2. White Paper
March 2016
Consumer Electronics
Boomerang Commerce 2
Fast product life cycles, highly informed buyers,
and rapidly changing prices make selling consum-
er electronics quite challenging. Over all retailers of
consumer electronics (CE) looms the shadow of
Amazon, usually the most price-competitive in
bestselling head items. Nearly every other retailer
feels the bite of Amazon’s discounting, its brand
presence with consumers, and its technology
backbone.
Adding to the challenge, the leading brands have
flexed their muscles and imposed Unilateral Pric-
ing Policies (UPPs) and MAPs (Minimum Adver-
tised Prices) for the launch and early lifecycle of
key new products. UPPs and MAPs give retailers
the chance to generate better margins, but also
makes it difficult to create excitement for shoppers
through discounting.
The UPP and MAP intertwine with the relatively
fast product life-cycle of consumer electronics,
where the authorized price of a new flat-panel
UHDTV may drop 15% after one month, and anoth-
er 15% the next month. Often, the MAP gives way
to free-float within the first year, hitting margins
but giving retailers more options.
This white paper spells out five clear-cut strategies
for more profitable competition in the face of price
controls, velocity of product changes, and Amazon.
FIVE STRATEGIES TO CONSIDER
Boomerang Commerce works with a wide range of
retailers to devise and test multiple strategies and
compare the results on a continual basis. From
this unique foundation of experience in omnichan-
nel pricing and assortment strategies, five “battle
plans” have emerged which are applicable to the
fast-moving consumer electronics retailing envi-
ronment. We have seen these be most successful
when applied in conjunction with dynamic pricing
and assortment optimization technologies that
match or exceed Amazon’s capabilities.
24 weeks of changes in MAP for four
major brand-name TV models. One brand
holds the MAP steady, apart from a single
price drop, while the others take
contrasted approaches. Where the MAP
goes through rapid-fire changes, retailers
who take advantage of every drop in the
MAP must quickly boost their prices back
up when the MAP is raised sharply.
Introduction
MAP ($)
MODEL 4
MODEL 3
MODEL 2
MODEL 1
100
200
300
400
WEEK 1 WEEK 6 WEEK 12 WEEK 18 WEEK 24
500
Minimum Advertised Price (MAP) Changes of Four Brand-Name TV Sets
3. Work around UPPs and MAPs by creatively
bundling accessories, warranties, financing
benefits, services, and/or money-back
mechanisms such as gift reward cards
with the price-restricted product.
White Paper
March 2016
Consumer Electronics
Boomerang Commerce 3
Many larger retailers chafe at the restrictions that
manufacturers impose via UPPs and MAPs on a
range of higher-ticket CE products, but they are
careful to comply. The MAP allows retailers some
independence to adjust prices, but forbids them to
advertise specific products for sale below a
specific price.
Not all retailers bring the price directly down to the
MAP in every case; it is worth testing whether the
market will sustain a higher price than the MAP. In
most cases, there is consumer pressure to not
price above the MAP.
Despite the limited freedom to set pricing on most
major, big-ticket new CE products, retailers do
have price-related options for getting consumers
to their doorstep.
WHAT TO DO
a) Create tempting bundles of the UPP-restricted
head item with desirable accessories. Accessories
often yield high margin for the retailer.
Bundling an accessory can increase sales of the
tail item, which - even if it is significantly
discounted for the bundle - can yield attractive
margin contribution. This works for two key
reasons: consumers don’t price-compare
accessories or services as intensively as they
research bestsellers, and Amazon is usually not
price-competitive on brand-name CE tail items1
.
Most retailers can raise their prices on many
accessory items and realize added margin, and still
be more price-competitive than Amazon.
1. Navigate around the MAP and UPP Restrictions
BE INGENIOUS. CUSTOMERS DON’T JUST VALUE A LOW PRICE.
For example, Best Buy offers a Sony 55-Inch 4K
Ultra HD 120Hz Android Smart LED TV. It appears
that this product is price-restricted with a MAP of
$998, although that is not confirmed. Best Buy
bundles it with a Tilt Mount Bundle and a 6 Outlet
Wall Tap Surge Protector with Dual 2.1A USB
Ports.
