Price Points by Omnia Retail

In Omnia's Pricing Blog, our pricing experts cover all the latest trends, Omnia pricing events, customer insights and pricing strategies.

09.11.2023

E-commerce Shipping: A Guide on Costs, Speed and Environmental Impact

There are pros and cons to every method of shipping, whether international or local, and there’s also no “right” answer. Every e-commerce business is different, and the right shipping strategy depends on factors like budget, product assortment, who your customers are, where the business is based geographically and more. Rather than giving tips for which shipping methods are best or which ones a business should use, we’re breaking down some of the most common methods in three key areas: cost, speed and environmental impact. Cost: How much does it cost the seller to ship the product to the buyer? Costs to consider include carrier costs like shipping labels, packaging, fulfilment, insurance and overhead. Speed: How much time does the shipping method take? How long between the customer making the order and receiving their package? Environmental impact: What effect does the speed and method of shipping have on the environment, from carbon emissions to water pollution and more? Delivery methods for e-commerce: Cost, speed and environmental impact Same-day delivery Same-day delivery is becoming more popular and is the fastest-growing segment in the last-mile shipping environment, growing at 36% annually. In Europe, same-day delivery accounts for about 5% of total deliveries. E-commerce giants with large-scale supply chains tend to cover this especially well; Amazon already delivers to nearly three in four customers within 24 hours. The same-day delivery market is forecasted to reach $26.4 billion (USD) by 2027. The term “same-day delivery” can mean different things depending on the seller; in some cases, orders placed by a certain time will arrive by the end of the same calendar day, while others may just mean delivery within 24 hours. Typically, for same-day delivery to work, sellers need to have distance limits or cut-off times for when the order must be placed by to qualify. It’s also worth noting that same-day delivery is not always possible; it’s more likely to see it as an option in large cities or in more populated areas of Europe, for example, compared to the US, Canada or rural regions in other countries. The cost of same-day delivery, both monetarily and to the environment, depends on the carrier and the region. With traditional carriers such as FedEx, UPS or DHL, same-day delivery can be quite expensive and have a higher environmental cost. As Earth.org points out, “when dealing with a one- or two-day shipping window, [carriers] are often forced to send out trucks that are filled at half their capacity, generating more traffic and thus emissions.” However, especially in larger cities across the globe, there are many carbon-neutral alternatives available. For example, there are newer carriers like Budbee from Stockholm whose offer from the start was same-day delivery, with electric vans that are cheaper and carbon-neutral. There are also bike couriers in some markets, like Stuart in London or Cycloon in the Netherlands, that offer same-day delivery directly from stores. In these cases, same-day delivery is fast, carbon-neutral and not necessarily more expensive than slower shipping options. Overnight, two-day and expedited shipping The environmental impact of overnight and other speedy shipping methods like two-day and expedited is highly dependent on the area. Within regions like France and Germany, for example, overnight or two-day shipping may be the cheapest option at many carriers, and the environmental impact is mostly based on context, such as the type of parcel, location and other factors. However, overnight or expedited shipping in regions like North America, Australia and APAC can be expensive, especially when transported by air versus sea or ground shipping. A study performed in China on the carbon footprint of shipping options found that emissions from air shipping were 65 times higher than sea shipping. (Note that sea shipping is simply not an option in certain regions like North America and Australia.) Higher speed can also mean higher costs, in some cases. Air cargo typically costs more because of the need for faster delivery times and high fuel costs. Ocean freight, however, uses larger vessels that can transport more goods for longer distances, which is why it tends to be 12 to 16 times cheaper than air