More Related Content Similar to KSS Retail: The Evolution of Retail Pricing (20) KSS Retail: The Evolution of Retail Pricing1. The Evolution of Retail Pricing
Lyle Walker
VP Marketing
KSS Retail, a dunnhumby company
© 2011 KSS Retail
2. Global Provider of Price Modeling/Optimization, and
Shopper Insight Solutions
Part of dunnhumby ltd, (Tesco, Kroger, Macy’s)
“Focus is on integrating customer insights with retailer
market strategies, to model and execute effective
pricing and promotions”
© 2011 KSS Retail 2
3. The Evolution of Pricing
• Maximize units, $ sales and/or profit
Shopper
• Optimize to customer segment
Customer Optimization • Improve promotions effectiveness
Relevance Shopper • Basket analysis
• Segment customer
Insights
• Improve price & promotions effectiveness
• Maximize units, $ sales and/or profit
Strategy Optimization • Optimize promotion features
• Improve promotions effectiveness
Refinement
Store/Category • Demand forecasting
Insight • Quantify cannibalization & halo effects
• “What-if” predicts impact of prices & promotions
• Quantify cross-category effects
Productivity Price Rules • Rules Compliance
• Efficient management of price & promotion rules
Management
• Consistent implementation (zero errors)
• Maintain price position vs. competition
• Ability to simulate impact of rule adjustment
Reporting & • Distribute standard, custom or ad-hoc reports
Analysis • Automated alerts to performance exceptions
• Monitor progress toward targets
• Organize & manage data sources
Data • Validate, clean, store & present pricing-specific data
Management • Monitor competitive landscape – alerts to changes
© 2011 KSS Retail 3
4. Pricing Productivity
Item Master: item setup
Basic pricing functionality…create a price
Cost change management
Competitor pricing management
Rounding rules
Target gross margin pricing
Spreads/parities
Pricing Foundation
© 2011 KSS Retail 4
5. Challenging How You Set Retail Prices Today
Today You:
Gross Margin pricing (start with cost)
Competitor Price Checks (match, get close, or don’t
worry about it)
Price Parity, ie large sizes should be cheaper per uom
than smaller sizes
Price Spreads, ie Private Label to National Brand
Price each item individually within a category
© 2011 KSS Retail 5
6. Price Optimization: Strategy Refinement
How should I price private label, in each category?
How should I manage spreads and parities?
How should I price versus competition, in each category?
How do I create better promotions for my customers?
Strategy Refinement
Pricing Foundation
© 2011 KSS Retail 6
7. Private Label VS National Brand Spreads
Current Practices:
Use an average spread, ie 20%
.99 .79
© 2011 KSS Retail 7
8. Private Label VS National Brand Spreads
Current Practices:
Target margin for Private Label, ie 35% margin
$32.99 $19.99
© 2011 KSS Retail 8
9. The Questions is…”What’s the Best Price?”
It depends on your strategy and objectives.
Are you trying to:
Drive unit volume and profit?
Improve your competitive position?
Communicate Value and Quality?
All of the above?
© 2011 KSS Retail 9
10. What happens when….
You create optimal prices that meet your objectives?
.99 .79 .73
$32.99 $29.95 $19.99 $24.99
© 2011 KSS Retail 10
11. What About Line-Item Pricing:
Flavors within a Brand….
Common practice across the store to manage
pricing efficiently:
Soft Drinks
Jello
Baby Food
Salad Dressings
Yogurt
Candy bars
And On and On and On….
© 2011 KSS Retail 11
12. Line-Item Pricing example
Line Price Items because of same or similar costs:
Cost = .69/unit
Rch Nat Blue Red Yell
.99 .99 .99 .99 .99
© 2011 KSS Retail 12
13. What was accomplished?
Improved Competitive Position on the Key Item
Offered Value to Customers on key item
Did not dilute whole line
Rch Nat Blue
Blue Red Yell
.99 .99 .99 .99 .99
.79
© 2011 KSS Retail 13
14. Pricing off Competitors
Today You:
1. Identify Key Competitive Items
2. Price Check Competitors (they are also price
checking you)
3. Review Price Checks and make random
determinations to match or be close to them
“Who’s following who?