All the other retailers checked offer the same TV at
$998, but with varying bundles. Brandsmart
mentions that the buyer can obtain a matching
wall mount for just $27.88 additional. Bell & Howell,
rather than suggest a specific bundle, offers 10%
off any accessories.
b) Bundle extended warranties or guarantees,
while maintaining MAP compliance. Most extended
warranties generate high margin for retailers with
relatively low incremental cost, but can be very
attractive to shoppers on high-ticket consumer
electronics items. For example, if Best Buy throws
in a five-year Geek Squad Protection plan that
normally sells for $169.99, that is a significant
added value for the consumer.
c) Bundle the price-restricted product with
value-added services such as post-sales and
technical support, shipping, delivery, installation,
disposal and recycling of the electronics being
replaced.
1
Retail Analytics Report on Consumer Electronics, February 2016, Boomerang Commerce.
4. White Paper
March 2016
Consumer Electronics
Boomerang Commerce 4
MAP protects margins, stifles competitiveness, and motivates retailer to bundle creatively. Seven retailers are all
within $2 of one another for their respective bundles including a UHD TV with a Minimum Advertised Price of $998.
Reported Prices on Bundles Offered by Seven Retailers for a UHD TV
Sony 55-Inch 4K Ultra HD, 120Hz Android Smart LED TV, Model XBR5X810C
RETAILER
PRICE
ACCESSORIES
RELATED
DISCOUNTS
SERVICES
INCLUDED
CASH-BACK
MECHANISM
$998.00 $998.00 $998.00 $998.00 $998.00 $998.00$999.99
Tilt Mount Bundle
& 6-Outlet Tap
Surge Protector
Wall Mount for
$27.88 additional
3 years interest-
free financing,
and a $100
Reward card
Free Shipping
with Prime
Free
Shipping
No Tax
Free
Shipping
Free Shipping and
Installation
10% off any
accessories
Some retailers, like Best Buy, offer free delivery and
installation, plus haul-away and recycling of even a
gargantuan older model TV. One could assign a
hypothetical value of $80 to those services.
Walmart prices the Sony UHDTV mentioned above
at $998 with free shipping.
A choice between bundles can allow the retailer to
target different customer types. The
eco-conscious customer might put a high value on
proper recycling of an older TV. A customer who is
intimidated by technology might find installation
essential.
d) Offer rewards and other mechanisms to reduce
the shopper’s total bill that do not violate the UPP
or MAP of the restricted item, such as gift cards or
interest-free or interest-delayed financing.
Example: HHGregg offers the same UHDTV at
$998 with three years interest-free financing, and a
$100 Reward card.
CREATIVITY IS KEY
One sees that retailers are creative in finding
permissible reward mechanisms, which can
include Gift Reward Cards, a notable discount on
common accessories, interest-free credit for one
or more years, extended warranties, and other
services.
As long as the dollar value of the MAP-protected
product isn’t reduced, the retailer will typically
remain in compliance with the MAP. It’s safer to
advertise a money-back mechanism such as a
coupon—not the product that it can be applied
against—so as not to imply that the MAP item is
offered at a reduced price. Instead, the retailer
should be clear about what items are excluded
from any coupon code promotion2
. In the example
above, HHGregg offers its $100 Reward card on
any TV over $498, not specifically for the Sony.
2
https://www.sba.gov/blogs/how-minimum-advertised-pricing-impacts-your-retail-or-online-stores-marketing-efforts
5. White Paper
March 2016
Consumer Electronics
Boomerang Commerce 5
Exploit the UPP. It protects every retailer from price
competition, ensuring that for a time, all get the
largest possible margin contribution from the
product. To realize that margin, though, they need
to move units out the door.