freight. In general, retailers who want to use overnight and speedy shipping options without high cost or environmental impact certainly can do so, as long as they find the right carriers to partner with and take into consideration 1) the region they are operating from and 2) the regions of their shoppers. Two- to three-day shipping Two- or three-day shipping, sometimes called priority shipping, is one of the more common types in e-commerce. It is slower than overnight, same-day and expedited options, but can still get items to customers faster than standard economy shipping in some markets. In European countries, the cultural differences between countries and delivery networks create discrepancies in what is considered “priority shipping”. For example, in urban areas like Stockholm or Oslo, it’s considered normal to offer overnight delivery, while in other parts of Sweden and Norway, shipping times are far longer due to the large distances – hence the offering of priority shipping options in these specific regions. In general, consumers are more likely to complete a purchase when it’s delivered faster than usual: In North America, up to 85% of shoppers are more likely to buy when two-day delivery is offered. The cost of two-day shipping is highly dependent on how far the item is being transported. For shorter distances, ground shipping can be used; this is why sellers with fulfilment centres or warehouses in different regions are more likely to be able to use this option. For longer distances, air cargo is used to guarantee the two-day turnaround; however, this has a higher cost and a larger environmental impact. In some cases, “fast delivery” – which encompasses all shipping options where orders are delivered within one to three days – will require some air transportation, meaning sellers can’t take advantage of full truck load capacities. This results in the need to dispatch more frequently and increases the total cost of transportation and environmental impact. A simulation model run by a team of MIT researchers in Mexico, for example, showed that “fast shipping produces significantly higher CO2 emissions since it imposes a challenge for cargo consolidation.” Their findings indicated that fast shipping increases both total CO2 emissions and costs by up to 15% and 68%, respectively. In Europe and other large metropolitan areas around the world, fast delivery does not necessarily cost more or require air transportation, decreasing the environmental cost. Standard shipping This may be called economy, regular, basic or ground shipping depending on the country or region, but it’s simply the cheapest shipping option available from the courier. Items sent by standard shipping typically use ground transportation and take longer to arrive. Here are some examples of how long standard shipping takes for domestic orders in Europe, the US and UK: Netherlands: 1-2 working days Germany: 1-2 working days France: 1-2 working days UK: 2-5 working days United States: 3-5 working days Costs to use standard shipping vary by country and courier. As for the environment, the typical saying is that “slower is greener.” According to research by Josue Velazquez, a research Scientist at the MIT Center for Transportation and Logistics, e-commerce customers who wait up to five days for home delivery “could help decrease carbon dioxide emissions by about 30% in the last mile of a delivery.” However, as with other types of shipping, this is all dependent on location. International shipping Shipping packages internationally can vary widely in terms of cost. While domestic shipping often has a flat fee, shipping to other countries may lead to additional costs in areas like customs and customs brokerage, as well as ground, maritime or air transportation. Speed also varies with international delivery. Shipping from the US to Europe, for example, can take anywhere from 10-16 business days with economy delivery services, or as few as one to three business days with an expedited courier. All European countries have their local domestic “postal” networks that are now used for delivering parcels. These networks stop at the country borders and therefore companies need international line haul transportation networks to "inject" parcels into the local networks of their neighbouring countries. This may lead to one or two additional delivery days. On the environmental side, international shipping of any speed can have a high environmental impact, as it typically requires multiple legs of transport and at least some involvement of air or ocean cargo. Eco-friendly shipping “Eco-friendly” is not a clearly definable term, and it means different things depending on the e-commerce seller. Generally eco-friendly shipping can involve any of the following: Recyclable or compostable packaging Carbon offset options Smaller packaging size Ground-based shipping versus air or sea Slower shipping An e-commerce sustainability survey by Sifted found that consumers are interested in these options. 