towels rolled up in white bathroom
Home retail chain Bed Bath & Beyond discusses its pricing strategy as it relates to technology and its competition against digital retailers within the industry. — Getty Images/didecs

Home furnishings retailer Bed Bath & Beyond is grappling with the challenge of demonstrating value to its customers amid nimble online sellers in an omnichannel shopping world, said Barrie Carmel, chief value optimization officer, during a presentation at NRF 2020, the National Retail Federation’s annual trade show in New York City.

The company’s efforts to implement data-driven price optimization are running up against legacy systems and processes that make it difficult to keep up with pure-play e-commerce retailers such as Amazon, she said.

“We have more than 1,000 stores in our fleet, which gives us tremendous leverage, scope and reach to the customer, but it’s very different when we are competing against a digital-only presence,” said Carmel. “A digital [seller] can change price by pushing a button, and the price changes instantaneously. I push a button, and 1,000 people need to make 1,000 changes in the stores. That is a very realistic thing for us.”

Bed Bath & Beyond, which uses price optimization technology from Revionics, is coping with those challenges by fostering collaboration among its merchandisers and data scientists and looking beyond having the lowest prices to communicate an overall impression of value, she said. The company has also been testing the use of electronic shelf labels, which would facilitate a more dynamic approach to pricing, but Carmel said that could still leave the company behind its e-commerce competitors because of the difficulties in integrating shelf labels with legacy point-of-sale systems.

“It’s a huge challenge for us,” Carmel said, citing the company’s existing legacy, discount coupon program as a particular challenge for the retailer. “It’s not about being the cheapest, because being the cheapest is not a sustainable competitive advantage.”

The retailer, in the midst of a restructuring to revive sales led by CEO Mark Tritton, who joined the chain from Target last fall, set plans last week to cut 500 positions to reduce annual expenses by $85 million. The turnaround plan also includes a $400 million investment in store remodels and supply chain improvements.

Competing with a differentiated product mix and stoking the perception of value

Creating a value perception among consumers, she said, will come from offering a differentiated assortment and compelling promotions, including leveraging the coupons that the company is known for.

“But we will never be able to — at least in my foreseeable, before retirement, future — be able to move at the speed that our digital competitors can do,” said Carmel.

In a report on the challenges of omnichannel pricing, consulting firm McKinsey & Co noted that online-only retailers, including Amazon, are reacting to competitors’ pricing in as little as one hour. The best-selling items may be repriced three or four times per day, and can be repriced up to 12 times in a day to remain competitive against other listed prices.

“Sophisticated multichannel leaders are following suit, changing the prices on 10% to 20% of their online assortment daily,” the report said.

Carmel said most consumers — an estimated 80%-plus — research products online before going into a store.

“For us … a journey initiates in the digital space, and then executes an overwhelming number of times in the brick-and-mortar space,” she said. “It’s the alignment between those two and the balance that is difficult.”

At Bed Bath & Beyond, changing the price of an item not only affects the physical shelf tags in the stores, but it can also impact several other consumer communication vehicles, including social media posts, email marketing messages and other digital advertising. These must all be positioned not only to convey the accurate pricing and appropriate value messaging, but also to drive traffic to the stores, Carmel explained.

Bed Bath & Beyond seeks to create a strong value impression right from the start of the customer’s journey online, she said, which is also where the challenge of integrating the brand’s coupon strategy comes into play. Consumers, particularly younger shoppers, who are comparing prices online might not be aware that a coupon is available that would make an item more price-competitive, Carmel said.

“The coupon is an integral part of our brand,” she explained, noting that it allows shoppers to create their own discount experience. “But how do we complete that whole value proposition, so that when you look up the NutriBullet online, our price looks the same as the competition?”

It’s not about being the cheapest, because being the cheapest is not a sustainable competitive advantage.

Barrie Carmel, chief value optimization officer, Bed Bath & Beyond

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Melding merchandising art with data science

As pricing strategy has risen to become a key function within retail organizations, it has become a technology function that relies on data science and machine learning, which are like a foreign language to the retail merchandising experts who had historically set prices based on a percentage markup over the cost of the item, along with their own competitive research and gut instincts.

“You cannot have the new model with an old model mindset,” said Moussa Coulibaly, vice president of omnichannel pricing at Dick’s Sporting Goods, who also spoke on the NRF panel. “People cannot do things like they used to do before.”

The biggest challenge, he said, is to get merchandisers to understand the benefits of blending the input from data scientists into the art of merchandising. The use of technology to define pricing strategies is reshaping the roles that merchandisers play, Coulibaly said.

“You need to use the experience that the merchandising team has, but you use that to define strategies, not to define price,” he said. “You need to make them understand that, and that’s very hard.”

Carmel said the modern dynamics of pricing strategy have made it more challenging to find people who can fill the roles needed to execute pricing at retail. These people need to have the instincts of a good merchant and an understanding of the value of data-driven decision making.

“I am looking for unicorns,” she said. “I have to literally find some magical person who can speak both technology and the art of merchandising, as well as understand the execution piece.”

Bed Bath & Beyond has a technical support team that does the actual analysis of the data, and then feeds it to the merchants in digestible pieces, without having to worry about how they mine millions of lines of data to arrive at those insights, Carmel explained.

Panelists agreed that testing data-driven pricing is one way to convince old-school merchandising teams that the technology works.

“That’s one of the ways you can drive change,” said Carmel. “You can say, ‘I know you think the purple widget has to be priced at $9.99, but it turns out when you price it at two for $7, even though you think there is going to be [profit] margin erosion, you get so much from the multiple, that you drive incremental margin.’”

Unexpected results along those lines have made believers out of the merchants at Bed Bath & Beyond, she said.

“To get them to focus on consumers’ understanding of this, and to see it from the consumer’s eyes, has really been the heaviest lift,” said Carmel. “But we have been really successful at it, and really lucky.”

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Published March 03, 2020