Pricing Strategies and Promotion Best Practices

By Dan Muldowney, Strategic Account Executive

One common characteristic I have found with many retailers that I have worked over the last six years is that category managers spend far too much of their valuable time on price maintenance.   Strategy often takes a backseat to other priorities such as shifting costs and competition.  In many instances where the category managers have pricing analysts to assist, the majority of their time is spent on price oversight and approval as well as negotiating promotional events with vendors and still not strategic.

When you consider the tasks and processes involved in price management, a single vendor cost change may trigger tens to hundreds of price changes within a category. Line pricing rules, size parity, zone pricing, private label shielding and other category rules must be followed in order to maintain role hierarchy and intent for the affected category. Without automation, a simple cost changes prove to be a very time consuming challenge.

Over the last ten years many retailers have looked to life cycle price management and optimization vendors to automate these price management processes.  This technology has been embraced by several leading retailers and help to further cost justification of price optimization. Through use of a price optimization system, these retailers have found that their category managers can shift their focus to work more closely with their vendors. Time spent previously managing tactical tasks can now be dedicated to strategic pricing practices. Additional time saving benefits can be gained when implementing vendor collaboration software.

When I work with a retailer evaluating price optimization, I almost always recommend a “crawl, walk, run” approach when evaluating life cycle price optimization solutions.  Just because the system can optimize pricing does not mean it has to Day One. Start easy with automation.  Once users become more comfortable with the system functions and navigation, then try optimization for few categories and monitor the benefits. When confident of the systems benefits, the pricing team can decide to roll out price optimization across all categories, or go even further and investigate promotional and clearance or markdown optimization.

While the sizzle of an optimization solution is the science, there is a great deal of value provided by automating pricing tasks.  Ask yourself this question the next time you are dealing with price management functions “Is there something that I can be doing to better my category performance and make my pricing activities be more strategic?”

By:  Susan Boyme, Vice President of Marketing, Revionics, Inc.

As Revionics announces the release of Collaborate, our new supplier portal for retailers, it causes me to reflect on  the web-based trading exchanges, marketplaces, and other “one-to-many” and “many-to-many” models I have bumped into over the past 15 years.  Regardless of model, the most successful initiatives have one thing in common – the party sponsoring the initiative must be the buyer.  Supplier-driven models are well intentioned, but don’t get traction.

The promise is consistent – improve the supply chain by creating an automated, seamless way for buyers to communicate with their suppliers.  Industry-sponsored initiatives stall is when standards are created or enforced, business models are debated, and when the key buyers don’t lead the charge.

At Revionics, our blood bleeds retail, so our perspective is that exclusively of the retailer.  Collaborate, therefore, reflects a rather retailer-centric view of the world.  Within our community of over 100 retail clients, we consistently heard:  Help me create efficiencies by improving the way I do business with MY suppliers.  Help me automate the collection of data from my smallest, least efficient suppliers.  Help me collect my deal information and integrate it into my promotions planning platform.  Help me to know if a deal is good or not before I ink it.  Help me to share information with my supplier community in a way that is controlled, but helpful to my business…

Collaborate’s strength is in its blend of simplicity and sophistication.  For the retailers ready for on-demand promotional modeling of deal monies offered by suppliers, Collaborate can act as a hub of negotiations and deal management.  On the other hand, if a retailer simply needs a central repository for hosting data for their smaller, less sophisticated suppliers, Collaborate can do this too.  Collaborate provides a comprehensive suite of capabilities that are adaptive to the needs of each individual retailer.

Revionics has proven scalability for web based applications – we host and manage pricing for over 20,000 stores each week.  Collaborate leverages the same SaaS platform and creates a private, portal experience for each retailer.   With our deep expertise in systems integration, we have the ability to receive a variety of inbound data types (XML, EDI), and pass information to existing retail environments for the least possible disruption.

Yes, I’ve bumped into many initiatives with the intent of solving supply chain initiatives in the past.  In the end, the buyer wins with Revionics Collaborate.  Collaborate gives the retailer the power to insist on better standards from all suppliers, regardless of size.  I encourage retailers out there who are struggling with disparate ways of managing inbound data from their suppliers to investigate Collaborate.  For more information, visit www.revionics.com/raps-collaborate, or email us at info@revionics.com.

By: Jim Sills, Ph.D.,  CTO,  Revionics, Inc

Ideas are like tomatoes. They start out small and green, but if the circumstances are right, they grow and ripen until they bear fruit. That is definitely the case for Revionics’ idea to provide retailers with One Integrated Forecast.