91% wanted an eco-friendly shipping option when they checkout, and 57% are willing to pay an additional 10% for eco-friendly packaging and shipping. While the cost of using eco-friendly packaging can be higher, using less harmful shipping methods like ground and standard shipping can actually be cheaper for the seller and the shopper. Alternative delivery (parcel lockers, click and collect) Many e-commerce sellers are choosing to offer additional delivery options. A global survey of supply chain executives found that 44% offer click-and-collect (including products that are not shipped and sold directly from stores) and 11% offer collection points. These options can decrease costs for shippers if they are able to group packages, and may increase the speed of delivery in some cases. Whether delivering to a parcel locker or collection point makes a significant difference to the environment depends on what one considers “significant”. During the last-mile delivery stages, the previously mentioned study in China found that total emissions produced for home delivery were 0.012 kg CO2e higher than delivery to a collection point. Source: AZO Cleantech 2021. Talk to one of our consultants about dynamic pricing. Contact us Which shipping method is best? It’s up to the consumer During a talk at Omnia’s annual Price Points Live event in 2022, Dr Heleen Buldeo Rai, a researcher at the Université Gustave Eiffel in Paris, spoke about how it’s really up to the consumer to choose delivery options, not the retailer. With the industry standard set at free delivery, most consumers are no longer willing to pay for shipping; they are, however, willing to wait longer or to “click and collect” their purchase. A study she conducted with colleagues in Belgium – with similar results seen in Netherlands, Bolivia, China and Brazil – found that while 81% of consumers would say yes to free next-day delivery, that number only dropped by three percentage points when offering free delivery within three to five days. When a slower shipping method is used, there is a positive impact on the company’s costs as well as the environment. This study could indicate that consumers are willing to make this trade-off, if retailers use the information to properly motivate them toward eco-friendly delivery options. Customer demands may outweigh shipping costs in the end Since 2010, global e-commerce sales have increased by nearly 800%. That’s great news for all the e-commerce sellers out there and for the customers who want to shop online, but there is a fragile balance to maintain. We all saw the strain put on supply chains during the COVID-19 pandemic: An EY of survey supply chain executives across industries found that only 2% of respondents said they were “fully prepared” for the pandemic. 57% said they were affected by serious disruptions, with 72% reporting it had a negative effect on them. While that situation is not a daily occurrence, the growth of fast shipping, combined with the steady uptick in e-commerce sales each year, is putting its own stressors on the logistical capabilities of our global shipping network. In order to keep the global supply chain from collapsing as e-commerce volumes increase, and to boost environmental protections, it may become more necessary over time for customers to make trade-offs and accept slower shipping times. As data from Sifted showed us earlier, nine-in-ten consumers wanted an eco-friendly shipping option when they checkout, and eigh- in-ten would wait at least one extra day for their delivery if that meant it was shipped more sustainably. Increasing the amount of orders that are shipped slower would have significant positive impacts on the environment, while also saving e-commerce businesses on their delivery costs – but not every consumer will be willing to accept slower shipping. It’s a tricky balance, indeed. Retailers and brands who sell online must balance this need for sustainability with a positive customer experience and reliable and flexible delivery, all of which adds up to customer loyalty over time.

