Price Points Live — Lessons Learnt

Price Points Live, an event hosted by Omnia Retail last month in Amsterdam, brought together some of the world's best thought leaders and industry experts in eCommerce, retail, pricing, and economics. Omnia Retail's customer event featured keynote speakers from across Europe, including Hermann Simon, Aline Schuiling, Heleen Buldeo Rai, Dan Thwaites, Patrick Fagan, David Sloff, and moderator Suyin Aerts.

Inflation — The Enemy of Growth

With inflation being the top concern for business owners, economists, and consumers alike, it was no surprise that the topic was on the agenda at the event. Aline Schuiling, Senior Economist Eurozone at Group Economics of ABN AMRO Bank, shared her knowledge and predictions about current and future inflationary trends, explaining how the ECB (European Central Bank) predicts and calculates inflation and what the EU can expect in the coming years.

According to Schuiling's inflation forecast for the next few years, Europe can expect inflation to fall and return to 2% by 2024. This prediction is supported by a Statista study, which predicts that inflation will remain at 2% from 2024 to 2027. In addition to a positive inflation outlook, GDP growth for 2022 was higher than expected: annual GDP growth is expected to be 3.1% this year, with 1.9% growth in 2024. Tourism is rebounding, supply chains are becoming less congested, and energy and food prices are falling.

Inflation in the EU reached 10.1% at its peak, negatively impacting consumer spending and behaviour, market confidence, and overall GDP growth. As a result, several European governments have set aside funds to assist economies affected by the energy crisis. Germany, for example, spends 6.5% of its GDP on energy support, while the Netherlands spends 4.8% and Italy spends 3.3%. France has set a 6% cap on gas and electricity prices.

Schuiling explains the lagging effects of inflation, “For example, in the first few months of the pandemic in 2020, inflation was actually in the negative. Then you see prices start to go up later on and then inflation starts to increase. Why? Because it is compared to the year before when inflation was actually in the negative.” The key message was that brands and retailers must develop sound strategies for difficult periods and inflationary challenges if they want to ensure long-term success.

Goal Setting and True Profit

Professor Hermann Simon, who founded Simon-Kucher & Partners, has published more than 30 books on business and pricing, and has a business school named after him in Hong Kong, would be an ideal choice, which is why Omnia Retail was impressed and delighted to have him join their panel of keynote speakers at their annual Price Points Live event. During difficult economic times, Prof. Simon could have focused on a variety of topics and issues, but to provide the best advice to retail players eager to follow his advice, he shared his thoughts on two critical topics: the importance of goal setting and defining true profit.

“Profits are the cost of survival and the creators of new value,” Prof. Simon explains. Although this sentiment is powerful and inspiring in and of itself, the reality of true profit is far more direct. “True profit is what the entrepreneur can keep after the company has met all contractually agreed claims of employees, suppliers, banks, and the state,” he continued. Prof. Simon believes that having the wrong targets or goals is one of the most significant causative factors of profit weakness.

He believes that 47% of businesses are volume-oriented, while only 28% are profit-oriented. “Profit orientation is the only meaningful goal because it is the only one that observes both the market and the cost sides. Elimination of profit killers is the most effective way to profit improvement. This especially applies to price wars and overcapacities, since they are the most dangerous profit,” says Prof. Simon. Other causes of profit weakness include incorrect employee incentives, such as sales commissions, overstretched diversification, and management board responsibilities.

He also noted the current inflation rate and devaluation of money. Prof. Simon's leadership at Simon-Kucher has helped the company achieve $522 million in revenue by 2021, so most business owners are eager to hear his advice on sailing through it without crashing. "In order for businesses to survive and grow, they must get cash in as soon as possible and then spend it as soon as possible," because inflation is fundamentally the depreciation of money.

A More Sustainable eCommerce Industry

“Online shopping produces up to four times less carbon dioxide emissions versus traditional store shopping,” says Dr Heleen Buldeo Rai of the Université Gustave Eiffel in Paris. She shared her perspectives on sustainability and eCommerce. Many retailers and brands around the world have been working towards a greener industry over the last decade, with packaging, manufacturing, and delivery as the top three cogs in the machine with the worst environmental impact.

“By 2025, about 30-50% of everything we buy will be done online. And so, it is time for us to look at ways to organise the eCommerce supply chain in a more sustainable way,” says Rai. The idea that crowd logistics could be an operationally cost-effective and environmentally friendly alternative to traditional parcel deliveries is discussed and tested in a paper written by Rai in collaboration with Sara Verlinde and Cathy Macharis.

Rai, on the other hand, concludes that crowd logistics, as it currently stands, is not more sustainable than current delivery methods, "The impact on sustainability is dependent on several factors, including the crowd's modal choice and parcel consolidation." For example, if someone was delivering a parcel solely to deliver this one parcel, rather than on the way home or to work as the concept of crowd shipping intends, the environmental impact of the delivery would be significantly increased. The concept of crowd shipping has promise, but the logistics must be refined.

The Importance of Consumer Psychology in Retail

The age-old question of how retailers can tap into new ways of understanding consumer behaviour persists. This is where Dan Thwaites and Patrick Fagan, co-founders of Capuchin Behavioural Science, come in. Influencing a consumer's decision to buy one product over another, or to spend more money, is a fine line to walk. There are numerous ways to influence purchasing decisions, and retailers can get consumers to spend more money under certain conditions. Dan and Patrick refer to the following nudges and strategies that are simple and easy to implement in nature:

The Decoy Effect

Academic, Dan Ariely, shared a study he conducted to demonstrate the effectiveness of the decoy effect. In his experiment, he gave his students three subscription options: online-only access for $59.00 a year, print-only access for $125.00 a year (the decoy), and online and print access for $125.00 a year. 16% of students selected the first option, none selected the second option, and 84% selected the third option. The decoy option was then removed. With only two options, the results revealed a significant shift: 68% of students chose the online-only access option for $59.00 per year, while only 32% chose the online and print access option for $125 per year.

The Precision Effect

Does €4.99 appear to be less expensive than €4.00? Several studies and papers on this theory have been written, and academics coined the term ‘the precision effect’, which ultimately suggests that prices with rounded numbers appear larger – or more expensive – than a price with decimals. Furthermore, one of their studies discovered that when properties were listed with rounded numbers, homeowners spent more money buying them. Retailers can use the precession effect to boost sales and, ultimately, improve turnover.

Knowledge is Potential Power

During economic downturns, retailers must reach deep into their creative reserves to connect with concerned customers while maintaining profit and growth. Consumers are the beating heart of retail and eCommerce, and understanding how they think, feel, and spend during times of financial success and financial stress is critical to the survival of eCommerce. Using the strategies shared at the Omnia Retail event can be a game changer for retailers in terms of surviving inflation or any other global phenomenon.