The potential for profiteering and ‘greedflation’ has garnered significant press attention due to the fluctuating nature of retail pricing and headline-grabbing Consumer Price Index figures. Additionally, retailers themselves are concerned about the high wholesale prices charged by suppliers, even as certain business costs appear to be easing.
Consistency is key in this situation. Consumers require consistent pricing information to make informed decisions on their purchases. Retailers need to be consistent in labeling and promoting special offers. Negotiations with suppliers must be conducted in a manner consistent with regulatory requirements to ensure fairness and transparency.
To address these issues, it is crucial to implement an algorithmic retailing approach early on, rather than dealing with problems later. Joint Business Planning often requires decisions to be made well in advance, making it essential to have built-in compliance from the start.
Ensuring compliance in unit pricing
In response to a super complaint by Which? in 2015, the Competition and Markets Authority (CMA) concluded that inconsistent and over-complex unit pricing can prevent customers from finding the best value deals. The CMA has recently reopened its investigation and its findings in July 2023 indicate that little has changed.
While the Price Marketing Order (PMO) 2004 mandates retailers to display unit pricing for most grocery products, the CMA finds that its enforcement of specific measures is ambiguous, allowing for unhelpful inconsistencies in retailers’ practices.
For example, when different products within a line display prices per kilogram, per gram, or per individual item in a pack, it becomes difficult for customers to determine the best value. Loyalty card pricing often further confuses customers as displayed unit prices rarely reflect the final price they will pay.
In light of these issues, the CMA recommends a review of the PMO and proposes changes such as enforcing a single standardized unit per product type and clear unit pricing on promotional items. In order to achieve this, it is crucial to have systems in place that can automatically process and align unit pricing, even if the existing data is inconsistent.
Algorithmic retailing offers a solution by consolidating and automatically aligning business data. It can identify product lines, perform calculations, and adjust unit pricing to ensure consistency. It can also generate unit pricing that reflects loyalty card or temporary price reductions.
Generating promotions in compliance with regulations
Promotional pricing regulations are even more stringent, as retailers are well aware. Advertised discounts must consistently adhere to rules set out by consumer protection regulations, advertising standards authorities, and trading standards’ pricing practices guides.
Planning these promotions, including coordinating on-sale dates, assessing product availability, aligning with supplier discount periods, and predicting periods of high demand, is highly challenging. These decisions often need to be made during the Joint Business Planning process, without over-ordering if wholesale discounts are available.
Inadvertently advertising non-compliant sales or promoting product discounts that cannot be fulfilled can lead to serious fines. However, using an algorithmic retailing approach can help flag non-compliant discounts during the planning stage or block them altogether.
With intimate knowledge of the data and the assistance of AI models operating within defined parameters, algorithms can provide additional insight into potential promotions. This allows retailers to uncover new opportunities that a traditional planning process might overlook.
Protecting suppliers through proper process
High wholesale prices have prompted some retailers to request that their suppliers reconsider pricing in line with reduced energy and resource costs. It is crucial that any such requests are made as fair inquiries rather than demands, as compliance falls on the purchaser.
Under the terms of the Groceries Supply Code of Practice (GSCOP), delisting a product must be done fairly, with genuine commercial reason, and with reasonable notice to the supplier. Non-compliance with these requirements can result in fines of up to 1% of a large retailer’s turnover, which could be highly damaging given retailers’ narrow profit margins.
Although the GSCOP’s messaging is sometimes criticized for its vagueness, algorithmic retailing can provide consistency and compliance during the delisting process. By highlighting underperforming or overpriced products, algorithms enable retailers to initiate the delisting process earlier than they would be able to do manually.
If a supplier wishes to negotiate or have its decision reviewed, senior buyers will have all the relevant information at their fingertips and can simulate the impact of adjusted pricing.
Staying consistently ahead of the curve
While the rate of inflation may be dropping, the market remains in a state of flux. This period of rapid change is occurring under increasingly stringent regulations. Retailers facing these challenges have a choice: work harder or work smarter.
An algorithmic approach offers a smart solution that creates a consistent process structure, enables prompt action, and automates the major burden of compliance. This allows key staff to focus on making decisions that will shape the future of retail businesses in the post-crisis era.
About the author:
Edward Betts is the General Manager – Retail Lead Europe at Retail Express.