Research, eCommerce, Consumer Behaviour

11.01.2023

Analysis: Prices on Zalando drop by up to 23% over Black Friday

Despite slow performance expectations for Black Friday 2022, retailers and marketplaces around the globe proved once again how well a shopping event like Black Friday can do - even in the face of record-breaking inflation, energy and food costs. The small and medium tech and domestic products categories, such as TVs, toasters and headphones, showed the largest price drops while consumers wanting to make good use of the discounts arrived in full force with their wallets in hand. Results in the US showed a 2.3% increase in online sales compared to 2021. In the Netherlands, data from credit card translations and online sales showed a 12% increase in purchases while spending increased overall by 30% in the week leading up to Black Friday. As an event, the most successful retailers and online marketplaces like Zalando have learned how to get the most out of consumers and their vendors using competitive pricing strategies. As Omnia works to provide critical data and information to our clients to better serve their pricing approach and to increase their knowledge of online marketplaces, we’ve taken a look at how Zalando, one of Europe’s biggest online marketplaces, managed its pricing on Black Friday 2022, as well as before and after. Zalando’s pricing before, during, and after Black Friday Our team analysed 10,000 product prices on Zalando across multiple vendors within various categories, however, with a specific date range surrounding Black Friday, which took place on 25 November. As shown below, Zalando’s prices increased by 8% in the three weeks leading up to Black Friday, starting on 25 October. Then, there is a significant price drop by 18% on the 17th, signalling the start of Black Friday week. The decrease in prices reached its highest amount with a drop to an average price level of 85.5 % on Sunday, 27 November. This means that prices have fallen by 23% (compared to a pre-Black Friday level of 108%) in just one week. After Cyber Monday, prices returned to pre-Black Friday numbers which were still higher than prices in October. Price Level on zalando.de over time, Source: Omnia Retail Data Price Level on zalando.de: For the analysis, the prices on the first day of the observation on 25 October mark the reference point (100%). From there our data shows that the price level (on average for all observed products) is increasing until 16 November. A turning point is 17 November: From a price level of 108%, the average price level dropped to 85.5%, which marks a relative drop of 23%. To win the Buy Box, price became the top driver for vendors We have observed additional dynamics in the price-change frequency over the Black Friday period which leads us to believe that Zalando implemented repricing strategies to create a stronger sense of competition for the Buy Box: In our methodology, a price-change ratio of 0% means that the price never changes A price-change ratio of 100% means that a price always changed at any observation time stamp (which was every 15 minutes). A price-change ratio of 1.5% meant that a price would change once per day. Over the Black Friday period, this ratio climbed to 7% on average, meaning that the price would not only change once every 24 hours, but it would change once every 5 hours. Source: Omnia Retail Data Usually, to win the Buy Box, the top driver has never been about price: Over the same observation period, 25% of products had a maximum of one vendor change in the Buy Box and 7.4% of products had no change at all despite 56% of these products showing price increases. Even in the three weeks leading up to Black Friday, the Buy Box owner never changed for 28% of all products. This shows that, historically, price is likely not the main driver for winning the Buy Box, however, during Black Friday, Zalando’s pricing strategies brought pricing to the forefront as a top factor, instigating lower prices and stiffer competition. In the graph below, one can see Zalando’s Black Friday pricing strategy at play: Source: Omnia Retail Data Outside of competition scenarios, the Buy Box is less about price and more about convenience If price is usually not the determining factor for winning the Buy Box, regardless of competition scenarios, what is? Speed of Delivery Our data suggest that delivery times are vital to remaining in the Buy Box. To win the Buy Box, a vendor must have a maximum delivery time period of four days, which becomes even less when the number of vendors per product increases. In other words, the more competition there is for a certain product, the more important convenience becomes for the vendor and ultimately the customer. Availability of Stock As seen below, the Buy Box change ratio when all products are available is at 2.1%. However, when products are unavailable up to 24 hours, the change ratio doubles to 4.09%, showing just how vital availability of stock is to winning the Buy Box. As a vendor, it is essential to have consistent levels of stock, otherwise your chances of losing the Buy Box is much higher. Source: Omnia Retail Data Unlike Amazon, Zalando leaves competitors wondering about their Buy Box strategy As an online marketplace, Zalando’s focus remains within the fashion market, attracting 48.5 million active customers across 25 European countries, earning a revenue of €10.5 billion in 2020. Zalando claims not to have a Buy Box like Amazon in an attempt to distance itself from the image of a platform where prices change within minutes due to the high competition among vendors: “We do not want to enable a price war. Therefore, only one vendor offers a product. If more vendors offer the same product, convenience decides who is listed on the platform. This is calculated by an algorithm on the basis of factors such as shipment speed, trustworthiness and return speed. There is no pressure on price to win any kind of Buy Box,” says Zalando’s VP of Direct to Consumer Carsten Keller. Nevertheless, as a marketplace, Zalando opens its platform to third-party sellers just like Amazon does. According to their website, 800+ partners are active in their partnership model entitled “Zalando Fulfilment Solutions”. This means that, in some cases, more than one retailer, including Zalando itself, is offering a product on the platform. And this, as the above statement indicates, leads to a situation where the platform has to decide which offer is listed and shown to the end consumer. Finally, this is where we can speak of a Buy Box offer similar to Amazon’s, as the principle of a product being offered by multiple vendors on the same platform is the same. If Zalando is not open about its Buy Box strategy, how can vendors benefit from Omnia’s services? A vendor selling on Zalando is able to retrieve all available data from the platform into Omnia’s software as a direct scraping source. As the website does not show competitor prices, the data will nevertheless be useful to run an internal data analysis shedding light on what pricing strategies can be useful on Zalando. With Zalando as data source, the retrieved data can be used within different sets of pricing rules. Vendors need to have a robust pricing strategy for Zalando In times of high spendings, such as over Black Friday and the Christmas festive season, vendors need to prioritise a number of factors, from stock levels to delivery times, as well as competitive-based pricing to make the best of their real estate on Zalando. As seen from the above data, price is not historically the most important factor for Zalando’s Buy Box, however, Black Friday 2022 proved that the marketplace is willing to adjust its commercial values to create an environment where lower prices will result in more spending.

