top of page
Search

Sustainability Through Pricing Agility: How Frequent Pricing Can Reduce Waste


Written By: Gargi Sarma 


Retailers are looking for more creative methods to cut waste since sustainability is becoming more important than ever as a watchword in company strategy. Dynamic pricing, a tactic that allows businesses to regularly modify prices based on real-time data, is a potent yet underappreciated tool for doing this. Retailers may accomplish their sustainability goals and maximize inventory turnover, waste reduction, and profitability by utilizing price agility.


Figure 1: Food Waste in Retail Stores


Market Insights:


The Increasing Need for Sustainable Practices: Customers are prepared to pay more for sustainable goods and services because they are becoming more aware of environmental challenges. 75% of buyers are prepared to pay extra for sustainable products, per a McKinsey report.


Waste's Effect on the Environment: Significant waste is frequently produced during the manufacture and consumption of commodities. This waste might include extra inventory, unsold items, and packaging materials. This waste increases carbon emissions, depletes resources, and pollutes the environment.


Priorities of Retail Executives: Sustainability is a top priority for retail executives (Source: Radial).


  • Eco-friendly packaging is the emphasis of 53%.

  • For less waste, 49% favor on minimum packaging.

  • 46% expand shipment windows to make greater use of available resources.


Demand from Consumers for Sustainable Products: People all across the world want their purchases to have an impact (Source: Bain):


  • 74% of Europeans are ready to pay more for goods that have a favorable impact on the environment or promote health.

  • 71% of Americans feel the same way.

  • A startling 90% of people in the Asia-Pacific area prioritize sustainability.


The Relationship Between Sustainability and Pricing:


Retail waste is becoming a bigger problem, especially in industries like electronics, clothes, and food. Unsold items contribute to environmental problems by ending up in landfills. Global fashion firms, for example, dispose of unsold inventory, and supermarkets cope with significant food waste since food is perishable. Mismatched pricing tactics, when static pricing fails to reflect real-time swings in demand, are typically the main source of this waste.


Figure 2: Retailers Tend to Focus on Six Overarching Sustainability Themes, 2022


Dynamic Pricing: A Sustainable Solution


Retailers may swiftly modify prices in reaction to various conditions with the use of dynamic pricing, which involves frequent price adjustments based on real-time data.


  • Inventory Levels: Stores can lower the cost of slow-moving merchandise before it runs out of stock by keeping an eye on stock levels.

  • Demand Fluctuations: Offering discounts or customized promotions stimulates sales and reduces waste during times of low demand.

  • Weather: By incorporating weather data into their pricing algorithms, retailers may provide discounts on items that see reduced demand during particular weather conditions. A clothes business may, for instance, change the pricing of winter apparel on unusually warm days.

  • Expiration Dates: As perishable items like food and medications get closer to expiration, they might be dynamically discounted to ensure that they are sold rather than wasted.


Figure 3: A Four-stage Optimal Dynamic Pricing Strategy Model with Steps (Source: Science Direct)


How Pricing Agility Can Be Used by Retailers:


Retailers must do the following to successfully execute frequent price changes:


  • Leverage Data: Pricing algorithms that suggest price modifications need to be fed real-time data on consumer behavior, inventory levels, weather, and competing prices.

  • Automate Procedures: Changing prices by hand can be laborious and prone to mistakes. Retailers may automate price modifications based on predefined rules and real-time information by utilizing AI-powered pricing tools such as RapidPricer's RASPER.

  • Monitor Impact: Retailers need to keep a close eye on how price agility affects profitability and waste reduction. When evaluating the efficacy of dynamic pricing, metrics like product lifecycle management, markdown volumes, and inventory turnover rates are essential.


Figure 4: Timeline and Freshness scores of the Pricing model at the Retailer (Source: Science Direct)


Benefits Beyond Waste Reduction:


Pricing agility has several long-term advantages for merchants beyond its immediate impact on waste reduction. These benefits include:


  • Customer Satisfaction: In price-sensitive sectors, providing competitive and customized prices boosts customer happiness and loyalty.