WHAT TO DO
Invest some of that margin in promotion to build
sales. As a retailer, you cannot change the prices
as flexibly as desired, but there are other
techniques that can work well when price floors
are in effect:
For online, prioritize higher-margin items by giving
them great visibility. This can be done by adding
them to one’s Consumer Electronics Favorites,
Bestseller, or Featured List. Then, if the customer
comes into the physical store, he or she will have
the Star SKU or “hot SKU” uppermost in mind, and
the in-store rep can reinforce that and clinch the
sale.
2. Promote Higher-Margin Items
PUT YOUR MONEY WHERE YOUR MARGIN IS.
In-store, there are a variety of measures to put into
effect:
a) Spend marketing money to promote
high-margin CE items. If the item is a truly hot
product - the latest must-have TV or tablet - there
is excitement in simply advertising that the item is
in stock.
b) Train in-store sales reps to sell higher-margin
consumer electronics. Appoint a product guru to
create a ‘demo’ sequence to impress in-store
customers, for example.
c) Incentivize in-store sales reps with bonuses or
increased commissions for selling the
UPP-restricted CE product.
Tap the higher margin dollars trapped in
price-restricted products by investing
them into driving unit sales, which make it
all worthwhile. Promote high-margin
products, train sales reps to put them front
and center, and incentivize sales reps to
close those high-margin deals.
6. White Paper
March 2016
Consumer Electronics
Boomerang Commerce 6
AMAZON
AmazonBasics is one of the largest private label
ventures in retailing, covering a wide range of
categories, with emphasis on consumer electron-
ics. A recent search on Amazon.com turned up
14,000 AmazonBasics items in Electronics. A large
portion of these are labeled #1Best Seller in their
micro-category. At the time of writing this white
paper, six of the top seven Amazon Best Sellers in
electronics were Amazon private label items3
.
Unlike most brand-name tail items carried by
Amazon4
, the majority of AmazonBasics products
are very price-competitive. Given Amazon’s
typically less competitive pricing on electronics
accessories, one could speculate that Amazon is
consciously driving shoppers to its AmazonBasics
offerings by means of high prices on brand-name
tail items.
BEST BUY
Best Buy, the largest specialty retailer of consumer
electronics, has been building its Insignia, Dynex,
Init, Platinum, Geek Squad, and Rocketfish
private-label brands for more than six years5
.
These cover a wide range of consumer electronics
from TVs to tablets and accessories. Best Buy
says these private-label goods now represent an
‘important component’ of total revenue6
. Insignia in
particular gives Best Buy an approach to the highly
cost-conscious consumer.To clear the way for
Insignia, Best Buy did pull back on stocking
low-price brands that competed too closely on
price. It also encountered challenges that manu-
facturers always face, and in the early going it once
had to initiate a product recall on 13,000 Insignia
televisions.
3. Launch and Expand Private Label
PRIVATE LABEL, PUBLIC VICTORY.
Cost-conscious consumers have come to accept that a strong retail channel which puts its reputation
behind a private-label product, can actually deliver value and quality that matches or even surpasses the
equivalent brand-name product.
In some retailer categories like groceries, private-label goods can represent as much as 90% of sales
(Aldi’s, in the United States). In consumer electronics, by contrast, many retailers barely exploit private
label. There are notable exceptions, among them Amazon and Best Buy.
3
February 7, 2016: #1. Fire tablet, #2. Fire TV Stick, #3. Fire TV Stick with Voice Remote, #4. Amazon Echo, #5. Kindle reader, #7. Amazon Fire TV.
4
February 2016 Boomerang Retail Analytics Report on Consumer Electronics
5
http://www.wsj.com/articles/SB124078866665357525
6
https://www.sec.gov/Archives/edgar/data/764478/000076447814000011/bby-2014x10k.htm
7. White Paper
March 2016
Consumer Electronics
Boomerang Commerce 7
WHAT TO DO
Moving into private label is a C-level decision, but retailers not
currently offering private-label goods should consider doing so.
Private label can be a force for profitable growth in consumer
electronics. It helps cut dependency on brands, gain pricing
freedom and improve margins. Assuming one is already active in
private label, scaling up the private-label inventory can have a
significant impact on overall margins.
