How changing consumer preferences due to COVID-19 affecting retail assortments?

Enough has been said and written about the impact of COVID-19 on various businesses and most significantly in the retail sector. Loss of business is inevitable for most sectors, especially the retail sector. However, adopting a data driven approach to assortment and pricing can reduce the magnitude of impact and soften the blow.

In this opinion piece, we discuss what retailers can do to minimize and overcome the negative impact of COVID-19 on business. The scope of discussion would cover three major areas of concerns during and post COVID-19 era:

I will delve into causes, effects and suggest responses, which I hope will help business leaders to steer their ship to safer shores.

Changing Consumer Preferences

Every business is built around serving consumer needs. If the needs change, businesses risk becoming obsolete without timely and adequate course-corrections.

Before COVID-19, retail businesses catered to consumer needs, wants and desires. The sudden onset of COVID-19 forced the customer to prioritize the essentials to start with (groceries especially healthier food options). As the duration of the restriction extended, the list went on to include other items required for resuming life (DIY equipment, home fitness, home entertainment, laptops for homes and office use, headphones, office accessories, etc.).

Initially, the shopping lists and channel preferences were largely influenced by restrictions on mobility. Later, it was the rising job and income uncertainties that drove the bigger shift in purchases — from luxuries to necessities.

As expected, sanitizers and masks, ranked high on the essentials list, ruled the roost for the entire duration of the lock-downs around the world. Surprisingly, high-definition televisions also registered a jump in sales. The sales surge happened despite many workers being laid off and furloughed. During the pandemic, TVs have served as a significant refuge for people and thus became closer to being a necessity.

A remarkable shift was observed in the purchase behavior/preference across channels. Online and curb-side pick-up witnessed a huge growth. According to a report by National Retail Federation, “more than three-quarters of consumers said they were interested in BOPIS; over 90 per cent of those who have tried it said curb-side was convenient.” The reasons for it range from the fears of catching an infection to avoiding the inconvenience of queuing up outside stores.

To respond to the shift in the channel demand, quite a few players shifted their focus to online sales. Bed Bath & Beyond registered a growth of 85% growth in online sale, and accounted for two-thirds of their total first quarter sales. Notably, the total sales, which were driven by retail stores, dropped by almost 50 per cent.

During the pandemic, differences in consumer preferences — across categories, brands, price/store segments — have been more pronounced than in pre-COVID-19 times. Having said that, the consumer preference will continue to change as Wave 2 and Wave 3 come into effect and as different countries/regions slowly start coming out of the impact of COVID-19 too. The heavily altered landscape, today, requires retailers to revisit their assortment, inventory and pricing strategies regularly and be ready with plans as the trends change.

Agile Assortment Planning

With the changing consumer preferences, retailers and consumer brands need to adapt and deliver in an agile manner. The assortment decisions that need to be made in no particular order are the following:

1. What is the category mix of products I carry and which ones should be in the key locations in the store?

2. How does the category mix depend on the stage of the outbreak and the likelihood of secondary waves in the region?

3. What products should I carry — factors include shelf life, healthier options, shift in consumer preferences?

4. What brands should I carry in each category? Is there a shift in the brand perception among consumers?

5. What brands are gaining consumer favor either due to price perception or other reasons?

6. What should my mix of products by price-segment change as the economy and people’s ability to spend goes through changes as the secondary and tertiary impact of COVID-19 comes into effect?

7. Does the category, brand and products carried depend on the store location, store type and demographics around the store and the prevalence of COVID-19 in the immediate area? How to react to any local events including outbreaks?

If you are a supermarket chain running multiple stores across the country, you will need a plan for each of your stores based on the local demand. A one-size-fits-all approach may fall flat on its face. Given the general consumer sentiment has been save-save-save, not stocking high-value low-volume inventory seems like an obvious choice. Here’s the news: it doesn’t work all the time. Let us understand this with an example.

Several supermarkets deal in gourmet-grocery. Although a gourmet section might not occupy much shelf space, it does bring in a loyal set of consumers willing to pay a premium for the niche products that other retailers do not carry. These shoppers while they are at the store shop for other products as well. Also, catering to a niche segment, it may not register the same level of drop by volume in sale. The increased demand for specialty foods is most likely the result of people having more time to cook and shop. The gourmet category is one example of a seemingly low-volume and niche products that may be driving growth at your stores.

A traditional BI tool, with limited capabilities, would fail to provide you insights that enable you to take timely decisions. Without the flexibility of an AI based intelligence platform like Blik.ai, you might need to depend on your IT/analytics team for every report requirement and also spend weeks or months getting the reports designed and built. An AI-based intelligence platform with pre-built reports and the ability to design custom reports that get these kind of insights would enable you to make critical decisions promptly. With a flexible interface, you may discover seemingly unrelated insights. Say, gourmet shoppers could be avid gardeners, who’ve been regularly shopping for gardening tools to keep themselves busy until the Corona-crisis ends. Intelligent insights like these help you discover latent opportunities, which could provide a much-required boost for your top line. No supermarket said no to selling more of anything ever.

