A few days ago, we shared the first part of our insightful conversation with one of Europe’s top e-commerce and digital marketing minds, Antoine Brouwer. We’re excited to share the second and final part with you today.
Omnia Retail: We’ve previously touched upon Dynamic Pricing earlier but let’s discuss more. Could you tell me more about your view on pricing for the retail industry?
AB: Pricing has really evolved over the years. In the beginning, it was just checking the price of your competitor, then the second phase was to know your price and needing to automate the strategy. Nowadays, there are more and more competitors and you can't compete with everybody. If you take consumer electronics as an example, you might have 200 competitors on the same SKU. You can’t say you want to be the cheapest in the market, because you can’t afford it, even Amazon can’t always do that. Also, you really need to get smarter. You now see strategies differ on a category-level but often even down to SKU level, in order to really maximise effect. The next phase is price elasticity, because following what the effect is, whether you follow the price of your competitors up or down, is important to see what it does to your volume. Therefore, measuring price elasticity shows you what happens, if you increase your price but your volume stays the same it means you can make more margin. Or the other way around if you decrease your price but your volume goes up and your cash margin goes up in total, it becomes more interesting.
You see how important the strategy is. The first time I used Omnia we only made a few rules and when I now look at the last implementation I was involved in, we made pricing rule, after pricing rule, after pricing rule to really manage it. I think you also see that we take far more things into account, like the logistical cost and the marketing cost to measure what you make per SKU.
It’s the same idea behind integrating data from Google to really see, okay, I have this page with a lot of visitors, but a low conversion. This either means that you don’t have stock or that your price is not correct, because apparently your customers are not interested. Feeding this information into a pricing tool is extremely interesting. This way it’s becoming more of an ecosystem with more and more data getting involved and actually looking at more things than just competition alone. That is also what Omnia does with “Market Conditions”, as users can set all these rules to actually determine what should happen with their pricing if they have one competitor, and what happens if they don't have any competition.
Omnia Retail: Pricing has indeed become a lot more complex than it was some years ago.
AB: Yes, sometimes it’s also necessary to be able to explain your pricing strategy to customers. If you look at products in the same family, is it acceptable to price them differently? Online it often is, but explaining to a customer in store why the same coffee machine is standing next to each other but in different colours differs in price can be difficult. How can it be that a 60-inch TV is cheaper than a 40-inch TV? It's really difficult for customers to understand, but market conditions can determine exactly these differences in prices. That’s why it makes sense to gradually change things. It will for sure be better than pricing manually, because then your prices are always wrong.
Omnia Retail: Do you think that the need for pricing strategies to become more complex is mostly due to the increasing competition or did the behaviour of consumers also change? Are they doing way more research than they used to before, with much more information being available?
AB: It's a combination, there's more competitors, and there's more customers comparing. In the early years, everything was focused on growth and now the focus is also on being profitable. These are completely different things. With every sale you make, that you actually make money on, you have to be far smarter, and also look at all these things to actually drive profitable growth. I think that has changed, in the beginning, it was growth and now it's profitable growth and that is far more complex. For this, you need far more rules, than just following the competition.
Omnia Retail: Based on your experience, what is your opinion on investing in Dynamic Pricing from a retail perspective, and why (if so) do you think it's essential?
AB: If you think about it, whenever you have more than 1,000 SKUs, you can never do it manually. One thousand you can't even handle per day, let alone your competition changes their prices up to 4 or 6 times each day. In that respect, it is never possible and that means your price is always wrong, period. It doesn’t even have to be that you have complex rules. You could also just say I want to be number three in the market, or I never want to be more expensive than 5% difference to my competitor, or you want to have the average price in the market. That is also fine, at least you set a rule and can implement it. But manually, that's not doable. Or if you for example only get the competitor data rather than look for yourself on every single website ten times a day. That already really improves the accuracy and saves time spent by valuable category managers, who can make more money by buying correct products. I think that's the key. What I normally see when we do price changes is that it’s almost equal to 50/50 price increases and price decreases. Decreasing a price doesn't have to mean you make less money. A lot of retailers look at it old fashion and buyers are targeted on gross margin. And yeah, your gross margin will drop, but your value of your company is not based on gross margin but the money that you make. There is a saying: “Maybe you prefer to earn 11 times a dime than four times a quarter.” That’s the idea.
Omnia Retail: Looking at the market today, most companies are making use of Dynamic Pricing tools, as they can’t compete without it. What do you think still holds some companies back?
AB: I agree, you will hardly find any large retailers that don’t have a pricing tool and do their pricing manually. To be honest, I don’t know of any. The ones that might be hesitant are probably retailers with huge stores, with a large store assortment or low-value priced items in stores. This makes it a bit more complex, but there are always ways around it.
Omnia Retail: Do you think a lot of companies take the approach to have different prices in stores than they do online?
AB: No, generally not. I think a common mistake is when comparing prices in store with online prices people compare them excluding shipping costs, whereas the in-store prices should be compared to online prices including shipping costs. Then it often becomes a different story if a company is asking €2 shipping costs on items below €20 then a pencil for €2 online suddenly becomes €4. I think you should add that if you have a store and then you have a lot more room to increase your prices in stores as well.
Omnia Retail: Interesting, you think they should add that to in-store prices?
