RALEIGH, N.C. — A consumer survey this spring showed that rising prices are the No. 1 economic concern for Americans. With record-high inflation (8.6% in May) on everyone’s minds, consumers are more price sensitive than ever.
This has a direct impact on retail, not least convenience stores. Fuel may bring consumers to the pump, assuming gasoline prices are competitive, but most convenience stores make most of their profits off sales of food and drinks, especially when gas prices are high. Therefore, it makes sense to focus on maximizing sales in these categories.
However, addressing rising prices through price optimization and dynamic pricing technologies can be challenging, especially when retailers must constantly adjust to changing market conditions. Finding the right price is a continuous process, one that requires a retailer to balance margins with customer satisfaction. Dynamic pricing is an important strategy for convenience stores during inflation, as it allows retailers to manage pricing across all SKUs at scale, ensuring the right balance between profit and consumer expectations.
Responding Quickly
Even before inflation began to soar, retailers considered many factors when determining their pricing strategy. And now, market changes are shifting at even faster rates, and higher prices for consumers, while inevitable in some cases, may erode loyalty and have a negative effect on sales. How can convenience stores take control of pricing in these turbulent times? Artificial intelligence (AI) can help provide the answer.
Through AI-driven dynamic pricing, retailers can set specific rules and deliver faster, more accurate pricing optimization based on customer and market data, taking into consideration the following:
Competitor pricing
We’re familiar with seeing two convenience stores across an intersection, one offering a lower gas price. If a shopper has no other loyalty affiliations, they’re likely to go to the one that has the cheapest offering. Likewise, if a competitor is offering a high-selling, high-margin item at a lower price, retailers need to react quickly. With a competitor-driven pricing strategy, retailers can price specific items within a certain percentage, or dollars and cents, vs. their competitors. Dynamic pricing monitors changes across competitors and informs retailers about the adjustments needed to stay within the predetermined range.
SKU relationships
A single product doesn’t exist in a bubble. Depending on other related SKUs and their prices, demand for products can change. For example, increasing prices for one brand of soda has a direct impact on sales of another brand. In addition, this price increase can also impact the sale of bottled water and other product segments. The ability to identify and analyze SKU relationships can create a more profitable pricing strategy. What’s more, with key value items—products that drive price perception for a store—it can be beneficial to price these more competitively than others.
Price elasticity
Price elasticity is the degree to which demand is affected by a change in price. Depending on consumer preferences, each SKU has a certain threshold. AI can determine the most accurate price range to ensure that consumers are still purchasing items.
The Right Promotions
Targeted promotions are an important tool for encouraging customers to go from the pump and into the store. Retailers can use AI to integrate promotional campaigns so that they complement everyday pricing strategies, leading to more effective and personalized promotions. For example, if a customer uses a loyalty ID at the pump, the system can dynamically serve up offers based on prior purchases, demographic factors and local market conditions.
However, selecting the right promotional campaign, measuring the effectiveness of that campaign and adjusting its details is a daunting task for any retailer. Here again, AI provides more speed, efficiency and effectiveness, allowing retailers to complement their everyday pricing with the right promotions.
It’s important to remember yesterday’s pricing strategy won’t work today. Inflation wasn’t a concern a year ago; now it’s top of mind for many consumers. Flexible margin strategies informed by price optimization and dynamic pricing can help retailers succeed despite a volatile and ever-changing market. By taking a strategic, AI-driven approach to improve margins, convenience retailers can maintain customer loyalty and ensure continued profitability.
Michael Jaszczyk is CEO of GK Software, Raleigh, N.C.