As the Christmas trading figures emerged from the big-name supermarkets last month, the outcome of their price war was laid bare.
Consumers benefited from falling food prices while limited-range discounters Aldi and Lidl enjoyed their fastest growth ever. However, this war has not been without its casualties.
Morrisons performed so badly it's decided to look for a new CEO, while once-mighty Tesco has entered recovery mode, dumping non-core assets in data science and broadband services and closing 43 stores to save money.
The number of food producers going bust has increased dramatically as supermarkets squeeze producers in the quest for greater profit, according to accountancy firm Moore Stephens.
"The supermarkets are going through the bloodiest price war in nearly two decades and are using food producers as the cannon fodder,” said Duncan Swift, a partner at the firm.
It’s easy to see the battle as one of price, something described as a race to the bottom as supermarkets cut, undercut and cut once more.
Investments in technology have long underpinned the strategies of the UK’s biggest supermarkets to gain market share and win customers; but what role has it played in the high street battle for your wallet or purse?
You might not be surprised to learn data collection and analysis are playing an integral part in the retail strategies that are more evolved and subtle than a raw fight on price alone.
“Technology, or more precisely the vast amounts of big data that grocery retailers can now collect on our spending and shopping habits and analyse, has certainly grown to play a more critical role in their quest for market share and price supremacy, all in an increasingly saturated competitive market,” Miya Knights, senior research analyst for IDC Retail Insights, told The Register.
“The industry has talked for about 20 years about integrating everything, but it’s only really now that the technology is really capable of delivering on its promises... It’s all about turning big data into business insight, and we’re only really at the beginning of retailers turning that data into value.”
“Pricing is where the war is at the moment but I don’t think anyone is winning,” says Bernard Marr, business consultant and author of Big Data: Using SMART Big Data, Analytics and Metrics to Make Better Decisions and Improve Performance. “Pricing is very data intensive but they can all do it now. Everyone has access to the same data.”
“Price has a number of elements to it,” explains Chris Field, managing director of Fieldworks, a specialist consumer industries marketing consultancy. “Price matching seems quite clever and the technology behind it is quite clever but why would anyone think to give away margin by price matching with another store?”
Field says the real battle is not on price matching, but instead on using price as a means to build trust and ultimately loyalty with consumers. To that aim, the challenge facing the supermarkets is how to integrate data from a whole host of areas – from competitive market information from third party providers such as Nielson, loyalty card data and a single view of each customer’s transactions across the entire range of channels – to offer personalised promotions on the right products to the right customers at the right time.
“The industry has talked for about 20 years about integrating everything but it’s only real now that the technology is really capable of delivering on its promises,” says Field, who believes many retailers are sitting on analytical applications they haven’t used because integrating all the various silos of information is too hard or takes too long.
“It’s all about turning big data into business insight, and we’re only really at the beginning of retailers turning that data into value,” he adds.
Take something called “price optimisation technology.” This has been around for some time but adoption among retailers is now really ramping up, largely due to the fact that they now have the relevant data on sales, forecasts and competitive pricing to hand. Combined with advances in high-performance computing software, services and infrastructure, this is allowing them to perform in-depth data analysis, IDC’s Knights says.
From a pricing strategy perspective, it’s not necessarily about being the cheapest in the market. The software uses advanced statistical modelling, data mining, pattern recognition and optimisation techniques to monitor customer demand, measure how a price is perceived – whether too high, just right, or too low – relative to other retailers, and optimise prices and promotions.
“It’s about where you give discounts to still give yourself a good return but now the applications need to look at the lifecycle value of customers including looking ahead to purchases they will make in the future,” according to CapGemini’s head of digital, consumer products and retail Alex Smith-Bingham.
The price optimisation software and/or services vendors leading in this space include Revionics, KSS Retail, Dunnhumby (that Tesco took a 53 per cent stake in 2001 for a reported £30m but who Tesco is now looking to sell), IBM DemandTec, SAS Retail, Vendavo (which provides SAP’s Price and Margin Management module) and Oracle Retail Regular Price Optimization.