Month: February 2022

The retail industry has broadly acknowledged and understood that slow and steady might no longer win the race. Operating in this digital age, being fast and accurate in order fulfilment is crucial to success.

Today B2B and B2C consumers expect fulfilment beyond seamlessness of identifying and buying a product, accuracy and on-time delivery, to post-sales support. 

This has been a difficult target for retailers, given the exponential growth and multiplication of sales channels. The market is expected to grow at a CAGR of 7.7% from 2020 to reach $29,446.2 billion in 2025. The global retail market is expected to reach $39,933.3 billion in 2030, as a result, realigning retail fulfilment has been the top priority in the past few years, and the industry has made a paradigm shift from the conventional “warehouse fulfils” model to the “omnichannel fulfilment” model.

What is Omnichannel Fulfilment?

Omnichannel fulfilment means that a retailer’s inventory is available on multiple sales channels, both online and offline – to provide a unified shopping experience to the customers. Omnichannel fulfilment optimizes resource utilization to ensure that orders can be fulfilled from a store or a warehouse, whichever is convenient and nearest to the customer. 

Critical Advantages of Omnichannel Fulfilment

• Accelerated Inventory Turns
• Shorter Lead Time 
• Improved Customer Satisfaction
• Improves Brand Loyalty

Rising Costs in Omnichannel Fulfilment

Order fulfilment speed and accuracy is at the core of giving experiences to customers that they demand today. Many retailers struggle due to omnichannel fulfilment’s high logistical and administrative costs. 

The reason is the complexity of sales and distribution through multiple channels. The challenges could be in the following areas:

• Transportation and shipping costs are fluctuating and ever-increasing. Throughout the retail supply chain, logistics costs are paid to manufacturers, trucking companies, third-party logistics service providers, shipping carriers, freight brokers, and various other vendors
• Inefficient warehousing processes lead to inventory mismanagement and loss in sales
• Inadequate inventory stocking and allocation in stores, warehouses or fulfilment centres, resulting in regional product shortages, overstocking and inventory mismatch 
• Lack of inventory analytics that can provide an overview of historical operational performance across different sales channels 
• Last-mile challenges like lack of infrastructure leading delayed fulfilment in smaller towns
• Manufacturing defects or other errors in products that are sold and shipped
• Messy and expensive reverse logistics to manage returns

Retailers will need to be innovative to be profitable across channels, as customers expect faster deliveries and 100%  accuracy in order fulfilment. Retailers can manage costs and significantly boost customer satisfaction by having an analytical and data-driven approach to omnichannel fulfilment strategy.

Best Ways to Reduce Omnichannel Fulfilment Costs

1) Product Sourcing

It may be worthwhile to review sourcing from vertically integrated manufacturers closer to the retailer’s warehouse. This will ensure that sourcing is done in the most cost-effective manner.

2) Region-Wise Inventory Optimization

The idea is to be closer to the customer to reduce freight, delivery lead times and all costs associated. Retailers must ensure a healthy equilibrium between inventory distribution and regional demand by allocating the right inventory closer to the right customer, on their preferred sales channel. 

3) Outsource Multi-Location Warehousing

Dedicated contract warehousing reduces fixed and recurring costs. Retailers should consider outsourcing warehousing or cloud warehousing services to reduce omnichannel fulfilment costs. 

4) Improve Picking and Packing Process 

This labour-intensive task is always a high cost. Making the process more efficient and applying tools to measure employee efficiency would help reduce costs and increase productivity. Inventory should also be serialized to automate the entire process and have 100% inventory traceability.  

5) Inventory Analytics

This provides critical insights so retailers can improve business intelligence with sophisticated data science for the most efficient product handling. Retailers often have cash flow locked up in additional or inaccurate inventory due to a lack of analytics. It is imperative to invest in technology that gives a streamlined and most current view of your inventory in relation to demand. This will help improve cash flow and enhance ROI. 

6) Solve Last Mile Challenges

A report by SOTI finds that nearly half of global transportation and logistics companies use outdated technology for last-mile delivery. It offers little help in combatting delays and high shipping costs. With the implementation of a platform that can provide real-time information, logistics challenges and added costs can be addressed by businesses. Value-added partnerships also help companies synergize to streamline deliveries and returns. Fulfilment costs can be reduced as brands don’t have to build new functionalities but simple partner with companies that have respective expertise.

7) Simplify Returns Process

Consumers have come to expect a hassle-free return policy, no matter which channel they purchase on. The primary goal of reverse logistics is to recover value from assets to increase revenue and reduce expenses. This can be done by directing the returned product to the nearest point of supply and made available for purchase afresh, ensuring the defective products have been segregated. 

With an omnichannel focus, the retail business has become broad, diverse, and complex. However, some retail giants are ruling. These are retailers that have established immense credibility by delivering consumer expectations while maintaining healthy bottom lines. It is time every retailer prioritizes omnichannel fulfilment cost reduction by adopting technology-driven solutions. 