In either case, the assortment and pricing need to be well thought
out. We recommend following this sequence of steps:
a) Research. Start by determining which private-label products can
help meet demand for brand-name equivalents. Analyze the
assortment in the category versus the competitor’s assortment of
both brand name and private-label equivalents. Additional points to
research: are there product areas where there is a relatively
accessible supply, and competitors have limited supply options?
b) Establish the supply. Often, this means creating relationships
with new vendors who may be offshore.
c) Price-optimize for best margins. Delivery isn’t enough – price
optimization is the key to realizing the margin potential of private
label, and avoiding costly mistakes. Some retailers are prone to
price their private-label too low.
Boomerang has found that raising prices on private-label items
from 30% below the price of the brand-name equivalent to just 10%
below helped to increase sales7
. In other words, raising the price on
the private-label product nearly 30% lifted unit sales, drastically
boosting margin. Although unproven, the causal factor appears to
be that pricing just 10% below the brand-name removes doubt in
the minds of consumers that the private-label product is of equal
quality.
Launch or expand private
label assortments,
identifying opportunities in
the selection and filling the
gaps where there is the
most to gain. Use price
optimization to ensure that
private-label products are
well-priced in relation to
their brand-name
equivalents (usually within
10% to 15%), to create a
perception of high quality
and drive higher unit sales.
7
http://www.boomerangcommerce.com/private-brands-deliver-on-value-and-profit/
8. White Paper
March 2016
Consumer Electronics
Boomerang Commerce 8
Best Sellers and attention-grabbing products
shape consumers’ perceptions of retailers.
Nowhere is this more true than in consumer
electronics. Are you seen as a value leader with
‘decent’ prices across a wide, but boring inventory
of unexciting products -- or do consumers think of
you first when they want the best price on products
they crave?
Do you have the right brands and assortment?
Shoppers often generalize their opinion of best
seller inventory and pricing, and that view takes
over as their total opinion about the retailer. They
research new, big-ticket head items carefully and
will form very specific, sharp opinions starting with
the bestseller inventory and related offers.
WHAT TO DO
Adding the fast movers that are lacking in one’s
assortment requires thoughtful identification of the
gaps to fill, plus close attention and a fairly
hands-on approach. It begins with research to
identify your target “battlefields” and learn which
are the “populars”.
a) Pick subcategories to focus on
Asymmetrical warfare can work to the smaller
player’s benefit. No retailer will be the most
price-competitive in every subcategory, at every
moment, particularly given the relentlessly
dynamic pricing in consumer electronics. It’s often
beneficial to carve out subcategories where you
4. Pick the Popular Products in Strategic CE Categories
PICK YOUR BATTLEFIELDS, THEN PICK YOUR PRODUCTS.
will assert price leadership and attract customers.
Select specific brands or product types where the
competition is not killing margins with discounting
and focus there, establishing leadership.
Jet has done this in both Computers &
Accessories, and Cameras & Accessories8
, where
its average weighted pricing is 5% or more below
Amazon on the SKUs we compared. By contrast, in
consumer electronics overall, Jet prices about 2%
above Amazon.
Since head-to-head, symmetrical price
with Amazon is a lost cause, instead pick
the customers you may be able to serve
better than Amazon can, where expertise
can help win customer loyalty, and it may
not be all about lower price. Learn and
serve all the needs of those customers,
and utilize price and assortment
optimization - because they work.
8
February 2016 Retail Analytics Report on Consumer Electronics, Boomerang Commerce.
9. White Paper
March 2016
Consumer Electronics
Boomerang Commerce 9
b) Research the assortment gaps and select
which to fill
Be the expert in what’s hot and holding excitement
for shoppers, tracking product reviews, ratings, and
social media chatter. Check the widely-used lists
across the Web for category leaders, including
Amazon Best Sellers, Best Buy Featured Products,
etc. and for each subcategory. We find that in
many cases, carrying half of the Amazon Best
Sellers in each of your key subcategories will make
a strong enough impression on shoppers to ensure
that price leadership succeeds in generating
greater traffic.
c) Fill the gaps
How does one actually go about filling in the gaps
in the assortment? The answer: sensibly, and
surgically. Let’s take a hypothetical scenario where
the main competitor offers 100 UHD TV models,
but a smaller retailer carries only 10. Don’t rush out
to add new vendors and stock 90 new models to
exactly match the competitor’s assortment.