© 2011 KSS Retail 14
15. How Can You Do It Differently?
Determine if your KVIs are right (are they relevant)
Understand the role of the category for your customers
Model pricing, for the whole category, that accomplishes
your objectives:
Does lowering price drive more volume (do you get
recognition for it)?
Should you match competition, or can you be close and
obtain the same results?
Manage the total mix of prices in the category to
accomplish multiple objectives
© 2011 KSS Retail 15
16. Model and Understand Promotional Pricing
Does 2 for $5 sell more
than $1.88?
Which drives more units?
What happens to profits?
What happens to category
sales/profits?
What if you run it super hot
for 1 week?
© 2011 KSS Retail 16
17. Price Modeling in the hands of a Merchant
Vendor Deal evaluation and negotiation:
Item: Beer
Retail: $24.99
Cost: $21.00
Baseline
Units: 3,448
Sales: $ 86,166
Profit: $ 13,758
Margin: 16%
© 2011 KSS Retail 17
18. Price Modeling in the hands of a Merchant
Vendor Proposed Promotion:
Item: Beer
Cost: $2.00 off (List is $21.00, deal cost is $19.00)
Promo Retail $21.99 (Reg retail is $24.99)
Baseline Promo Scenario Lift
Units: 3,448 Units: 4,311 25%
Sales: $ 86,166 Sales $ 94,798 10.1%
Profit: $ 13,758 Profit $ 12,889 -6.3%
Margin: 16% Margin 13.6% -2.4
© 2011 KSS Retail 18
19. Category Promotional effect
Vendor Proposed Promotion:
Item: Beer
Cost: $2.00 off (List is $21.00, deal cost is $19.00)
Promo Retail $21.99 (Reg retail is $24.99)
Category Baseline Category Scenario Lift
Units: 38,335 Units: 38,402 .1%
Sales: $ 610,790 Sales $ 581,110 - 4.9%
Profit: $ 85,426 Profit $ 79,001 - 7.5%
Margin: 14% Margin 13.5% - .5
© 2011 KSS Retail 19
20. Will You Still Run It?
Maybe Yes, Maybe No, Maybe Something Different
© 2011 KSS Retail 20
21. Understand Why you are Relevant
Who are your best shoppers?
Why to they shop with you?
What products do they buy?
What products do they not buy from you?
What promotions do they like?
How do you serve them better and have
them buy more?
Customer Relevance
Strategy Refinement
Pricing Foundation
© 2011 KSS Retail 21
22. Your Customers are Talking To You…
They speak to you every day through their
transactions in your stores
They tell you what they like and don’t like
They make decisions to spend, or not spend
their hard-earned money with you
They want to be heard and to have you
serve them better!
Can you hear, understand and react to what
they are saying?
© 2011 KSS Retail 22
23. The Evolution of Pricing
• Maximize units, $ sales and/or profit
Shopper
• Optimize to customer segment
Customer Optimization • Improve promotions effectiveness
Relevance Shopper • Basket analysis
• Segment customer
Insights
• Improve price & promotions effectiveness
• Maximize units, $ sales and/or profit
Strategy Optimization • Optimize promotion features
• Improve promotions effectiveness
Refinement
Store/Category • Demand forecasting
Insight • Quantify cannibalization & halo effects
• “What-if” predicts impact of prices & promotions
• Quantify cross-category effects
Productivity Price Rules • Rules Compliance
• Efficient management of price & promotion rules
Management
• Consistent implementation (zero errors)
• Maintain price position vs. competition
• Ability to simulate impact of rule adjustment
Reporting & • Distribute standard, custom or ad-hoc reports
Analysis • Automated alerts to performance exceptions
• Monitor progress toward targets
• Organize & manage data sources
Data • Validate, clean, store & present pricing-specific data
Management • Monitor competitive landscape – alerts to changes
© 2011 KSS Retail 23
24. Thank You!
Lyle Walker
Lyle.Walker@KSSRetail.com
Understand what customers want
Become more relevant
Keep customers engaged for longer; engender trust;
drive long term loyalty and value creation
© 2011 KSS Retail 24