A free returns policy by online retailers has been pivotal in the exponential growth of online sales platforms. The easy returns option has not only lured conventional brick and mortar stores, customers to online sales channels but has also given the customer more comfort and confidence in online shopping.

This has indeed led to a substantial positive impact on sales and revenues in ecommerce business channels. However, this “freebie” has a big cost attached to it. Once all the costs associated with ecommerce return management are added; shipping, storing, inspecting, segregating, etc, sometimes this is greater than the original sales price. Not only does this cost a logistical nightmare but steadily eats into the bottom lines of online retailers. 

Studies have shown that in 2021, retailers expected 16.6% of the merchandise sold, back in returns, which is a 6% jump from the previous year. As sales continue to increase, so does the returning trend. As per a recent NRF report, for every $1 billion in sales, a retailer incurs approximately $166 million in merchandise returns. These ecommerce return rate statistics have made it inevitable for retailers to devise a robust returns management strategy. 

Since there is no way to control consumer behaviour or stop online shoppers from ordering multiple variants to try and experiment, businesses must make returns processing hassle-free and efficient. It’s time to make ecommerce return policy more robust and reverse logistics less expensive. 

Ways to minimize ecommerce return rate:

• Website Design: Making improvements in the layout and flow of the website eliminates the chances of clicking on the wrong product or size.
• Product Display: Ensuring the product display has multiple high-resolution photos. One can also consider including product videos.
• Product Description: Making sure the customer comprehensively understands the product and helps to ascertain if the product is right for them.
• Sizing Chart: Providing a size chart relevant to the target customers’ area or geography.
• Packaging: Ensure fool-proof packing so products do not get damaged during shipping. Use the best packaging material for that product type.
• Online Support: Supporting customer concerns with a Live chat option via chatbots can eliminate any customer’s guesses while ordering.
• Order Confirmation: Using online tools to confirm order placements, especially cash-on-delivery orders. This adds an extra layer of security, ensuring the orders are genuinely placed by willing customers
• Order Accuracy: Being first-time right in the entire process from order receipt to delivery—right product to the right customer at the right time in the correct quantity.
• Clear And Concise Returns Policy: Displaying your returns policy on the home page, highlights the terms and timelines of the hassle-free returns.
• Transparent Delivery Lead Time: Providing an estimated date of delivery down to the pin code level

Factors to minimize the negative impact of product returns:

• Data Analysis:
  • Region & Pincode wise: Use actual data to analyse area-wise consumer behaviour. This helps ascertain trends; perhaps a particular product type, size, colour, or fit may not be most suitable for a given area.
  • Product Categories: A streamlined returns processing should help list most returned product types and help formulate better sales and pricing strategies.
  • Reasons quoted for return: 100% traceability goes a long way to understanding reasons cited for products returned, and consistency analysis of the same should be helpful to set effective countermeasures. 
• Logistics: Multi-system integration to streamline reverse logistics and enable returns at multiple warehouses or physical stores. Reverse logistics being messier than forwarding logistics, a data-driven multi-integrated tool will help reduce chaos and costs to manage returns more efficiently.
• Inspection: Of returned products to draw relevance with reasons cited by customers for their returns and optimise re-sale of sound products.
• Segregation: Of defective or damaged products will ensure the same product is not sold again and returned repeatedly.
• Feedback: Both to and from customers who make returns will help retain valued customers and build trust and loyalty.

The Solution:

Increff Returns Management Solution elements all the above concerns to make returns management a lot easier and less costly. A few more features of this tool include:

• Web-based automated SaaS tool
• Segregates returned items into refurbished, rejected and re-saleable categories
• Provides 100% Traceability
• Reduces sales loss opportunity
• Faster SPF claims to process
• Built-in reports
• Enables multi-warehouse returns
• Is multi-system integrated

What is Retail Price Optimization?

Customers are comparing prices all the time and across channels –  online and offline. They have apps that suggest discount codes and they are always looking for offers that give them the most value for their money. Even in such a time of changing consumer behaviour, unfortunately, many retailers rely on old-fashioned pricing practices, using past trends or even gut instincts to set their product pricing. This is not an effective way forward.

Retail Price Optimization is understanding in advance how customers will react to markups and markdowns in original price. With the use of advanced software, companies can stay ahead of the curve by strategically planning the entire price cycle while meeting both sales targets and margins. 

Price Optimization is done using complex algorithms that are designed to evaluate the change of demand with dynamic pricing strategies. This is matched with the data on costs, and inventory levels, to ascertain optimal prices to maximize gross margin. The price optimization strategy is incredibly important for a healthy and growing bottom line.

Retailers that are starting to use price optimization models and markdown management techniques to automatically optimize selling prices are gaining a leading edge over competitors. Machine learning continues to evolve and advanced software solutions combine this with price optimizing algorithms that make reaction to changes faster and more robust.

