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Roadmap for Online Grocery Pricing Strategy

The roadmap presented here is simply a guide for grocers looking to navigate the complex landscape of eGrocery pricing. It builds upon the challenges identified in the previous section and emphasizes the importance of organization-wide input and buy-in, acknowledging that each grocer’s circumstances are unique and will require a tailored approach. The roadmap underscores the essence of strategic planning – making informed choices that align with the company’s objectives and strategies.

Roadmap – Grocers should get input and buy-in across the organization as they chart a course to pursue based on their unique circumstances.

How retailers implement should vary depending on a range of factors and considerations that will likely lead grocers to make different choices. That is what strategy is essentially about – making choices that make sense given a company’s objectives and strategies.

Stage 1: Establish Baseline

The first stage is about understanding the current situation and setting a foundation for the subsequent stages. It involves:

  • Quantifying direct labor costs: Understand the cost of labor involved in the eGrocery process.
  • Considering other relevant costs: This could include the retail value of special deals used to drive trial, service fee waived on first x orders, credit for product returns, indirect labor associated with supervisors, etc.
  • Capturing current and forecasted sales levels: Understand the current sales performance and predict future sales trends.
  • Determining the role and impact of retail media monies: Understand how retail media investments impact the overall business.

Stage 2: Model Enhancements

The second stage is about refining the pricing model to optimize costs and efficiency. It involves:

  • Estimating order distribution based on a tiered fee structure: Develop a fee structure that reflects the cost and value of different order types.
  • Projecting how the fee structure will lower unit cost to assemble orders: Understand how the new fee structure can improve efficiency and reduce costs.
  • Setting the upper band of the fee structure and then the other tiers: Define the fee structure clearly, starting with the maximum fee and then setting the other tiers.
  • Establishing a product markup to cover all or part of the remaining cost: Determine how much of the cost needs to be covered by product markups.

Stage 3: Determine Details

The third stage is about ensuring that the strategy is effectively communicated and implemented. It involves:

  • Creating messaging for site/app related to changes: Communicate the changes effectively to customers through the site/app.
  • Considering how to price protect advertised items: Develop a strategy to ensure that advertised items are priced appropriately.
  • Establishing a pricing philosophy between 1P and 3P sites/apps: Define a clear pricing strategy that differentiates between 1P (first-party) and 3P (third-party) platforms.

It’s important to note that the journey doesn’t end at Stage 3. Grocers should consider Stage 4 as “Implement Plan,” where the strategies and actions are put into action. Following implementation, Stage 5, “Assess Impact,” becomes crucial. This stage involves a thorough review of the implemented plan by comparing actual results to expected outcomes 3 to 6 months after completing implementation. This iterative approach ensures continuous improvement and adaptation to changing circumstances, allowing grocers to stay competitive and profitable in the dynamic market.

Click below to join us in the next section as we evaluate the strategic recommendations for the roadmap.

Headshot of Mark Fairhurst

Mark develops global growth strategies for Mercatus and leads the Marketing, Sales, and Customer Experience teams.