Pricing Strategies, Research, E-Commerce, Black Friday

25.10.2022

How inflation is affecting production and overconsumption

With falling profits, rising inflation and bloated overhead costs, the world of retail and eCommerce is experiencing one of its biggest challenges since the 2008 global recession. Wall Street reported that of the 79 large retailers that shared their financials during the period of 1 April - 23 May, 59% of them reported a decrease in consensus revenue for 2022 and 71% estimated a decrease in earnings for 2023. During the same period, the S&P Retail Composite Index fell 24.1%. Either directly or indirectly, inflation affects everyone and everything that involves monetary exchanges, but two of the most impacted arenas are production and consumption. How are retailers feeling the pinch? Are consumers taking on the costs of retail corporations’ slacking profits? How does inflation affect consumer behaviour? And, amongst the fog, is there an opportunity for retail to shine through these difficult times? We’re answering these questions as we look at the impact of inflation on production and overconsumption. The domino effect of increasing inflation The Belgian food retail company Colruyt Group, reported in September that their profits for the most recent financial year have experienced a significant decline due to rising inflation. However, in a move unique to most food retailers, the group’s CEO Jef Colruyt has promised that the decrease in profits as a result of high inflation will not be a burden passed onto consumers and that they will continue with their low-price strategy into the new financial year. To offset the financial cost, the group is considering selling a part of its wind energy company Parkwind. Other food retailers are experiencing empty shelves as relationships with manufacturers and farmers have soured due to tense conversations over energy, employee and transport costs. For Colruyt alone, these rising costs could amount to approximately €200 million. Luckily for loyal Colruyt buyers, their relationships with manufacturers and farmers remain steady, and food shortages are not expected to be an issue. On the apparel side of retail, Nike is expanding its relationship with online marketplaces like Zalando, however, not without a cost. Although sales rose by 4% in the last quarter, the increase in manufacturing costs caused a 20% drop in earnings per share. In addition, gross margins fell to 44.3% due to higher transport costs including freight and logistics. However, the new relationship with Zalando is expected to be a successful one for both brand and retailer, as more Europeans will be able to access premium Nike products through Zalando if they are a Nike club member. Returns is already a €111 billion issue for e-commerce players - and that’s just over the festive season. Couple that with 2022’s inflation shock-to-the-system, it is no wonder brands and retailers are reaching for ways to curb overhead costs. In an eyebrow-raising moment for most consumers, global clothing brands Zara and Boohoo have begun charging for returns for their online shopping customers due to rising delivery costs. Zara is charging €1.95 per return, or, a return is free if they drop it off at a branch. It is also a tactic to increase footfall and to lure in impulse shopping. However, the commute to a Zara branch still requires time and money from the consumer and may be considered an inconvenience for shoppers who choose online shopping for the reason of convenience. Talk to one of our consultants about dynamic pricing. Contact us From production to consumption, how are retailers and brands reacting? A 2022 report by Unicef concluded that if every person in the world consumed resources at the rate of people in the EU and the OECD (which includes the US, the UK, parts of South America, Australia, Turkey and many European countries), we would need 3.3 Earths to sustain the level of consumption. An even worse statistic showed that if everyone consumed the way people in Luxembourg, Canada and the US did, we would need 5 Earths. In the long run, operating a sustainable company - and a sustainable world - with eco-friendly supply chains, manufacturing and delivery processes will be the most effective solution to overconsumption. It is a mammoth task that requires a years-long commitment, but companies like Apple, Google, Patagonia, Beyond Meat, Who Gives A Crap and more have made major moves to be more sustainable, to promote lower consumption, and to reuse. After piloting a secondhand items program, luxury fashion brand Balenciaga is planning to implement it full time after it showed much support from Balenciaga customers wanting to sell their secondhand purchases as well as potential shoppers keen to have a piece of the brand at a more affordable price. The brand, owned by Kering, says the move is part of their