Q&A: RSR Research’s Brian Kilcourse on pros and cons of electronic shelf labelling in retail

A number of UK retailers – particularly those operating in the grocery sector such as Tesco and Morrisons – are trialling electronic shelf labelling (ESL) in their stores.

Viewed as an efficient way for businesses such as Whole Foods to update pricing at the shelf-edge, but also providing a platform for some potentially controversial user cases, ESL has become an industry hot topic of late.

Retail Connections sent a few questions the way of Brian Kilcourse, Managing Partner for US-based analyst group RSR Research, to hear his view on the positive opportunities the technology brings and his concerns about intra-day price changes at the shelf-edge.

Retail Connections (RC): Why do you think the UK supermarkets are starting to invest in electronic shelf labelling; what are the potential benefits?

Brian Kilcourse (BK): ESL is not new, but there are new aspects about it which make it more attractive than before.

In the past, the chief benefit was a reduction in labour associated with shelf label management, and (perhaps) some margin benefit associated with keeping up with vendor cost increases and maintaining a gross margin percentage. Now, there are new potential benefits to do with more dynamic pricing. Dynamic pricing is a concept widely used in other industries (for example, airline and sports event ticketing), and has found its way into e-commerce.

The concept is that the price can change dynamically based on several factors: market demand, inventory availability, competitor pricing, and even “special conditions” like weather or local events. All of those data sources are too complex to manage manually, but increasingly are available electronically – and that creates the ability for retailers to establish prices that reflect real-time market conditions. Whereas this has been available in the e-commerce space, it hasn’t really applied to stores, since stores still have to change paper-based shelf labels.

ESL creates the opportunity for retailers to now implement some form of dynamic pricing at the store shelf edge. It’s also worth mentioning that the unit-price of electronic shelf tags is lower than ever before, and new internet of things (IoT) technologies embedded into the shelf labels make them much easier to connect than ever before. But retailers will need to be careful; consumers are amazingly price savvy, and I am concerned that intra-day price changes at the shelf edge would be very counter-productive, unless they were managed very carefully.

RC: Speculation has mounted about them being used for surge pricing – is this feasible? Quite controversial if so?

BK: Surge pricing is one application of dynamic pricing. Consumers of ride sharing companies do not like surge pricing, and I suspect grocery shoppers will like it even less. Imagine a customer standing at the shelf and watching the price change! I can’t think of a better way to lose a customer.

RC: What user cases are there for ESL and which retailers have done this well?

BK: In the US, Whole Foods has certainly been the poster child for ESL, but it isn’t doing “dynamic pricing”. The benefit is in its ability to stay on top of price changes on a daily basis (not more frequently). That may change with Amazon as the new owner since Amazon uses a form of dynamic pricing on its e-commerce offering.

RC: European retailers have used ESL for years; why do you think UK retail has been slow to adopt the technology?

BK: As you say, European retailers like Groupe Casino have used ESL for more than a decade. But in other countries, most notably in the UK and US, there’s been less interest.

This is because of two things: first, the cost of the labels, and second, difficulties in the store environment to maintain connectivity with the ESL via its proprietary data-communication protocols. Other issues include battery life and unacceptable mean-time-between-failure (MTBF).

But I believe the biggest barrier has been cultural, i.e. an unwillingness to take price management out of hands of the store manager. But with the rise of omnichannel retailing, where the digital and physical environments interact across the entire enterprise, the notion of the store as an “island of retail” is fading away. So the idea of a consistent methodology to manage prices in both the digital and physical domains is gaining acceptance. It also helps tremendously that ESL technologies themselves have improved, in terms of their connectivity, battery life, and MTBF.

RC: What key in-store technology changes are we likely to see in retail over the next 12 months and what’s prompting that change?

BK: To the extent that ESL can jump onto the IoT bandwagon, it is likely to see more adoption. As for dynamic pricing, RSR cautions retailers to tread lightly. Consumers are tremendously price-sensitive. While they don’t always look for “lowest price”, they DO look for a “fair price”.

If dynamic pricing is used too aggressively in either the digital space or (certainly) the physical space, consumers will get the sense that they are being manipulated – an absolute loyalty killer!

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