Remember that carrying 50 percent will typically
appear to the consumer as a strong assortment,
so there will be no disadvantage due to lack of
selection.
Leverage existing vendors to fill gaps more quickly.
Later, there will be time to set up business
relationships with a larger number of
manufacturer. Plan ahead for the need to establish
new vendor relationships to expand the
assortment. Another friction-reducing move: rather
than stock up on all 40 new SKUs, consider
drop-ship arrangements to fulfill online orders.
10. White Paper
March 2016
Consumer Electronics
Boomerang Commerce 10
There is a variety of analytic applications and
resources that retailers can use to devise, test, and
compare assortment and pricing strategies.
Adopting a unified platform, versus a group of
unrelated point solutions, makes managing the
entire process easier.
Learn From History, Be Ahead of the Price Cycle
Knowing when the UPP MAP transitions occur, by
understanding the timing, allows one to have
pricing and marketing strategies ready for the shift.
In addition, once MAP comes into effect, every
retailer can apply price optimization to these
still-hot fast movers - within the manufacturers’
boundaries.
Exploit the Best Competitor Intelligence Available
They are watching every major retailer, and ‘they’
includes Amazon. It is critical to the bottom line
5. Optimize the Inventory by Leveraging Analytic Tools
USE HIGHER MATHEMATICS TO WIN YOUR BATTLES.
Know the UPP and MAP timing and be ready
to take full advantage. Use the best
competitor intelligence, optimization, and
analytical tools available. Remember that
price and assortment optimization go hand in
hand, and use them together.
that each retailer is equally well informed about the
competition. Accurate, near real-time tracking
requires the capability to accurately match
products, including private-label equivalents and
promotional bundles.
Think of Assortment Optimization and Price
Optimization as Siamese Twins
Assortment optimization is essential to identify
and fill SKU gaps, as well as to scale up for more
revenue. Pricing optimization allows retailers to
price newly added items correctly. Since
assortment growth and dynamic pricing go hand in
hand, a unified platform that optimizes both is a
really good idea.
11. White Paper
March 2016
Consumer Electronics
Boomerang Commerce 11
The five battle strategies recommended for retail
ninjas in consumer electronics are:
1. Work around UPP and MAP restrictions by using
such measures as bundles of accessories, value
added services, and/or various rewards to
incentivize customers.
2. Invest in promoting higher-margin items.
3. Scale up (or launch into) private-label offerings
and use price optimization to avoid underpricing.
4. Carry the popular products in whichever
categories you choose as your preferred
battleground. Become an expert in what’s hot and
shapes the consumer’s perceptions. Identify the
gaps, fill them and optimize prices.
5. Leverage analytic tools, understanding that
assortment and pricing optimization are much
more effective as a unified approach.
In the fast-moving and intensely competitive arena
of consumer electronics, retailers need technology
and battle strategies that provide sustainable
advantages, both broadly across their market, and
at a granular level of targeted subcategories. The
five strategies presented in this white paper should
help retailers compete more profitably in consumer
electronics throughout the year.
Conclusions
A study by Forrester Research9
found that on a
high-end GE microwave, Amazon made eight price
changes in a single day. Keeping up - or simply
keeping one’s strategy relevant in the face of such
repricing activity - can only be done at scale with
the kind of guided analytics technology that
Boomerang Commerce provides.
On products that are price-restricted, pricing
optimization can still serve a critical purpose, in
recommending a discount or pricing strategy even
if no one is allowed to implement it. The reason is
simple. Knowing the ideal price for maximum
margin contribution helps to establish a
promotional bundle that is permitted, yet still
equates to the optimal price by giving the
consumer related cost savings that net out to the
optimal price.
9
http://www.boomerangcommerce.com/wp-content/uploads/2015/07/Holiday-2015-pricing-strategies.pdf