goal to become “a fully sustainable company” with a focus on consuming less, recycling and reusing. Balenciaga has selected Reflaunt, an online service that sells second hand luxury items to “embrace circularity” as their chosen resale platform. In August, Michael Kors also launched its resale side of the business, saying the goal is to extend the life of MK products and to reduce waste. The very existence of any luxury brand goes against the ideals of minimalism and anti-materialism. In fact, a luxury brand generally embodies the opposite: Flashiness, opulence, excess. It will be interesting to see how well these resale strategies work in terms of interest, sales and impact on overconsumption. On the consumer end, can inflation cause a decrease in overconsumption? French economist Jean-Pierre Malrieu says that “in these times of overconsumption, inflation is a gift from heaven” and adds that high inflation tends to “restore balance” when it comes to materialism and over spending. Sharing in this trend are many US consumers who, as reported by the New York Times, are changing their consumption habits. Some families have stopped using a house cleaning service and have opted to clean their homes themselves. Others have stopped taking their pets to professional groomers. Holidays include camping at local spots instead of cross country trips. Audible and Kindle subscriptions are being cancelled and replaced by books, walking and board games. Others have grown a vegetable garden and have learnt to make treat meals like pizza so that they don’t have to spend money on takeout. Some are updating old clothes instead of throwing them out and replacing them. How can retailers offset the impact of inflation without layoffs or passing the cost down to the consumer? Focusing on affordability. In retail, there are always ways to cut costs. Looking for suppliers that are less expensive or materials that are cheaper is a good starting point. Introduce exciting incentives. It’s been proven that team morale and productivity can be ignited when incentives are introduced. Whether it is bonuses, extra paid leave, or half days on Fridays, employees react well to incentives, with organisations using incentive programs achieving 27% higher profits and 50% higher customer loyalty levels. Implementing robotics and AI technology into supply chains. A study by Berkshire Grey found that processing time could decrease by 25% and processing costs by 35% if automation and robots are used in manufacturing and distribution. Take a granulated approach to price increases. Instead of applying widespread, top-to-bottom price increases to every product to offset inflation that will likely infuriate customers and erode loyalty, segment the products into categories that can withstand a price increase based on a customer’s eagerness to pay. Only the robust survive We have seen, with concrete data, how retailers who have a quick and confident response to high inflation not only survive but thrive in the years to follow, in comparison to those who stumble around wondering what to do. “The most resilient retailers were able to drive 11% annual growth in total return to shareholders”, McKinsey reports, between the years of the Great Recession of 2007 - 2009. This number was five times higher than their peers through to 2018. It’s numbers like these that prove how much power a brand, retailer or marketplace may have in times when they think they are powerless. The current inflationary period is not expected to disappear any time soon, and it certainly won’t be the last time retail experiences increasing freight and logistics costs, high demand and fractured supply chains. As stressful and as slow-moving as it is to trudge through the mud of inflation, one could almost develop a copy-and-paste strategy to sail through these seas each time they come round again. It’s all about making bold, forward-thinking decisions to turn challenges into opportunities. FAQs: Which countries have the highest overconsumption levels? UNICEF concluded in a 2022 report that if every person in the world consumed resources at the rate of people in the EU and the OECD (which includes the US, the UK, parts of South America, Australia, Turkey and many European countries), we would need 3.3 Earths to sustain the level of consumption. An even worse statistic showed that if everyone consumed the way people in Luxembourg, Canada and the US did, we would need 5 Earths. Tips to save money at home Choose to clean your own home instead of a house cleaning service Skip taking their pets to professional groomers and bathe them at home. Vacation locally instead of cross country trips. Cancel streaming subscriptions or podcasts that aren’t being used. Grow a vegetable garden or learn to make your favourite meals so that you don't have to spend money on takeout. Tailor old clothes instead of replacing them.