  • Profit Maximization: By adjusting pricing in response to demand, retailers may minimize the need for steep discounts during clearance sales and safeguard their profit margins.

  • Sustainability Branding: Retailers may enhance their brand recognition and draw in environmentally aware customers by showcasing their dedication to waste reduction and sustainability.


Examples:


Here are some examples of how small shops use price flexibility to encourage sustainability and cut waste in various parts of the world:


Figure 5: Approach to Addressing Food Waste - UK Grocery Retail (Source: LinkedIn)


Too Good To Go (Europe)


Innovative Approach: Too Good To Go uses its app to sell excess food at a discount to local stores, bakeries, and eateries around Europe. Using the app, retailers can sell "surprise bags" of unsold food that is about to expire for a fraction of what it cost originally. 


Impact: By reducing food waste and increasing income for shops, this dynamic pricing strategy makes food that is fully edible at a discounted price more accessible to ecologically concerned consumers.


Kaffeeform (Germany)


Innovative Method: This little Berlin-based shop turns used coffee grounds into reusable coffee cups and modifies prices according to seasonal and design trends. Because of their price flexibility, they may provide promotional reductions at sluggish times, ensuring that inventory moves over rapidly and cutting down on waste. 


Impact: By minimizing wasted materials and preserving stock efficiency, this technique promotes a circular economy.


Figure 6: Afresh AI System Process Map (Source: PwC)


Happy Returns (USA)


Innovative Method: Happy Returns, a logistics firm that works with small shops, launched a sustainable return program that allows customers to return goods to pre-arranged drop-off locations. Retailers can reduce waste from unsellable returns by dynamically adjusting the pricing of returned goods and those with minor flaws. 

Impact: Small retailers prevent product disposal, improve sustainability, and cut waste by dynamically decreasing return fees.


Algramo (Chile)


Innovative Method: Algramo collaborates with neighborhood small grocery stores in Chile to enable clients to purchase goods in bulk while utilizing reusable containers. A flexible pricing approach that minimizes packaging waste is created by the merchants' ability to modify prices in response to changes in consumption patterns and product dispensed. 


Impact: This strategy reduces remaining inventory, encourages environmentally friendly shopping practices, and lowers packaging waste.


Ekoru Market (Philippines)


Innovative Approach: Demand-based pricing for perishable items is employed by Ekoru Market, a small grocery shop in the Philippines. When fresh product nears the end of its shelf life, retailers mark it down to promote quicker sales and cut down on waste. 


Impact: By ensuring that fewer perishable items go unsold, its real-time pricing methodology tackles food waste right at the source.


Migros My-Choice (Turkey)


Innovative Approach: Migros My-Choice predicts customer demand and dynamically modifies prices by utilizing artificial intelligence. This price agility concept is used by small Turkish merchants that cooperate with Migros to control inventory, cut down on overstock, and prevent wasteful markdowns. 


Impact: AI-driven pricing lowers overproduction, improving sustainability for shops and enabling them to provide customers with greater discounts on extra inventory.

These examples demonstrate how price agility may help small shops all across the world develop more sustainable business models, reduce waste, and improve resource use.


Conclusion:

A win-win solution may be found in using agile pricing methods as retailers come under increasing pressure to save waste and run their businesses sustainably. Regular pricing not only minimizes the negative environmental effects of unsold items, but it also increases profitability via better inventory control. Retailers can accomplish their sustainability goals, maintain their competitiveness, and forge closer bonds with their consumers by utilizing real-time data and automation.


Pricing agility is a critical tool for merchants looking to prosper in a waste-conscious society in the age of sustainable business, not just a nice-to-have.



About RapidPricer


RapidPricer helps automate pricing and promotions for retailers. The company has capabilities in retail pricing, artificial intelligence, and deep learning to compute merchandising actions for real-time execution in a retail environment.


Contact info:

2 views0 comments

Comments


bottom of page