The idea was born years ago. At the time retailers had multiple contradictory forecasts: one forecast was used for financial planning; another for replenishment; another for workforce management. There was a store forecast for all categories and a category forecast for all stores—but the two did not match at the enterprise level. There were forecasts at daily, weekly, monthly, quarterly, and annual levels—when rolled up these didn’t match either. None of the various forecasts provided the accuracy necessary to make good business decisions. Retailers could not accurately or consistently predict their business. If a business is not predictable, then how can it be managed?

The idea was to provide retailers One Integrated Forecast that is accurate and meets all planning requirements. Let’s break this down into three components:

One. Replace the set of disparate forecasts with one forecast.

Integrated. Include all planned price and promotion activities. This includes merchandising activities such as displays and signage; and advertising such as circulars and flyers. It also must account for direct marketing such as email and offers to loyalty card customers.

Accurate. There are three measures of accuracy:
1.    Bias. The aggregate across all items and stores is unbiased.
2.    MAPE. The mean average percent error is small.
3.    Confidence. The accuracy of the confidence interval is high.

The factors that can influence the forecast accuracy include:
1.    Seasonality. Monthly, quarterly, bi-annual, and annual cycles.
2.    Holidays. Flexible calendar of holidays and events with pre- and post- holiday lifts. Ability to define custom events.
3.    Trends. Year-over-year trends either up or down in sales.
4.    Cannibalization. Substitution effect where a promotion on one item takes sales from another similar item.
5.    Affinity. Drag along sales where a promotion on one items drives sales of another item.
6.    Weather. Factor in the impact of weather.

Revionics offers One Integrated Forecast with unparalleled accuracy because it accounts for all the factors listed above.

We recently were working with a grocery retailer who wanted to reduce shrink in his produce section. He frequently promoted tomatoes and believed that with a more accurate forecast he could avoid ordering too much—leading to higher shrink, and he could avoid ordering too little—leading to stock outs. He knew that when he promoted red roma tomatoes it reduced the demand for hot house tomatoes, but he couldn’t quantify the amount until he used Revionics Promotions Planning module. He was able to forecast both the red roma and the hot house sales during the promotion with more accuracy. The result—no stock outs and less shrink. Revionics Forecast, delivering One Integrated Forecast to retail, is an idea that is ripe on the vine and ready to harvest.

By: Jim Sills Ph.D., CTO, Revionics, Inc.

“Another bad UPC from a vendor!  Why are we still using pen and paper to manage vendor deals?” This is a real quote from a retailer I was working with last year on a promotion planning project.  This retailer was depending on vendor’s hand-written information. The UPCs entered on deal sheets were frequently in error. “There must be a better way!”

Yes there is a better way and help is on the way. Revionics is on schedule to release RAPS Collaborate in April this year.  This vendor collaboration portal is a common platform for retailers and their vendors to exchange information, plan deals, and execute reporting.

Vendors submit a deal thru the retailer’s branded portal—by either electronic data feed or via manual entry.  RAPS Collaborate is integrated with the retailer’s item master, so all UPCs entered by vendor are validated against the item master.  Exceptions are flagged to prevent errors at the point of entry.

And that’s just the beginning.  Vendor deals that are submitted can be reviewed by the retailer for approval, or rejection with comments. There is a full audit trail, so no more after-the-fact debates about miscommunications with the vendor.

It is easy to set up new vendors or update vendor information in the Vendor Management screens.  This includes setting up vendor user accounts and security.  Once the vendor logs in, they can view the retailer’s master promotion plan.  It is very easy to submit a deal by specifying begin and end date, UPC, incentive information, order information, terms, and special instructions.  The full range of incentives is included such as bill back, scan down, lump sum, off invoice, and layered deals.  Finally, the vendor can submit the deal, which creates an email alert to the retailer.

Next time the retailer access the portal, they see an alert indicating there is a vendor deal to review. Clicking on the alert brings up the vendor’s deal information.  The retailer can approve or reject the deal, which creates an email alert to the vendor.

RAPS Collaborate is fully integrated with Revionics’ solution suite, including RAPS Promotion, and RAPS Replenishment.  With this new module, items on deal are clearly documented and can be easily added to a promotion event such as a circular. The incentive is accounted for in recommending items and offers—including long term price reductions such as TPRs.  Reports display the impact of the incentives on the category.   RAPS Replenishment is aware of incentives and will recommend forward buys.

Vendor privileges can be managed so that vendors are limited to only their categories and stores. They can be given access to the forecast of their items, or in the case of trusted vendors, the store-level forecast for all the items in the category.

Both the retailer and the vendor can see total trade funds by week, quarter, year, and year-to-date.

There are additional features for managing item master data. For example, the vendor can upload nutritional information and item attributes. The vendor can even propose a new item for the item catalog, which the retailer can approve or reject.

