“new low price”, “compare and save” etc.) to signal consumers. For the EDLP retailers, the labor savings and other advantages justify the upfront investment in the ESLs.
What about dynamic pricing?
ESLs could trigger a backlash from consumers if they feel that retailers are deploying them for surge pricing or stealth price increases. After the last two years of inflation – especially in food and grocery – consumers have a sharper awareness of prices and discuss them more often. Viral videos about perceived surge prices or malfunctioning ESLs could stoke consumers’ fears.
However, “could” is the operative here. The leading EDLP players have gained credibility around being the least expensive options, which reduces the chances that they would risk a shift to surge pricing. Nonetheless, ESLs create the ideal platform for retailers to shift successfully from the Uniform Game to the Dynamic Game as long as they follow the recommendations that Arnab recently made, which our colleague Javier amplified in the video we mentioned at the outset of this week’s edition.
First, retailers should create a compelling story about fairness and value, which can include stressing that dynamic pricing can create greater access to goods and services as well as better purchasing options for customers. Second, retailers should resist the temptation to see dynamic pricing primarily as an exercise driven by data science and algorithms. Dynamic pricing doesn’t change the fact that pricing is about the customer’s perceived value.
Original article can be found here.