Research, Retail Know-How

15.09.2022

Complete Guide to Selling on Amazon in 2022

With a massive reach (to the tune of 47% market share in the US and UK and 31% market share in Germany), it’s an incredible outlet to showcase products, earn more sales, and build brand awareness. But Amazon is also an overwhelming online platform for Sellers and consumers alike. With so many options for how to shop, sell, advertise, and win on Amazon, it’s no wonder there are lots of questions. In this guide we’ll answer some of the top questions we hear about Amazon and give helpful hints on how to succeed on the platform.

Amazon, Research

15.03.2022

Optimise product and pricing now, as inflation in the EU hits 5.8%

Across the market, consumers are paying noticeably higher prices for purchases online as a result of inflation. January marked 20 consecutive months of year-over-year online inflation. So, while consumers watch prices continue to climb, online retailers are watching consumers. With the continuing war between Russia and Ukraine, it has further exacerbated inflation across much of the world, with Europe reaching a high of 5.8% at the end of February. This has caused a ripple effect on food, utilities, energy prices, and the manufacturing of goods around the world. Energy prices in the EU rose a staggering 31.7% in February, while the prices of fresh produce rose 6.1%. Inflation is expected to continue to move beyond 6% throughout the month of March as the Euro continues to weaken against the US dollar, falling to its lowest value in almost two years. The sharp increase in inflation surpassed the predictions of economists at Reuters, who originally predicted that inflation would rise to 5.4%, 0.4% less than the end result. The European Central Bank (ECB), whose inflation targets were at a safe 2%, was also in shock over how high inflation rose. Growth vs stability Beyond the shock of the Russia-Ukraine conflict, a growing stressor for the ECB is how the war and the subsequent inflation will affect monetary and fiscal policy. Council members of the ECB are torn between whether to implement the EU’s “budget rules” in 2023, which essentially force governments from across Europe to work together when putting together their spending plans. They also limit how much debt a country can get into for the fiscal year. While some ECB members and finance ministers suggest such rules should be implemented to offset the damage of the Russia-Ukraine war, others feel monetary policies shouldn’t be tightened while the situation is ever-changing and volatile. If EU’s budget rules are implemented, this could also slow down the continent’s post-covid recovery, which was just starting to gain momentum. An additional spanner in the works is the fact that Germany and France, Europe’s two biggest economies, are on opposing ends of the argument to impose budget rules. Germany’s finance minister Christian Lindner says he is in favour of limiting a country’s debt and reminded the EU in talks that “fiscal rules are crucial to maintaining the credibility of governments.” France, on the other hand, believes growth is more important than stability. “It must be a growth pact first. Growth comes before stability,” said finance minister Bruno Le Maire. As continued sanctions on Russia cause an impact on gas and oil prices in Europe, which is the continent’s top foreign gas supplier, EU leaders are expected to meet in March to decide whether budget rules will be implemented or not. The impact on e-commerce and retail markets To avoid the rising costs, suppliers of raw materials raise their prices to the manufacturers; manufacturers raise their prices to the retailer, and so on. Prices in e-commerce over recent years have actually been trending down (deflation), as proven by the below graph. So, with few historical models to look toward for reference, especially in a post-pandemic world that is now conflict-ridden, what are retailers to do? In the past, the key principle was to maintain a safety stock, or at least healthy inventory levels, and drive bundling or percentage-based pricing on existing dated stock while holding out until your competition is sold out of more up-to-date products; then gently increase pricing. However, with tight inventories and a global lack of stock, this means that retailers will have to look for alternative solutions. Whether retailers like it or not, they will either have to absorb the added costs, reduce profit margins or raise prices. A