Impact on Product Pricing

Pricing strategy during pre-COVID-19 times was about striking a balance between the amount of margin you could make and the amount consumers were willing to pay for a product. Even during COVID-19, the mechanics of it remain the same; but amid uncertainties, people are holding on to their money tighter than ever.

Expensive high-definition audio system, with regular discounted pricing, may not be an attractive buy to the same consumer who would have lapped it before the pandemic era. If driven by the need to replace an old one, she may end up picking one from a segment lower. Similarly, expensive office wear serves no purpose to the vast majority of population working from home. Brooks Brothers, which was already struggling was decimated by COVID-19 as the demand for professional wear plummeted. Blanket discounts across the board would do little to increase demand, where the utility of the product is under question.

To stay profitable and drive sales, a more nuanced approach towards pricing is the need of the hour. You need to put a pricing strategy in place by considering:

For each of the above filters, you need to take into account the volume, price-sensitivity, the margins required to stay profitable. In the course of analysis, you may find it necessary to sacrifice unit-level profit for a few SKUs, to drive sales and ensure overall profitability.

On the face of it, the above exercise appears to be a simple one. When you factor in the number of SKUs, categories, brands, channel and market segments, which most retailers work with, it turns out to be mammoth of an exercise. Insufficient data around the crisis-motivated behavior of consumers makes it more complex.

With overall profitability as the goal, an AI-based business intelligence solution can suggest the right prices for SKUs for each of the channels/locations. The real-time insights can also help you re-calibrate the prices and discounts on offer, if something isn’t working according to the plan. It can also assist in dynamic pricing down to each SKU and location.

An artificial intelligence-powered BI tool helps simplify and reduce the effort involved in pricing exercise. Additionally, it can also help you build unique pricing strategies for different categories and channels. For example, the new market entrants may do well to have a penetration or premium pricing strategy, depending on their final goal. It may also suggest the right bundling strategy to clear high-stock inventory, which is less likely to figure on consumers’ shopping list during the pandemic. A television bundled along with a furniture set with a healthy discount, may lure a new home buyer into making the purchase now than postpone it for some time later.

How can the right Business Intelligence tool help?

As mentioned earlier, a BI tool needs to be smart and flexible to help strategic decision-making with little time and effort spent on customization of dashboards. As teams continue to work from home, a simple customization on existing BI has become a chore in itself. The business impact of resultant delays in decision can be huge at times.

Blik.ai is a BI platform for SaaS platforms including POS Solutions, ERPs and CRM platforms that delivers pre-built dashboards that help you understand your business without spending significant time and investment on a large BI engagement. With one-click integration of data sources (SaaS applications and Social Media Sources), your teams will have easy access to all data that they need, at a glance! The clean and intuitive dashboards help you track and optimize performance for each of your teams and also ensure that they have a clear idea of the actions to be taken. The collaboration features of Blik.ai allow you to interact across teams and get answers to questions around data.

Blik.ai helps you understand the finer nuances of the business and aids agile decision-making. You will have access to dashboards that are pre-built and help you understand your business without spending significant time and investment on a large BI engagement. It is flexible, intuitive and easy to use, for you to get insights without having to rely on analytics or IT team.

Most importantly, the automated and provide real-time insights to help you make and evaluate your assortment, inventory and pricing strategies. It could help you find the missing piece of the puzzle towards profitability.

Author Profile:

Randhir Hebbar is one of the founders of Convergytics — Asia’s fastest growing and leading analytics brand. Randhir heads Digital, BI, AI and Products at Convergytics and Blik.ai is a solution that he has conceptualized, designed and built with his team of team of developers, BI specialists, data engineers and data scientists. You can read some of his other posts here.

About Blik.ai:

Blik.ai is Convergytics’ proprietary end-to-end business intelligence platform for SaaS platforms and provides one-click integrations and pre-built modern-BI dashboards for platforms like Google Analytics, Adobe Analytics, Google Adwords and Freshdesk. Many more integrations are in the works and are being added each week.

If you are looking for a quick and easy solution to aid in your data-driven decision-making journey, do get in touch with us by writing to us at info@blik.ai or just sign up for a trial at blik.ai to understand how you can utilise Blik to navigate these uncertain times.

About Convergytics:

Convergytics is a Microsoft Gold Partner for Data and Analytics. We focus on four core areas:

(1) Data Management and Data Engineering: data ingestion, validation, transformation, warehousing and OLAP

(2) BI and Advanced Dashboards: reporting KPIs/metrics, real-time BI, automated monitoring and alerts, ETL, executive/operational dashboards

(3) Digital and CRM Analytics: site optimization and A/B testing, digital audits and implementations, optimizing digital media spends, real time personalization and predictive CRM, and automated reporting

(4) AI and Machine Learning: forecasting, safety and risk, defect prevention and preventive maintenance use cases