How Understanding Customer Emotions Improves Retail
You might have visited an e-commerce website, maybe a clothing website, and noticed prices of items varying. Yes, these prices keep on changing…!
Most online businesses adjust prices real-time based on multiple factors like time of the day, market trends, customer demand, market competition etc.
However, without technology implementation, this dynamic pricing strategy is not possible in physical retail stores. In case of retail outlets, the prices mostly stay fixed. Price changes are often scheduled or planned in connection with major events or festivals, holidays, or in connection with promotion campaigns.
The difference or challenge is clear. There are certain limitations for physical retail stores to fully enjoy the benefits of dynamic pricing strategy.
But, is it possible to bring in the freedom and control of dynamic pricing to retail premises?
Yes, says Emotional Intelligence – the next big thing in retail!
And, that’s what we are going to discuss in this blog – the role of EI in physical retails.
Dynamic pricing – Explained
Before diving into Emotional Intelligence, it would be highly beneficial to understand the relevance of dynamic pricing.
Dynamic pricing is a constantly changing pricing strategy based on certain real-time factors like customer demand, supply, time of the day etc. Complex algorithms with the help of AI, ML and data analytics track market trends and developments, and determine the pricing outcomes.
The price of a T-shirt for a specific day may not be the same after a couple of days. This fluctuating prices of products and services are common in e-commerce websites like Amazon, ride-sharing websites like Uber, etc. Even airline operators and hotel businesses adopt this fluctuating pricing strategy.
There are several ways in which online retailers implement dynamic pricing. And thy are:
- Seasonal pricing – in certain seasons, the demand for certain products and items surge. Understanding this increase in demand, online marketplaces increase the prices. For example: Jackets, coats and sweaters can be priced higher in the winter season. Online retailers charge higher prices for gloves, hats and boots in winters.
- Segmented pricing – this pricing strategy is implemented according to the geographical location of the customers. If your customers belong to a higher income region or location, the retailers could charge higher for the customers in that segment.
- Inventory-based pricing – it’s simple, the conventional pricing strategy based on the supply and demand parameters. When inventory levels are low, the price goes up, and vice versa.
Industries that adopt dynamic pricing strategy
Here is a list of industries that adopt dynamic pricing to improve their revenue.
- Travel and tourism industry – Travel and tourism businesses, cruise lines, and travel websites adopt dynamic pricing to sell their services and packages.
- Hospitality industry – Hotels and resorts apply dynamic pricing on their websites based on specific seasons, festivals, holidays etc.
- Airline sector - Prices of flight tickets vary based on several factors like time of booking, seasons, demand, seat availability, emergencies, etc.
- e-commerce & Retail – e-commerce websites and online retail businesses adjust their pricing based on purchase trends, browsing history, competitor pricing etc.
- Ridesharing and Transportation – Ridesharing businesses like Uber, Lyft, have special pricing strategy for high-demand locations, and peak-hours bookings.
- Energy sector – Energy providers apply higher pricing slabs for peak-hour consumption.
- Sports and Entertainment – Movie houses and malls apply dynamic pricing based on time of the day, demand, seat location etc.
It is estimated that dynamic pricing strategy can contribute towards 1 to 8% increase in annual revenue.
And, based on a research conducted by CivicScience (a consumer analytics firm), Gen Zs are inclined towards businesses that offer dynamic pricing compared to other age-groups.
How online retailers leverage the benefits of dynamic pricing
The real-time data is the real power that gives online marketplaces the most wanted “control” over the pricing.
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Be proactive and flexible in the changing market – the real time data helps online retailers to update their pricing according to the changes and trends in the market. For example: if the demand for a particular product reduces for some reason, the online retailers could reduce the prices for a specific period of time.
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Improved control over product pricing – online retailers enjoy full control over the pricing of products and services. The real-time data helps retailers take well-informed data-backed decisions.
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Improved sales and revenue – Airlines operators implement dynamic pricing strategy to deal with a highly volatile market. The algorithm checks the real-time market trends, competitor pricing, booking demands, departure time etc. and come up with a competitive price. In this way, dynamic pricing helps airlines improve their seat occupancy. At the same time, it helps flyers book flights at best prices too.
- Better inventory management – If the stocks are low, but the demand on the higher side, the retailers can raise the price of any product, so as to meet the demand, and thus slow down the sales process. These fine tunings and adjustments can maintain the balance between demand and supply parameters. Really cool, isn’t it?
Dynamic pricing in Retail with Electronic Shelf Labels
So, what are electronic shelf labels?
Electronic Shelf labels (ESLs) or Digital Price Tags are digital screens of varying sizes that display product-related information like price, description, discount offers etc. on retail shelves. ESLs are connected to a central pricing system, and therefore, they help retailers update the prices of items across all shelves real-time, without any operational delay. These display screens prevent employees from manually hanging the shelf labels, which is a time-consuming, unproductive task.
