We have a packed agenda with hands-on tutorials, customer spotlights, product roadmaps and peer-to-peer sessions for like-minded system users. We are also covering industry best practices that impact long-term success in today’s business environment, including retail execution, business intelligence, mobility and data synchronization.

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Pricing Optimization Workshop
2017 AFS USER CONFERENCE
“Practical Analytics for Everyday Decision Making”

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Mike Bruening
Vice President Analytics at Genpact
12 Years at Nabisco in Field and HQ Sales
Price and Promotion Analytics at IRI, IBM, Nielsen
Founding Board member at Promotion Optimization Institute
SPEAKER

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HISTORY OF PRICING

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HISTORY OF ANALYTICS

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PRICING ANALYTICS
• Price Elasticity
• Cross Elasticity
• Price Thresholds
• Everyday Pricing vs. Promoted Pricing
• Pricing Simulation

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PRICING ELASTICITY
Elasticity is the measure of the corresponding change in volume that occurs when price changes. It is explained in
increments of 1% or -1.88 elasticity. A 1% change in price results in a 1.88% change in volume.
$1.82
-10%
$1.86
-8%
$1.90
-6%
$1.94
-4%
$1.99
-2%
$2.03
0%
$2.07
2%
$2.11
4%
$2.15
6%
$2.19
8%
$2.23
10%
Brand Example 21.9% 17.0% 12.3% 8.0% 3.9% 0.0% -3.7% -7.1% -10.4% -13.5% -16.4%
-18.0%
-13.0%
-8.0%
-3.0%
2.0%
7.0%
12.0%
17.0%
22.0%
27.0%
%SalesRateChange
Regular Price and Price Change
volume
price

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HOW TO READ: PRICE ELASTICITY
Regular pricing strategy depends on an item’s current elasticity, which for Consumer Packaged Goods usually
ranges from 0 to -3.5
General pricing actions are as follows:
Assess a regular price decrease. Consumers are very sensitive
to price changes. Little product differentiation and/or low
brand loyalty is typical.
You may have the ability to increase regular price depending
on promotional response. May have higher than average
brand loyalty.
You have the ability to increase your regular price (and
profits) with limited volume loss. Typically niche items,
infrequent purchase or with high brand loyalty or few items in
the competitive set.0
-0.5
-1.0
-1.5
-2.5
-2.0
-3.0
-3.5
Very High
(-2.26 & greater)
High
(-1.51 TO -2.25)
Moderate
(-1.01 TO -1.50)
Low
(0 TO -1.00)
Be cautious when increasing price because of volume loss. It
may be profitable to decrease price. Items typically have large
interchangeability or larger consideration set.
Medium
(-1.01 TO -1.50)

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-1.50 -2.00
Less
Sensitive
Cheese
Soap
Dry Pasta
Yogurt
Coffee
Sports Drinks
Beer
Breakfast Meat
Frozen Pizza
SS Juice
Liquor
Cracker
-1.00
Candy
Soup
More
Sensitive
Frozen Entrees
More Sensitive
Low Brand Loyalty
Little Product Differentiation
Large number of Competitors
Less Sensitive
High Brand Loyalty
Infrequent Purchase
Small number of Competitors
Brand X PPG Avg.
-2.44
Category PPG Avg.
-1.71
PRICE SENSITIVITY VARIES BY CATEGORY
Although the Category Shoppers are normally more price sensitive, Brand X Shoppers products are especially sensitive
Total U.S. Food Industry Benchmarks

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ELASTICITY
Regular price elasticity is broken into competitive and own effects.
External Competition
Products in other brands
Own Price Effect
Total Elasticity
What if I raised price and no
competitors followed?
Own Elasticity
What if I raised price and all
competitors followed?
Outcome: Significant sales volume change Outcome: Muted impact on sales volume
Own Competition
Products in the same
brand/manufacturer
Own Price Effect

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$1.79
-10%
$1.83
-8%
$1.87
-6%
$1.91
-4%
$1.95
-2%
$1.99
0%
$2.03
2%
$2.07
4%
$2.11
6%
$2.15
8%
$2.19
10%
Brand Example 21.9% 17.0% 12.3% 8.0% 3.9% 0.0% -3.7% -7.1% -10.4% -13.5% -16.4%
Price Threshold 28.0% 22.8% 18.0% 13.4% 9.1% 0.0% -8.5% -11.8% -14.9% -17.8% -20.6%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
VolumeChange
Price Change
Price Threshold
E.g. Threshold at $1.99 with 5%
impact
Standard Elasticity
E.g. elasticity = -1.88
PRICE THRESHOLD
Price threshold s look for price points or gaps that consumers are more sensitive to. A price change that crosses a
threshold will lead to a larger volume change than a same-size price change that does not cross a threshold.

12. 12
EDLP
Divert trade investment away
from promotions to keep base
price low on an everyday basis
Options
Ability to leverage both base and
promotion, depending on
objectives and retailer’s category
strategy
High-Shallow
Reduce depth of promotional
discounts or increase everyday
price to recapture margin and
drive additional GP
High-Low
Invest in promotion to drive
volume and protect share by
increasing base price to fund
additional promotion
depth/frequency
PRICING STRATEGY
Decision Framework for Price Changes & Promotional Discounts
Low HighPromotional Price Elasticity/Intensity
Low
High
BasePriceElasticity

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PRICING STRATEGY
HYBRID
HI-LOW
HI-NO
EDLP
Current
Discount
Optimal
Discount*
Item 1 15% 25%
Item 2 20% 25%
Item 3 25% 30%
Retailer A
Brand X in Retailer A is highly
responsive to promotions. Current
promotional depth is lower than the
competition and not meeting the
potential of lifts achievable.
* Optimal discount is based off the additional lift in volume
along with the cost of running promotions using the 20%
Retailer Margin assumption

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PRICING SIMULATION
Combines
• Price Elasticity
• Cross Elasticity
• Price Thresholds
• Channel / Account Specific
To create what if scenarios

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THANK YOU!
Q & A
Next Session: Promotion Analysis with Predicative Analytics Workshop