Kega

What will the near future bring us?

Once you seriously get to work on rule-based merchandise, the possibilities are endless. The steps that still await us, and we’re expecting these steps to be taken sooner rather than later, are real-time stocks and merchandising, enabling you to respond even quicker and more personal. Because every visit to the website has its own calculations and recommendation based on customer profile, stock level, previous visits, popularity, purchase history, etc.

Even influences like the weather, or day versus night, can quite easily be incorporated in the systems, which leads to the first customer offer being most relevant. And finally, the systems will look at and calculate which products sell better on which devices, leading to a different ranking for each device. Basics are easier to buy on a smartphone, whereas more complicated purchases are sold more often via tablets and laptops.

Dynamic pricing

Following on from optimising the margins, there’s still the challenge of dynamic pricing. E-commerce has a definite head-start on the physical retailer in the respect. Prices can be adapted more easily and, more importantly, quicker in an online environment, which creates a less transparent pricing image and often a greater sense of urgency. In the airline industry, for instance, nobody is surprised by the daily fluctuating prices. In physical stores, this strategy is a lot harder to implement and there is an underlying fear with retailers that the shopper won’t accept it.

An extensive research study conducted by Kega shows, however, that applying a dynamic pricing strategy in the physical store does in fact have a good chance of success, and that there are enormous sales advantages to be had. This will require an investment in systems, but once the initial expenses have been made, an increase of up to 40% more margin can be attained. This mostly has to do with discounts that are less steep, yet at the same time more personal. Someone who likes a certain brand, but doesn’t want to pay full price, waits for the first sales. But during sales, the size the customer is looking for is often unavailable, which could mean a missed sale. By offering the customer a smaller discount at an earlier stage, but with an in-stock guarantee, the purchase is brought forward, the margin is increased and the customer goes home happy. You can offer such personal discounts using any number of methods, such as loyalty apps, e-mailings or through personalised ESLs.

What can the physical store learn from this?

Dynamic pricing in the shop is only part of rule-based merchandising. It starts to really get interesting when the data that you collected online is shared with the physical stores, allowing the merchandisers to put together a collection that is most popular among retail shoppers. The number of clicks and online sales, together with the in-store stocks, determine which items are given prominent positions in the store. This way you can respond to sales trends quicker and easier. Converting your whole store every week, according to these calculations, won’t yield any added success, but changing some of the sales and discount displays regularly could mean an enormous sales boost as well as margin optimisation. 

Artificial Intelligence vs. Emotional Intelligence

Is it all gold that’s at the end of the rule-based merchandising rainbow? That all depends. Thanks to artificial intelligence, the system will definitely get the most out of the margins, although the system won’t be looking at the brand values of the retailer. For instance, the system might see that the item being bought most often is a pair of socks, so therefore the system will, for the benefit of sales opportunities, always recommend socks as an upsell item. But, as a high-end fashion retailer, you also want to inspire your customer by showing them complete outfits or fantastic mix-and-match item. This strengthens the brand image of the retailer and this also has a certain value that is not calculated by the system. Which product do you ultimately want to show?

Merchandisers have a sixth sense in finding the perfect balance because they work with ‘Emotional Intelligence’. They are able to make a well-considered choice between margin and image. In rule-based merchandise systems, therefore, there is always the option to overrule the choices of the system. And that’s a good thing too, because our customers also have more emotional intelligence than artificial intelligence.