Most retailers across all industries turned out to be unprepared for the radical consumer behavior transformations provoked by the COVID-19 pandemic. Some players expected to return to the pre-crisis patterns just after the lockdown, with public life restrictions easing. However, it is becoming increasingly evident that the opposite is true, that many of the current transformations appear to be long term.
The good news is that the retail sector has survived dozens of severe economic and social crises in the past and, be sure, it will survive the current turbulence too. But it is also obvious that the world of post-COVID retail will be different.
It wouldn’t be an exaggeration to say that the personalization of shopping experience remains and will be one of the crucial trends defining the future of retail. What it means is that understanding changing consumer psychology and shopping behavior is crucial for retailers willing to reinforce their positions in the post-pandemic world.
Online shopping has become a dominating consumer pattern thus far, while pricing is still a core factor considered by consumers while making a purchase. Let’s dig a little deeper and see the implications for retailers.
COVID-19 Changes Consumer Buying Behavior
In every country, the boost of online sales associated with the pandemic outbreak has become the dominating consumer pattern pattern of behavior. Just after the first cases of coronavirus were localized. The trend began in China, where one online retailer reported its online grocery sales grew 215% to 15,000 tons just in a 10-day period between late January and early February. By now, online sales continue to grow internationally across almost all industries and markets.
So what does the prevalence of online shopping mean for retailers? To put it simply, if a shopper can buy the same product online and in a brick-and-mortar store, the first option is now becoming more preferable. We can’t say exactly for how long restricted living conditions will be sustained in every country, but it’s clear that the new shopping patterns will stay relevant even after the pandemic is over. After all, why change back if online purchasing is easier?
Of course, consumer behavior changes are not uniform, impacting industries differently. Health-safety products, pharma, and grocery sales have increased globally during the lockdown. In contrast, some industries, like footwear or apparel, face a dramatic decline. The point here is that the demand for different categories of products will be stabilized after the crisis is over. But what will not change is that the online will continue to dominate as a major sales channel.
Online Shopping is The New Norm
Online sales grew year-by-year during the entire decade. In this light, the pandemic has only sped up a process that has started a long time ago. Similarly to the 2008-09 global recession, the COVID-19 crisis now reveals which retailers did their online homework well and vice versa.
Last year, the industry observers argued that half of all UK retail sales will be online within the next 10 years. Now, it seems that the point of 50% of online sales will be reached in a couple of years. And those retailers who managed to ignore online sales have no other choice than to reconsider their strategy.
You might have heard that Jeff Bezos has seen his total wealth swell by $24bn since the beginning of the COVID-19 outbreak. No doubt, Amazon may serve as a perfect example of a company that managed to outperform rivals due to the right strategic and innovative decisions made in advance.
It might be too late for other retailers to try to replicate the path Amazon made in the last few years, yet it’s just the time to make a few things needed to adjust to the new realities:
- If you’re still not selling online, start doing it.
- Find your strengths and define the focus
- Strengthen your position on the market
- Scale-up successful models
- Invest in the channel’s development
It sounds simple. But it isn’t. Especially when it comes to real life. Let’s see how it works and why being aware of changing consumer psychology is crucial to becoming an effective online retailer.
Rule №1: You Must Sell Online
The recent trend shows that moving online is inevitable for retailers of all kinds and industries. Of course, it doesn’t mean that the share of online sales must, eventually, become at least 50% of total sales or more. Retailers can have 20%, 10% or even 5% of sales online but they must be there, that’s the point. The model of a stand-alone brick-and-mortar retail appears to be no longer relevant. At least for most of the industries. That’s why you must learn how to sell online if you want to stay relevant.
The question most players face now is not whether they should or should not move online, the question is “How to move online?”. Retailers must choose the model of their online representation. Here are the three most common approaches to online price positioning:
- “All for all” model
- “Best offering” positioning
- Exclusive range retail
The “all for all” model implies offering the large assortment of products online covering all various consumer groups and categories. Large marketplaces are a good example of this approach. The choice of this model requires a retailer to have a significant turnover as, in this case, most of the products are usually sold at low margins.
