KSS Retail executives discuss the limitations of legacy retail pricing practices and propose superior current practices that can preserve higher margins and shopper satisfaction

1. 1
Challenging Historical
Pricing Practices
Lyle Walker Dave Auerbach
VP Marketing EVP
KSS Retail KSS Retail

2. 2
KSS Retail
Premier Global Provider of Price Modeling/Optimization
Owned by dunnhumby ltd, (Tesco, Kroger, Macy’s)
“Focus is on integrating customer insights with your
market strategies, to model and execute effective
pricing and promotions”
Retail customers including: Kroger, United
Supermarkets, Haggen, Super S, Lunds Byerly’s

3. 3
Challenging Historical Pricing Practices
“We’ve always priced this way”
“Our suppliers influence these price points”
“I don’t have enough time”

4. 4
How Do You Set Retail Prices Today?
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

5. 5
The Challenge
40,000+ items in a typical Grocery Store
2500 – 5000 in a C-store
Small pricing departments
Current tools are designed to manage the
historical process and automate it

6. 6
What About Your Customers?
They vote daily with their purchases
They don’t know your margin or cost
Depending on the item, they might know a reference price, ie
milk, diapers, cigarettes, etc.
They will have a perception of value and convenience
Question: Can you hear, comprehend and react to what they
are saying?

7. 7
Measuring How Your Customers React to Price
Price Modeling and Price Elasticity
Elasticity measures how consumers
react:
 To price of the item
 To prices of other items (Cross-
effects)
2.4 .02

8. 8
Private Label VS National Brand Spreads
Current Practices:
Use an average spread, ie 20%
.99 .79

9. 9
Private Label VS National Brand Spreads
Current Practices:
Target margin for Private Label, ie 35% margin
$32.99 $19.99

10. 10
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?

11. 11
What happens when….
.99 .79
$32.99 $19.99
You set prices for your customers that meet your objectives?
.73
$29.95 $24.99

12. 12
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….
What about your Customers?

13. 13
Line-Item Pricing example
Line Price Items because of same or similar
costs:
Cost = .69/unit
.99
Rch
.99
Nat
.99
Blue
.99
Red
.99
Yell
.79
Blue

14. 14
What was accomplished?
Improved Competitive Position on the Key
Item
Offered Value to Customers
Through their purchases, your customers
have been telling you they would respond
favorably
.99
Rch
.99
Nat
.99
Blue
.99
Red
.99
Yell
.79
Blue

15. 15
Pricing off Competitors
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?”

16. 16
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

17. 17
What About Promotions?
Combo Promotions
Weekly Ads

18. 18
Model and Understand Promotional Pricing
Does 2 for $5 sell more
than $1.88?
Which drives more units?
What happens to profit?
What happens to category
sales/profits?
What if you run it super hot for
1-week

19. 19
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%

20. 20
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)
Promo Scenario Lift
Units: 4,311 25%
Sales $ 94,798 10.1%
Profit $ 12,889 -6.3%
Margin 13.6% -2.4
Baseline
Units: 3,448
Sales: $ 86,166
Profit: $ 13,758
Margin: 16%

21. 21
Category Promotional effect
Category Baseline
Units: 38,335
Sales: $ 610,790
Profit: $ 85,426
Margin: 14%
Category Scenario Lift
Units: 38,402 .1%
Sales $ 581,110 - 4.9%
Profit $ 79,001 - 7.5%
Margin 13.5% - .5
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)

22. 22
Will You Still Run It?
Maybe Yes, Maybe No, Maybe Something Different

23. 23
Summary
Your customers communicate with you daily
Are you able to:
Mine real-time transaction data
Understand what’s relevant in the data
Model and optimize prices and promotions
Execute and evaluate quickly
All of this is being done with a focus on:
“Becoming more relevant for your customer”

24. 24
Thank You! Questions?
Lyle Walker
VP Marketing
KSS Retail
Lyle.Walker@KSSRetail.com

25. 25
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