AB: Yes, I do think so, especially in these price ranges. In my experience starting at above €30 to €40, people start comparing prices by going to comparison websites, Google shopping or visiting several different sites to see what it costs. But this also depends on the homogeneity of the product and if you actually want to see the product physically. I saw this a lot in the toy market, when you see a Playmobil box in a store, you see a carton box with an image on it. You can’t open it, you can’t see more than what you see online on an image as well. This is different from shopping for a TV, where you can actually see the screen in real life if you go to the store. I was shocked how quickly the online shoe market changed. Buying shoes online was not at all big in the Netherlands and then Zalando came and it got a huge boost. Suddenly everyone was buying shoes online and just sending them back if they didn’t fit.
Omnia Retail: Now, I have to admit, when ordering shoes online I make sure they have a good return policy.
AB: Exactly, and you see that the companies are really getting smarter. If you return an item and indicate the wrong size they use this data to determine fit for others. That’s when you’ll see fit recommendations based on other shoppers. Where Zalando will for example recommend to go a size up for a certain item.
Omnia Retail: You often also see size guides, where based on a few answered questions they will give you size advice. For example, if you know that a Puma shoe fits you in a 40 then they might indicate that a Nike shoe should be ordered in size 41.
AB: And that really helps the companies, because free online returns most of them can’t afford. At fonQ if customers returned items complaining that a certain piece of furniture was a different colour in real life than it was online, we made sure to note these types of feedback and change the pictures accordingly. This will make the experience better for the customers, who are happy with what they bought and the companies save money on not receiving returns.
Omnia Retail: How do you foresee the future of dynamic pricing and why is automation important in this process?
AB: I think in the future more and more variables will be added. I think more and more focus will be on sales data, trends, promotions, calculating what the effect of a promotion will be and capturing the history of a product. There is definitely a future for artificial intelligence, and I mean not so much for the products that you can recognise on an EAN because it’s comparable. But more for products that are new and where there is no competition and then you can use AI to see if that product is comparable to anything we’ve seen before. Does it belong to a product group or a category in order to set a price?
You also see a trend for more and more white label products at retailers because they want to be less comparable, but then how do you set the price and compare your product? Because it’s a different brand and a different product but it’s often really comparable to another branded one. So you need to compare based on attributes and features opposed to EAN and product name. This is something that is becoming a lot more relevant lately. This is a far more complex way of matching products. The technology will need to evolve in order to cover these kinds of aspects.
Omnia Retail: Interesting, staying on the topic of change, which vertical within the retail industry would you say has changed most over the past years?
AB: I think a big trend we saw was brands starting their own webshops because they were hit by the covid-related lockdowns and backlogs. If you look at the furniture business for instance, furniture is still a business where the majority, around 80%, of purchases are still made offline. Whereas in most other industries this is the other way around, for instance compared to consumer electronics. The furniture business was really hit hard because people were sitting at home and wanted to invest in a new interior, but if you can’t go look at a new couch, most people won’t just purchase it online.
For a lot of brands it was really noticeable that if the retailers don’t sell their products anymore they don’t sell anything. In response to that a lot of manufacturers and brands started their own D2C channels in order to be in control.
Another trend that we’re seeing is that more and more luxury brands are moving away from the marketplaces. For example, if there is an A brand and they are selling on any platform like Amazon or Bol.com and the customer searches for “chair”, they will see your designer chair of €3,000 next to a cheap chair of €20. Whereas offline, they would always be selling at an exclusive store. You would not find a designer chair in a LeenBakker store. However, online on marketplaces you can suddenly find these two items next to each other. Hence, a lot of the luxury brands are moving away from the marketplaces.
Omnia Retail: But apparently some luxury brands have tested it out and were represented on the market places.
AB: Yeah, but that was definitely related to volume, it seems like a great idea at first, it’s an easy channel and you can ship a lot of products easily anywhere. But what does it do to your brand image?
Omnia Retail: Since we're already talking about the marketplaces, what is your vision on marketplaces in the future?
AB: In general, I think there will be more and more marketplaces. If you look at the Netherlands, five years ago there was only Bol.com. Then I started with Blokker and Intertoys with the second marketplace in the Netherlands. And look at how many marketplaces there are already now. It’s really a trend that more and more retailers see a marketplace has a place in their category vision. Because if you believe in having the best assortment in your vertical you can’t afford to have everything and can’t manage it. So, a marketplace just makes most sense.
Omnia Retail: Sounds like even more of a reason to have a Dynamic Pricing tool if you need a different pricing strategy for the marketplaces than for other channels.
AB: Definitely. That’s why we see customers with several portals, so they can follow up on their marketplace offering and on their own channel.
Omnia Retail: This was very insightful, thank you so much. Rounding off, I would like to know what you like to do for fun, what excites you outside of work?
AB: BBQing is a passion of mine. And I really love to go out for dinner with friends and family. I love sports a lot, so I'm playing hockey three times a week and right now I'm training five days a week every morning. Plus I really enjoy a round of golf.
Omnia Retail: Thank you so much for this interview, Antoine. It was really interesting speaking with you and getting your expert opinion.
That concludes our interview with Antoine, who has given us and our followers plenty to chew on regarding pricing and strategy. Omnia Retail will be chatting to other experts in the field in the future, so keep posted to our LinkedIn page.
