Pricing Strategies and Promotion Best Practices

By: Ken Cline,  Application Consultant,  Revionics, Inc

I was recently reading Supermarket News, and came across this article that spoke to the state of the state within the grocery vertical. It speaks well to what it takes to succeed in today’s environment.
Food retailers are turning to analytical systems that can help them survive the harsh economy, according to SN’s latest technology survey.

Faced with the worst economic downturn in decades, U.S. food retailers are using technology to gain a better understanding of their position in the marketplace — and to optimize that position in respect to inventory, pricing, labor and a host of other business-critical elements.

Profit analysis is an application many worried retailers are turning to these days. While it ranked high on the list of priority items for 2008 at 25.5%, its popularity jumped to 36.2% on the 2009 list. Closely aligned with profit analysis is the expanding area of price and promotion planning and optimization.

Pricing has been an especially complex issue in the past year as retailers have grappled with rising commodity prices, as well as the need to lower retail prices to help out struggling consumers. Survey respondents consequently were prone to select promotion planning (30.9%) and price management (29.8%) as high-priority applications for 2009. Likewise, among applications that will be tested or launched in 2009, trade promotion management (16%) and price optimization (13.8%) ranked second and third.

Price optimization applications give retailers a forecast of what consumers are likely to do — and how profit margins will be impacted — when prices are raised, lowered or left the same. Without this scientific approach to pricing, retailers “are not going to find margin improvement,” said Scott Langdoc, chief strategist, Retail Centric, South San Francisco, Calif.

By: Jeff Smith,  Founder & EVP Business Development,  Revionics, Inc.

In retail, there is a key piece of information that contains a lot of power, that piece of information is the price sensitivity of a given item in a given store. Obtaining that piece of information is a very difficult thing to do.  If it weren’t for seasonal effects, holidays, promotions, out of stock conditions, low unit movement and a variety of other challenges, it actually would not be too difficult to determine.  After all, it is simply a prediction of how much the unit sales will change given a change in price.

With this information in hand, there are a variety of tasks that can be done more efficiently. One example is the identification of key value items, or KVI’s.   For retailers without optimization technology, the way this is accomplished today is by looking for the items that have the highest turn.  Unfortunately, this method shows items that are hot sellers, but these items may also be insensitive to price changes.  When retailers are able to obtain actual price sensitivity by leveraging optimization science, it is very interesting to review the sensitivity of these high moving items; there are always items in that list that are not price sensitive.  What does that tell you?  Often there are low margins on high moving items that could easily withstand a price increase without impacting consumer demand.   Retailers could be making up valuable profit dollars on these items.

Another key insight that can be gained from retail data is more accurate forecasting of revenue, profit and inventory requirements when making price changes or promoting items.  This accurate forecast is used when modeling and planning merchandising strategies for a category, department or banner.  Retailers can maximize margin dollars by charging a little more for items whose unit movement is not impacted much by the price increase, and reducing the price on items where the unit movement will increase more in proportion to the price decrease.

Information is power, and a good price optimization environment empowers the retailers with both recommendation and reporting that allows them to improve profits, price image, and customer satisfaction.  Revionics solution delivers both advanced price optimization and price strategy services to help retailers accomplish their goals.  For more information, please visit www.revionics.com, or email us at info@revionics.com.

By: Mike Isom,  Managing Principal Consulting, Revionics, Inc

For the past 2 years, retailers’ private brands have been the topic of much discussion. In the failing economic conditions we are experiencing, many consumers look to private brands as a way to stretch their budget. Retailers have reacted by continuing to introduce additional offerings and manage favorable pricing positions that have also been one of very few bright spots in a mostly bleak sales and profit battle field.

In Europe, private brands have long held a significant position in both sales as well as overall percent of assortment. In the US marketplace, private label has been viewed as a lesser quality or subpar brand leading to a very limited penetration for many if not most retailers. But in a recent private label report, IRI has made the following observation:

1. In the shopper survey, consumers told us that purchasing a private label is a brand-driven decision that involves many factors including their own emotional connection to the retailer itself.
2. In looking at shopper attitudes of private label quality, over 78% of both lower-income and higher- income consumers believe that private label products are typically of excellent quality.
3. Four-of-five shoppers are now “sold” on private label quality indicating that product marketing during the current recession is successfully expanding the positive reputation and reach of these products.

‘IRI Private Label report

As private brands continue to grow in acceptance by the consumer as a viable substitute or replacement to the national brand, retailers will need to continue to drive private label to the fore front of their assortment and marketing plans to keep pace. Successful retailers have begun brand building on their private label offerings insuring the customer’s confidence for the banner carries over to the brand.

Now more that ever retailers are in need of insuring that they have a clearly defined strategy regarding  the relationship pricing between the National Brand and private label item. Price optimization becomes a critical component in the execution of this pricing strategy. By capitalizing on the consumer demand signals of an item, the optimum price and profit potential can be realized from this ever growing segment of the assortment.

Private Label items have gained a significant foot hold in today’s retail arena, and will continue to grow in impact and importance well beyond the recovery of this economy.   For more information, watch our webinar, “Good, Better, Best” by clicking here.  Comments are welcome!

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

I saw a very good article carried in Supermarket News yesterday written by Michael Garry.    The article was called “Bouncing Back” and it summarized anticipated retailer spending forecasts on information technology.   Read the article here.   I was pleased to see the increased acceptance that Software-as-a-Service has gained given its advantages for retailers.   I was also very enthusiastic about the increasing importance that retailers are placing on Price Optimization, Promotion Planning, Trade Promotion Management, and Computer Based Ordering, all things that are core to the Revionics solution portfolio.   With the National Grocers Association show occurring this week, the article was very timely.

If you happen to be attending the National Grocers Association Show in Las Vegas this week, I want to personally invite you to attend a presentation that I will be doing with Luigi Mucciacciaro, Director of Store Operations for D’Agostino Supermarkets on their experiences with Price Optimization.   The educational session is entitled, “Price Optimization for Improved Profits”  and it will take place on Thursday, February 11th at 9:15am-10:15am in the Versailles Ballroom 3 & 4 at the Paris Hotel.  This educational session will cover how pricing optimization software can be used by grocers to drive sales and profits all while tuning pricing to satisfy consumers.

I want to also mention that Revionics will also be exhibiting on the NGA Show Floor. Be sure to stop by the Revionics booth (#703) for additional information on our product services in addition to meeting the Revionics team.

If you have any questions, please feel free to contact me at tmichaud@revionics.com.  I look forward to seeing you in Las Vegas for the National Grocers Association Supermarket Synergy 2010 Show.