Pricing Strategies and Promotion Best Practices

By: Christie Frazier-Coleman,  VP Strategic Pricing & Consulting,  Revionics, Inc

Are you brand blocking your private label or doing the compare and save strategy?  With price optimization we tend to encourage a frequent review of base pricing, and in particular, a heavy scrutiny on private label versus national brand price relationships.

How does this impact merchandising decisions?   For example, in the past, best practices dictated that private label should be merchandised immediately to the right of the leading national brand. This is typically done during the category review process on a bi-annual or annual basis.   Some retailers are now recommending that a private label should follow the national brand with the lowest base retail to set a price gap. Does this force the retailer to change his schematic as often as he changes those relationships  or are the old merchandising rules obsolete?

Are the old merchandising rules becoming obsolete?    For example, does it not make better sense to link the private label to multiple national brands?  Items such as private label chocolate chips to both Hershey’s and Nestles’ or private label batteries to Energizer and Duracell are examples of the modification to the rule retailers and merchants need to answer for pricing considerations as well as merchandising strategies.  In this case, the decision needs to be made to select ‘the’ most relevant item to merchandise against.   I think the merchant needs to determine which brand is the most recognizable to that customer base for pricing relationships if you are still using the “to the right” positioning of private label.

Some of the most successful retailers in private label have not merchandised to “the right” for years. They have BUILT their private label into its own BRAND and can have it stand alone in many instances. (Lady Lee – Presidents choice – etc).  Some other giants like Target are still using the compare and save approach.  Which is the best strategy for the future?

I’m interested in receiving your comments.  What do you see with retail in private label pricing relationships and merchandising?  Any feedback as to best practices you are seeing?  Is it an all or nothing strategy?  Are there cutting edge strategies you are seeing or tests you are doing yourself that you can share?

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

Historically, the US has led the adoption of advanced pricing software.  With retail price optimization being invented in the United States – particularly in Sacramento as a matter of fact, it makes sense US retailers are more comfortable with the technology since they have been exposed to it much longer.  Many of their domestic retail peers have implemented some type of price optimization solution and are reaping the significant rewards of doing so. In other words, optimization is a known and proven commodity in the United States.

Retailers outside of the US seem to have caught the optimization bug. Interest and inquiries are consistently gaining at a rapid pace.  Historically, these international retailers have tended to be more progressive, adopting new technologies sooner than their US counterparts. Adoption should be quick now that there is interest.   Through conversations with many of these retailers over recent months, I have discovered that they face similar challenges, but information on advanced pricing solutions is not readily available for them.  On a recent visit to a retailer in the Asia-Pacific region, it was not surprising to find us having the same discussions as with retailers in the United States; they are facing the same challenges and are thirsty for information on how to solve retail pricing problems.

International retailers have a great advantage compared to the early adopters many years ago in the US. They will be able to leverage the fact that price optimization has matured, with second generation price optimization systems now on the market as well as many installations completed and live for a number of years. International retailers should plan for a healthy return on investment through the use of price optimization systems, in both profit and productivity savings.  If you’d like more information, download my white paper to learn more about functionality to look for in second generation optimization solutions.

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

As we look at the retail market, we see most retailers plagued with either inadequate Retail Demand Intelligence (RDI) and Forecasting tools or on the contrary, some retailers have too many disparate systems that contradict each other.   This is even true for those retailers who have selected comprehensive solution portfolios from the largest of software vendors since so many software vendors have merely intellectual property that they have acquired through poorly architected interfaces.

The market is ready for an open, integrated forecasting solution provider that has the expertise, willingness and I/P to synthesize these disparate systems.     As you probably are aware, today Revionics offers Full Life Cycle Price Optimization and we are in the process of readying our the release our Inventory Replenishment Optimization solution prior to the end of the year.  All of these capabilities will be based on our fully integrated forecasting and RDI platform.

Despite the breadth and depth that we expect of our own solution portfolio, we know that all retailers will have other solutions already installed that we will need to integrate with.   In essence, our forecasting platform needs to become the glue that unifies the disparate solutions together.    We have architected our Integrated Forecasting capabilities in this fashion.    In this environment, there are many demand influencing factors that we must account for such as…

•             The influence of Price, Promotion and Markdown
•             The influence of Introductions and Discontinuation
•             The influence of Supply or Demand Shock (Product Availability)
•             The influence of Seasonality and Holidays
•             The influence of Cross Effects (Affinity, Cannibalization, & Pantry Loading)
•             The influence of Space
•             The influence of Weather

Candidly, many of the solution providers in the retail segment simply can’t effectively do these things.   They can’t integrate with upstream or downstream solutions by other software providers.   Consequently, we have decided to differentiate Revionics on the basis of open scientific and analytical capabilities.    We do not believe that retailers will want to settle for large, monolithic software portfolios if it is at the expense of best of breed and competitive advantage functionality.

By: Christie Frazier-Coleman, VP Strategic Pricing and Consulting,  Revionics Inc

I was listening to the television the other night and heard a Walgreens commercial.  Their tag line was “we carry all of the things you need most.” What caught my attention was that they were not typical drug store items -but items that in the past have been considered traditional grocery SKU’s such as soda, milk, cereal, and even ice cream.

Every retail format is in the grocery business.  No wonder retailers are bemoaning soft sales and pulling their hair out wondering where it has gone.  IRI reported that the drug channel’s dollar sales growth outpaced supermarkets, and food, drug and mass merchants combined, in all but two of the 20 Center Store categories they profiled in their latest issue.

I was talking to a gentleman from the convenience store segment and asked him what his biggest competitor was in today’s times.  He said that their research had indicated that it was also the drug stores-especially with the younger population.  He shared no numbers but they are now within their strategic focus.

Staying focused on one more retail type is difficult but seems to be growing in importance.  It is important to understand what categories your customers are purchasing in what retailers and who your real competitors are.

IRI also pointed out that there seems to be three shopping trends occurring.

• The first group is buying in bulk to save money on a per unit basis, as well as trips to the store. Who does this well in your market?  What are the key items to carry in this area? Pricing these items appropriately is important in order to gain credit for that bulk price perception.

• Others are stocking up on items when they go on sale. Discounts and special offers receiving the most attention are those in categories that make at-home eating convenient.Drug stores are not yet carrying enough variety in the at home eating items-yet.  They are discounting heavily though.  Promotion planning is taking center stage in all formats and it must be effective in creating sustainable traffic and measured accordingly.

• A third shopper group is sticking with a consistent budget, opting for smaller basket sizes and more frequent visits.Who is top of mind with best price for the dollar in your market?  How do I manage my margin mix in order to attain this perception?

Lots to think about!  What other formats are creating an issue for you in sustaining sales?  The Revionics team is in the thick of these questions everyday and would love to hear your thoughts and ideas.