The Power of Promotions: How AI Can Help Retailers Combat Inflation

Inflation is driving up the cost of food throughout North America, resulting in higher prices for individual items and full baskets, both online and in-store. An Advantage Sales survey found that nine out of ten manufacturers intended to raise their prices over the last year, and half of retailers planned to pass on at least 90% of those increases to consumers. Against this backdrop, selecting the right promotional strategies is crucial in influencing customer buying behaviors.

In the face of rising costs that customers can’t control, they still can choose what they buy and where they buy it in search of a better deal. As an industry, we often hit “copy and paste” on promotional strategies year after year, but that isn’t effective when the broader environment and what customers are looking for are ever-changing. 

Promotions during inflation aren’t business as usual

Translating price increases to promotional strategies isn’t a straightforward step-change. It isn’t just about bumping a traditional “two for $4” up to “two for $5” to accommodate higher pricing, which can often act as a red flag to consumers that prices have risen. 

Instead, grocers should focus on leveraging promotions to disrupt habits and delight shoppers. According to a 2023 report by NielsenIQ, promotions that encourage customers to try new products or brands can be very effective in driving sales and disrupting habits. The report found that 50% of customers are willing to stock up on products when their preferred brand is discounted, while 29% of customers exclusively make purchases during promotional periods. For a promotion to be effective, it needs to challenge norms of customer behavior so retailers can invest in discounts where it matters most. 

Let’s say a grocer runs a promotion offering a 10% discount on all items in the store to try and help combat inflation. While this promotion may seem like a good way to attract customers, it may not be effective because customers have grown accustomed to seeing similar promotions. The promotion also may not be targeted to the items that customers are most price-sensitive to.

To stand out, grocers should look beyond generic promotions and explore more innovative strategies. For instance, by offering deals on organic produce or locally sourced meat, grocers can appeal to customers willing to pay a premium for these items but may be more price-sensitive due to rising costs. This type of promotional strategy is more likely to drive sales and retain customers in the long run. 

A better deal doesn’t always mean a deeper discount

To effectively serve today’s customers, retailers must do more than provide deep discounts. Instead, they have a unique opportunity to showcase the value of their products and services beyond their price tags. While discounts and promotions are important, retailers can also experiment with portfolio groups and claims to communicate added value to customers.

Let’s say a grocer wants to increase sales of its organic product line. Instead of solely relying on discounts, they could incentivize customers to try out more items from the line by offering discounts on a certain quantity of produce. They could also explore channel variations, such as offering exclusive deals to loyalty program members. Grocers can also test their marketing approach to find what best communicates value to consumers beyond just offers and discounts. 

By taking a multi-faceted approach to communication and promotion, retailers can better connect with their customers and create long-term loyalty and value.

Communication is key

In today’s fiercely competitive retail landscape, understanding customers on a deeper level is critical to staying ahead of the curve. However, without regular testing, it’s nearly impossible to predict how customers will respond to promotions at higher thresholds. This is where dynamic tools like Eversight by Instacart make all the difference.

By leveraging AI to test promotions in real-time with real consumers, retailers can gain valuable insights into customer behavior and preferences. They can identify better-performing promotions than existing go-to offers and discover new ones that resonate better with their target audience. Experimentation not only helps retailers optimize pricing and promotions but also helps build customer loyalty by providing them with more informed purchasing decisions. As the market continues to fluctuate, retailers must remain agile and deploy tactics that keep pace with evolving consumer sentiment.

By embracing dynamic tools like Eversight by Instacart and experimenting with new promotions, retailers can better understand their customers and drive loyalty and value long-term. 

David Moran

David has spent his career in Consumer Goods and Retail. Prior to founding Eversight, which was acquired by Instacart in 2022, David most recently served as the Global VP of Sales-Revenue Management for Anheuser-Busch InBev nv/sa, the world’s largest brewer. Earlier, David was a leader in McKinsey & Company’s Consumer Pricing Practice where he developed strategies for global retailers and brands.