Features of ESL
- Product information customization – the retailers can experiment with a wide range of product-related information like price, discount offers, QR code, ingredients, nutritional information, etc.
- Implement dynamic pricing strategy – retailers can update the prices based on market trends, competitor pricing, inventory etc. from a central retail management system. ESLs are ideal for promotional campaigns, flash sales and other time-bound offers. Yes, you could be more creative with the pricing!
- Easy Integration – easy integration with other retail systems like POS, IoT, inventory management system, etc.
- Low power consumption – Most ESLs use the E-Ink display technology, and hence, they consume less power.
- Bright light reading facility – the ESLs are readable under bright light conditions, hence no worries.
- Wireless communication – allows Radio Frequency, Wi-Fi or NFC communication.
Benefits of Electronic Shelf Labels
Here are the benefits of deploying these digital screens in retail environments.
- Improved operational efficiency – the employees need not physically hang the paper shelf labels throughout the retail outlet. And, it’s a time-consuming, cumbersome task, claims Schnucks employees – one of the renowned US-based supermarket chains. Deploying ESLs automates the process, reduces the operational delay, thus improving retail operational efficiency.
- Real-time pricing adjustments – The retailers can update the prices of stocks based on the real-time market trends, competitor pricing, weather and other external parameters.
- Improved revenue – Dynamic pricing contributes towards improved revenue generation.
- Reduces overstocks and wastage – Retailers can bring down the price of overstocked perishable items, thereby avoiding wastage.
- Bring down labour cost – Retail automation reduces hiring of new employees. The existing employees who engage in monotonous tasks are freed up for more productive responsibilities.
- Improved pricing accuracy – no price-related confusions from the shelf to the checkout. Avoids all forms of human errors involved in pricing.
- Competitive edge – Retailers get access to competitor pricing data. This helps them offer the most competitive prices for the customers without underpricing. Ultimately, best rates attract customers to your store.
- Sustainability-friendly – ESLs serve as the perfect alternative for the paper labels, hence reducing the carbon footprint.
Emotional Intelligence in Retail
With the arrival of Electronic Shelf Labels (ESL), implementation of AI-powered data analytics, and automated inventory monitoring, even psychical retail outlets are now able to reap the benefits of dynamic pricing. But, even then there exists a gap, the gap is nothing but gathering “Customer Information” or the “Emotional Content”.
Even though retailers can gather market-related insights like competitor pricing, they have no access to how pricing influences customer’s decision-making in a real-time scenario. And, this is crucial.
Here comes the relevance of Emotional Intelligence.
The motivation behind every purchase, how big or small, is an emotional trigger.
When it comes to product pricing, the online retailers and e-commerce websites can tap into the “customer sentiment” from some of the key E-Commerce CX Analysis metrics like “Cart Abandonment rate” and “Page visit time”. These key matrices give retailers some clue regarding customer’s price perception.
Dynamic pricing strategy in physical retail outlets falls short of customer information, which is vital to understand how customers response after they go through the price of a product. Whether they feel excited, reluctant, or get ready for an impulse purchase – it all depends on the pricing aspect. The true purchase intent is formed at a point when the customer compares the perceived value of the product against their emotional response to the product’s price.
And, that’s a critical point in customer journey. It is at this critical juncture, where the “Purchase” or “No purchase” decision is made. And, this is the time for the Emotional AI to act. The Emotional AI with the help of advanced cameras capture the subtle body language, facial expressions, pupil dilation etc. to understand the emotional reaction of the customer to the price displayed on the ESL. Bang!
Now, there exists a customer feedback loop. What the customer feels about the pricing or the customer sentiments like, happy, satisfied, excited, not happy, are gathered and analysed.
This Emotional data helps retailers adjust or fine-tune their pricing strategy to drive more sales, and improve customer satisfaction.
Emotional Intelligence brings in the element of customer’s emotional response to the product pricing, and thus, offers a better, efficient way to understand your customers. In the process, you incorporate both market parameters and customer insights into the dynamic pricing strategy.
Your pricing strategy is now more potent and data-packed, which can work wonders for your business.
To Conclude
Emotional Intelligence is new to the retail scene. The technology is still evolving, in the way how it is understood and applied. If implemented intelligently, EI has the potential to transform the retail experience.
Retailers who understand and care about customer’s emotional response can drive more engagement, sales, improve loyalty and customer satisfaction.
EI can be implemented at all key customer interaction points like retail entrances, product display areas, aisles, staff-interaction areas, and even checkout counters, adhering to the customer privacy guidelines.
If customers feel their emotions are valued and respected, you can expect their visits more often. That’s for sure.