The “best offering” positioning is a good way to win a group of loyal customers eager to buy products at the best price. This approach helps retailers to build brand awareness and stay financially healthy, yet it also requires a certain level of tech maturity as other players’ prices should be monitored accurately and the internal pricing process should be coherent and automated.
Finally, the exclusive range approach is considered by many retailers as the most beneficial financially because of high margins and reliance on the wealthiest customers. No need to say that this model could be implemented only by retailers with substantial operational and brand maturity.
Rule №2: Prioritize and Define Focus
The choice of a particular online positioning model depends on many factors, including the operational maturity, industry specifics, turnover, and other aspects. That’s why it is important to analyze your strengths and weaknesses before moving online.
While online shopping becomes a dominating consumer behavior pattern, retailers have to consider four pillars underlying online positioning to choose the priorities and define the focus.
These four elements are price, assortment, speed, and simplicity. Before choosing an online positioning model, a retailer has to define within which of these aspects an advantage can be gained. Example: if you sell a limited line of products, yet the prices are better than competitors’ ones, it is likely that the price and simplicity are the strengths that you should focus on.
Rule №3: Strengthen Your Position
Now, after the focus is defined and the price positioning model is chosen based on a retailer’s strengths, the next step is to develop your crucial capacities. That’s what we mean by “strengthening position”. Let’s take a look at two examples to illustrate how it might look like in practice.
Imagine, a retailer is positioned on the market as one offering the best price. Now, it should not necessarily mean that every single position should be priced better than average on the market. In fact, it would be more relevant to offer better prices only for the key-value items or KVIs. But the point is to find which of your products are actually the true KVIs sought and compared by the shoppers. In this case, a data-driven assortment segmentation of the portfolio aimed at identifying such ‘true KVIs’ is needed to strengthen your position.
Another example: if you’re selling a wide range of items at a marketplace using an “all for all” positioning model, you need to monitor the market carefully. And here’s an interesting fact: only 3 out of 10 competitors selling the same product might have a real impact on you. What it means is that finding the real competitors is integral to improving your position. Especially, in the case of “all for all” model.
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Rule №4: Scale-up Your Success
Every retailer selling online should remember: once you stop scaling, your market position is under risk. Automation is the answer to many challenges online retailers face at every stage of their business journey. In the time of crisis, the market leaders around the globe invest in technology. The truth is simple: the business should innovate or die.
Hopefully, there are dozens of retail software solutions available on the market helping to scale-up all kinds of successful models. The last-gen algorithms help resolve a huge number of challenges from identifying the real impact every competitor has on sales to segmenting products into different groups so a retailer is able to apply the right strategy per each bucket.
Rule №5: Develop the Channel and Know Your Customers
Remember what is the fundamental retail trend that would most likely continue prevailing in the future? That’s the personalization of shopping experience. And retailers should keep it in mind while establishing or reinforcing their online presence.
To offer a personalized and unique shopping experience, the business should develop various scenarios of the customer journey. The tech-driven solutions would once again be helpful here as they help to identify particular buying patterns and reveal the expectations that certain groups of buyers might have.
Developing an online channel also implies the control and optimization of consumer attraction costs. Every retailer knows that getting customers is worth budgets spent on promo, public relations, and other forms of communication. And that’s where you should once again define and follow your positioning model. If a retailer uses the “best offering” positioning approach, there is no point to spend money on promo targeting customers interested in premium offerings.
Global economic turbulence caused by COVID-19 has sped up particular retail trends and consumer behavior patterns. Moving online appears to have no alternative for retailers while the pre-pandemic situation is not likely to reoccur after the recession.
The need for defining or redefining online market positioning is a crucial challenge faced by retailers across the regions and industries. To succeed online, it is important to know your customers well. More than 30% of shoppers make purchases through more than 3 channels during a month. Understanding consumer behavior enables retailers to offer a personalized shopping experience.
The potential of almost 20% of products in the portfolio is either under- or overrated. What it means is that a tech-driven assortment segmentation is a powerful means for capitalization in online retail. The advanced software also reinforces the transparency, coherency, and simplicity of decision-making which, in turn, saves resources for better communication and promo.
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