Custom deals - an invisible edge

December 17, 2013

Retailers that personalize prices can benefit as well as their customers.

What if shelf prices meant little – and customer relationships with the store meant more -- in terms of what people pay for food and beverage? 

Custom deals that drive trips and basket size would be like a super-secret, special-handshake arrangement for each shopper, based on their purchase history at the retailer, within the context of other data a retailer analyzes.  

Get used to it, says The Lempert Report.  This is how more retailers will model pricing soon, for several reasons, we believe:

  • It makes people feel special and appreciated - that the store is willing to give back some of the value it accrues from the household’s dollar-spend there.
  • It is convenient for shoppers to receive deals on items they already purchase or might want to trial.
  • The high frequency of tailored offers reinforces the routine of shopping in a particular store.  The offers capture people early in their path to purchase - and, for shoppers who declare their location, during the actual store visit as well.
  • Retailers with superior analytics expertise can be more targeted, satisfying and profitable.
  • Personalized pricing can grow sales and loyalty for stores.  Sources told Bloomberg Businessweek recently that about 45% of Safeway sales currently come from shoppers who get special offers on their computers or mobile apps - up from nearly zero in 2011, when the chain rolled out its Just for U program widely.

The lack of pricing transparency on the selling floor is both good and bad for retailers.  On one hand, it makes it harder for competitors to spy and change promotional tactics on the fly to try to blunt another operator’s campaign.  On the other hand, people increasingly shop together or at least talk about their store trips; shoppers who hear about great prices but don’t qualify for them may resent the store.

As retailers refine their personalized pricing strategies, they’ll improve at managing thousands of relationships per store.  This will include minimizing shopper pushback on deals they don’t get, and teaching shoppers what they need to do to earn the sharpest deals on items they want to take home.  All the while, people will know that the store knows them and good things could happen as a result.