Factors affecting the retail price:

Internal Factors:

• Business Goals/KPI’s: Conventionally, businesses set prices based on sales targets which becomes the driving force in price setting and price optimization. However, setting prices based on business goals alone is not effective anymore. An array of data, like fixed costs, historical sales data, market trends, customer sentiment, needs to be accumulated in conjunction with one another to fix the most optimum selling price.
  
• Input Cost: Most manufacturers use the input cost plus a markup to fix the retail price. While this is an important consideration in devising the price strategy, it should not be done in isolation. Input cost alone fails to account for consumer-led factors which are essential to fix the right price. For example, the perceived value of the brand, whether the product being sold is a luxury item and customers are willing to pay a premium for it, brand loyalty are all factors that should be taken into consideration in addition to the input cost.
  
• Past Performance: Evaluating the past sales performance of the product at different price levels to analyze how customers responded. This is one of the most crucial factors in developing the optimal retail price for different times
  
• Inventory Factor: The volume of inventory influences retailers to change the retail price of products. Higher volumes of inventory usually lead to a markdown and discount in retail price to encourage quicker inventory liquidation

External Factors:

• Demand Factor – The central driving force in retail price management is an analysis of the demand. Setting retail prices rigidly too high may lead to certain products not selling. Price elasticity is a relationship between the supply and price: the more elastic the prices, the more they influence the sales.
  

• Competition – Setting retail prices too low can lead to price wars where nobody is making any profits and all are continuously lowering retail prices. A robust retail price management strategy should keep a close tab on competition activities
  
• Sales Channels: The nature of sales channels, both offline and online is diverse today and plays an important role in demand creation and therefore retail pricing
  
• Other Factors: For products that are climate-subjective or more popular during certain months of the year, price optimization should be done considering these factors

Process of Retail Price Optimization 

1. Business Considerations: Collect accurate data of all of the internal factors mentioned above, input costs, historical data, competitor pricing, and fluctuations in demand. This comprehensive data will put into a picture how each of these factors affects demand and therefore the price and profitability.
   
2. Customer Considerations: In conjunction with the above business considerations, retail price management requires in-depth data about customers and their behaviour. Customer reviews, demand and supply trends, market trends, and most importantly, customer sentiment towards the brand and product are data points that should feed the price optimization strategy.
   
3. Product Value: One of the most important considerations is the perceived value of the brand’s products. If we can understand quantitatively how much the customer values the product or certain features, the pricing strategy can effectively satisfy customers and also help maintain a healthy margin.
   
4. Data Analysis: Once all the data has been collected, it can be fed into software that will predict what segment of customers are willing to pay what price, in certain market conditions. This analysis determines markdown management and thus promotions.
    
5. Pricing Strategy: After the data has been thoroughly analyzed, a pricing strategy must be put in place. There are various pricing philosophies that can be explored depending on the nature of the product. The pricing plan encompasses markups and markdowns at different stages of the product lifecycle.
   
6. Continuous Improvement: Putting the pricing strategy in place does not amount to a rigid pricing policy. Once the plan is in action, the prices and respective demand and sales should be closely monitored. Market conditions change rapidly and unexpectedly, and prices must be optimized accordingly. 

Benefits of Retail Price Optimization:

Data-driven price rationalization in the retail industry allows businesses to set the right price at the right time. 

• Price optimization keeps businesses safe and customers happy. Deep discounts and profit cuts may not be the only solution to meet sales KPI’s. With price optimization, brands get better margins as they base price on smart decisions by eliminating guesswork and using real data that matters. This means actionable insights that make a big, lasting difference.
  
• Helps businesses devise product portfolio pricing, dynamically setting the price for different products in the family
  
• Price optimization strategies allow businesses to put into play a markdown strategy as per changes in the season and market trends. Not only does this help minimize the seasonal loss in revenue but helps capitalize on higher demand in certain seasons
  
• Data analysis helps determine the optimum price at different times for products sold at brick and mortars, in various geographic locations while factoring in uniformity of pricing on online channels
  
• Implementing dynamic pricing leads to better inventory turns, thereby improving cash flow
  
• Helps businesses identify and capitalize on best selling products
  
• If the process of retail pricing has been automated with the use of advanced software, reacting to market changes can be quicker and more scientific 

An effective price optimization strategy keeps the customers happy and the balance sheet healthy. Every brand functions in an ultra-dynamic market and the retail price of products must be receptive to these changes. Increff Markdown Optimization tool helps automate pricing decisions at multiple points of sale level and dynamically increases or decreases discounts for the right set of styles to maximize sales and optimize profits. It identifies out-performers and bestsellers, based on the sales trends, and helps brands automatically re-order the right quantity at the right time to ensure no sales loss opportunity. 

Keeps your pricing strategy proactive to not just quickly adapt to market changes but also maximize profits. Now is the right time to plan and execute a price optimization strategy! Know more about Increff Markdown Optimization: https://www2.increff.com/dynamic-markdown/