positive is that there’s a good chance that your competitor is thinking about the same thing. Possible shopping trends in the face of high prices and inflation An increase in cart abandonment Higher prices across fuel, food, medication, electricity, rent and more will likely impact shoppers’ behaviors and as prices rise and deals and discounts disappear, online retailers may notice higher cart abandonment with the cost of shipping as a leading factor in cart abandonment. According to The Checkout Benchmark report, checkout completion rates average 56% on desktop and 45% on mobile devices when shipping is free. Cart abandonment increases when consumers are asked to pay more for shipping. A 10% increase in the cost of shipping results in checkout completion rates decreasing 6% on desktop and nearly 4% on mobile. Decreased willingness to spend more to meet discounted thresholds Oftentimes shoppers will spend more money - adding items to their online cart - so they can meet the threshold for free or reduced shipping. In short, they’ll buy more to save on shipping. However, that could change if shoppers stick to purchasing only the items they need. Shoppers choose slower, less expensive shipping options. Whether shoppers value cost or speed of delivery most is a long-standing debate. In reality, Amazon conditioned consumers to expect shipping that is both fast and free. But as consumers are burdened with inflation and look for ways to cut costs, some may choose to wait longer for deliveries so they can save money. Brands can offer options to help ease inflation’s strain Retailers can offer customers some relief, and help their own cause, by optimizing shipping experiences. In the current environment, offering shoppers a variety of affordable shipping options at checkout is a smart first step. And it can help satisfy the wants of consumers with a range of cost and speed preferences. Online retailers with brick-and-mortar locations can offer BOPIS (buy online, pick up in-store). These are significantly cheaper fulfillment options than residential shipping. Another option is to offer BOPA (buy online, pickup anywhere), which is also cheaper and can be used by e-commerce brands that don’t have physical stores. BOPA enables shipping to commercial locations such as pharmacies and grocery stores. Consumers select the location where they want to pick up their order making BOPA not only a cost-saving option, but also one that is convenient. In most cases, BOPA is around 30% cheaper than traditional delivery. Keeping the consumer in mind Inflation is becoming a bigger concern for online shoppers, and in some cases a barrier to purchase. When customers click the checkout button, it is important that they see at least one delivery option at a price point that is attractive to them. Giving customers options helps them feel more comfortable with shipping costs and confident enough to complete their purchases. In uncertain times when politics, warfare and pandemics affect inflation and pricing on a daily basis, it is important for the retail market to consider the consumers and to offer ways to incentivise shopping.

Retail Trends & Research, Research

15.10.2020

Webinar: Adapting To A New Normal After Covid-19, A Retail Perspective

In this webinar you'll learn: How consumer behavior has changed during the corona pandemic What the retail response has been How retailers can adapt to the new normal What the world of retail will look like at this time...

Covid-19, Research

15.10.2020

Pricing and Data Quality

Quality data is the foundation for any dynamic pricing solution. Just like any other software, clean data means the difference between a pricing solution you can trust and a pricing solution you grow to hate. Click one...

Research

15.10.2020

What to Look for in a Dynamic Pricing Solution

If you’re a retailer or a brand, pricing is one of the linchpins of your overall commercial success. And if you’re considering a dynamic pricing solution, we understand that finding the right one for your organization is of the utmost importance. The world of dynamic pricing is overwhelming at the start. That’s why we created this guide to help you make the choice for yourself. So what does your dynamic pricing tool need to for you to achieve real results? Here’s the shortlist of 12 different criteria that you should look for in any solution you consider, regardless of which software vendor you use.

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