Pricing Strategies and Promotion Best Practices

By: Todd P. Michaud, President and CEO, Revionics, Inc

Last week, Federal Reserve Bank Chairman Ben Bernanki announced that the US is on the “cusp of recovery.”   I couldn’t agree more.   As you can see from my previous posting, I have suspected a turn in the economy for the past few months, and have urged retailers to start focusing on the recovery.   As a provider of pricing software, Revionics has a front-row seat to how leading companies adjust for different economic conditions.   Despite the obvious economic improvements that we are starting to see, it is clear that consumers generally remain very price sensitive.

Responding to the more frugal shoppers, a price war has begun in the supermarket industry.   Safeway announced the intent to lower their prices by 25%.    And at Revionics, many of our clients are also making significant price investments.    The goal for these retailers is to drive traffic and market share.    It is hoped that absolute margin dollars will increase by selling a lot more goods to price sensitive consumers.   Many retailers are reflecting on some key questions;  How do I remain competitive while maintaining my margins?  How do I reinvent my price image to better attract a value-centric shopper?   If I lower my prices, will I see a corresponding increase in sales?

So, with the positive signs in the economy, this has been a very good time for companies like Revionics that offer consumer demand centric pricing and promotion systems.    Retailers are looking for more sophisticated ways to make certain that their pricing and promotions are calibrated to the needs of their consumers.    Old strategies, old systems, and old techniques are no longer adequate for the pricing challenges ahead in this very unique economic environment.

By: Jeff Smith,  Founder and CTO, Revionics, Inc

Times are changing… or maybe it’s more appropriate to say times have already changed. The easy days of having the pricing function be side task in a retail organization are over; price is more important than it has ever been.

The economy seems to have un-expectantly jumped up and slapped retailers in the face, and knocked them back a few steps, a little dose of reality; but they are back fighting even stronger after gathering their wits. Nobody was prepared, nobody saw it coming, nobody wants it to be here, but it is here, so we have to deal with it. Higher unemployment, lower wages, higher medical costs, higher fuel costs; money is tight. Consumers are looking at the price they are paying for products, and you need to be looking at those prices as well; it is very important.

For decades retailers have had very friendly and somewhat naïve customers, life has been good, no need for them to watch every penny spent…. Well, times have changed. Consumers are more aware of product prices than they probably ever have been in their entire life; retailers have not had to deal with this in the past. Add that in with the proliferation of discount retailers, and it makes running your business much more difficult than it ever has been. To compete in today’s retail environment, it is imperative to have a sophisticated tool to help you out. Full lifecycle pricing analytical tools are now part of the mainstream arsenal of tools retailers can use to be successful; you can’t survive without it.

Price optimization technology has come to be a mainstream technology that has been around for over a decade.  There are hundreds of successful installations in use today, helping to implement retailers pricing strategy in a better fashion than if done via Excel sheets, with simple margin management, or by matching competition.    Retailers who have not taken the time to investigate today’s pricing technology are missing a critical opportunity to change with the times.

By Todd P. Michaud, President and CEO, Revionics, Inc.

This economy has been tough for most consumers. The average net worth of individuals has decreased by more than 20%, and on average, 401Ks have decreased in value by 30-40%. Unemployment rates are the highest they have been in over 25 years, and gas prices are unpredictable.

The challenging economy caught many retailers off guard. During the holiday season, for example, many retailers had excessive inventory levels left on their store shelves. Private label brands have seen unprecedented growth as a substitute for national brands, and three out of four categories are losing buyers.

Undoubtedly, today’s consumer has changed. Families are eating out less often. Shopping trips are less frequent, and consumers are stocking up on items instead of often running to the store to pick up a few items. More people are using coupons and responses to ad offers as they shop around more for the best deals.

Many people want to know: Where is our economy heading? Clearly, there are early signs that banks are starting to slowly lend again, business confidence is returning, durable goods sales are increasing, and home sales are finally rebounding. Most economists predict that our economy will see positive GDP growth in 2010, if not sooner.

Despite an improving economy, however, many believe that consumers have made long-term changes to the way they shop. It is to be expected that many consumers will continue this new economic behavior that they have adopted during the recession. With an improving economy on the horizon, a retailer can take steps to get ready for the impending recovery:

• Retailers must monitor their consumer demand signal more frequently. By analyzing their data, a retailer will better see changing consumer sensitivities (elasticity) to prices and promotions. On elastic items, demand will change as price changes. Demand is less influenced by price changes on inelastic items.
• Retailers must review their price strategy effectiveness. Price strategy cannot be constant; it must change with the economy. Retailers must proactively manage costs and margins while reducing competitors’ control of their strategy. Retailers must reduce reactive responses by leveraging predicative analysis. To do this, they must understand price versus demand impacts with changing elasticities.
• Retailers must improve promotions and offers. They must know their objectives: which products to promote, which consumers to target, which offers meet their goals, as well as what are their predicted results. Also, retailers need to leverage advanced tools that will identify the best items to promote and the best prices for those items.
• Retailers must mark down items more optimally. They must free up working capital tied up in unnecessary inventory by using item-store demand to predict inventory depletion as a function of time and place as well as increasing sell-thru and margin.
• Retailers must build upon the shift to private label products solidified during the recession. Private labels are growing, and when consumers are able to spend more money, they need not abandon these private label products for the benefit of national brands. Improving marketing and messaging around private labeled items is essential as national brands try to reclaim lost ground.

What will the economy ahead look like? As the economy recovers, will consumer behavior and spending patterns return to peaks that we saw before the recession? Will high jobless rates mitigate the pace of the recovery? These are some of many of the questions consumers and retailers are thinking about. Nobody knows the answer for sure. Bottom line, as retailers and consumers, we need to be prepared for anything! Learn how Revionics’ pricing software can help your retail business!

By: Jeff Smith, Founder and CTO, Revionics, Inc.

Since its launch, Revionics University has built a strong following from Revionics customers as well as other retailers who have been attending regularly scheduled seminars on industry-relevant topics. Revionics University has a formalized curriculum that touches on a variety of topics, from introductory courses on its products, to general industry topics relevant to pricing analysts, category managers, executives, and anyone involved in the retail industry. It may be perceived that Revionics University only offers courses targeted towards educating its customers in relation to their products, but it is much more than that. Revionics University is a top-notch industry forum that provides a number of courses pertaining to industry trends and best practices related to pricing and category management.

Why should you sit in on one of Revionics webinars? The benefits of Revionics University are numerous for anyone who desires to stay current on industry best practices and current, or future, technology trends. Designed to take less than one hour, the web sessions are very focused and share key industry lessons. Sitting in on a webinar will help you become more knowledgeable about the given topic within the technology industry.

Courses that Revionics has already hosted — “Retailers: Are You Ready for the Recovery?” “Next Generation Promotion Optimization,” “The Economic Impact on the Four Pillars of Category Management,” and “Good, Better, Best: Maximizing Private Label Opportunities” — demonstrate issues that are currently relevant to retailers and executives. These courses were recorded for archiving and are available for your viewing today. Upcoming courses include Integrated Forecasting, Global Retail Trends, and Competitive Data best practices.

Revionics employees are continually striving to be ahead of industry trends, and educating themselves on industry best practices. At Revionics, we are fortunate to be able to focus specifically on demand intelligence and the related benefits of it in regards to pricing, category management, and inventory replenishment. We have partnerships with leading retailers which enable us to stay informed on best practices in the industry. In addition, Revionics staff members bring years and years of their own quality experience retail industry experience, as well as vast experience in retail technology.

To sign up for a Revionics University session, visit our website, www. revionics.com/educate.