As you can see, Revionics is offering a compelling solution that will improve the way retailers communicate with their vendors.  Sharing information in a more timely, accurate fashion will introduce new efficiencies and create clear advantages for participants.  For more information, please email info@revionics.com, or reach out to your account manager for a demonstration.

By: Christie Frazier-Coleman, VP Consulting, Revionics, Inc.

Frank Badillo a Senior Economist for Retail Forward in his November 6, 2009 Washington Post article stated:

“Don’t expect shoppers to abandon their hard-earned lessons in frugality even if the economy starts picking up.  Households remain focused on shopping for needs, and this kind of cautious shopping behavior will restrain sales improvements.”

So as 2010 begins what are the best practices in pricing that remain constant in their ability to generate solid returns?

1. Track trends in customer and competitive behavior and react to trends not single events.

2. Engaging in forward planning that utilizes forecasting tools for accurate assessment of demand shifts over time.

3. Set goals at the highest and lowest levels.  (Every member of the organization should know and understand their part.)

4. Evaluate opportunities with store clustering, customer segmenting, and predictable competitive behaviors.

5. Assign a role and goal for base, promotional, TPR, and even markdown prices and margins.  A plan for total margin mix, sales, and units needs to be known not an accident.

6. Constantly measure the strategies for execution excellence and constantly measure goals against well executed strategies.

7. Learn to understand the principles of elasticity, cannibalization, affinities, and optimization.

8. Utilize private label as a way to maintain margin speed and provide value.  Set proper gaps based on price points that are palatable to your customer.

9. Choose the right competitors to measure against.  Who do your customers shop?  Choose the right items and frequency for competitor price shops.

10. Manage fewer Key Value Items-assess which are the most likely will cause defection if not priced right.

These are just a few that our retail partners are using.  If any of you have best practices  you want to share  please do so.

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

Over the next couple of weeks, Revionics will be announcing RAPS Replenishment, a fully comprehensive inventory management, forecasting and order optimization system.   We intend on demonstrating this system to prospective customers at the annual NRF show in New York on January 11th and 12th.   General Availability (GA) for customers will be April 1, 2010.  The completion of this module will be a significant accomplishment for our development team.

Why is Revionics focusing on Replenishment?

As many of you know, we have 100+ retail customers already.   Many of them are increasingly focused on finding new ways to free up working capital tied up in non-value adding inventory while simultaneously reducing out of stock situations, especially those out of stock situations tied to promotional activities.   With our integrated forecasting system, Revionics is uniquely qualified to help retailers address both issues.

The RAPS Replenishment system has three primary components:

• Inventory Management: This module maintains store level perpetual inventory.   It offers a fully integrated receiving system capable of tracking in-bound shipments from the warehouse or from DSD vendors.   The system will also integrate with Point-of-Sale (POS) systems or back office systems to monitor sales on either a trickle feed or periodic basis.   The system also supports physical inventory counting as well as computer directed cycle counting.

• Forecasting & Optimization: This module generates optimal order quantities based on integrated forecasting, inventory balances and a real-time understanding of order status.

• Order Management: This module provides capabilities to produce Computer Generated Orders (CGO) or Computer Assisted Orders (CAO) where the user can review and modify order quantity before submission.   The system will also support manual order entry through customer defined order templates.  The system can consolidate or parse orders to separate vendors.   It tracks order status, and manages changes to orders.

The system will offer some very exciting functionality such as:

• Allocation from Distribution Centers-this will allow retailers to plan and distribute orders to store locations based on that store’s capabilities to actually sell the product.

• Vendor Order Optimization-this will allow retailers to “buy in” on expiring promotions, or in advance of price increases.   It will support bracket purchasing, always trading off how much inventory is needed when compared to the financial incentives to buy and hold more inventory at store level.

Each of the above modules can be deployed as a complete suite or can be integrated with other modules that retailers may already have installed.   The system can be deployed with Revionics’ price, promotion, and markdown optimization modules or as a standalone system.

RAPS replenishment is designed to be highly scalable, serving retailers of all sizes and lines of trade.   It will be deployed for customers in a Software-as-a-Service (SaaS) fashion where Revionics manages the hardware and software infrastructure for clients.

What are the benefits of RAPS Replenishment?

• Reduce Store Level Inventory by 20-30%
• Reduce Lost Sales due to Out of Stock
• Reduce Shrink and Spoils
• Improve Stock Rotation

I am very excited about this module because it is a huge complement to our existing Full Life Cycle Pricing capabilities.   Our role in helping our customers is expanding beyond defining the right price, promotion or markdown for our customers.   We are now leveraging our best in class integrated forecasting engine to do even more good within our retail clients by helping them to better manage how much inventory they need on hand to satisfy consumer demand.

Revionics is uniquely qualified to help retailers with replenishment because our system can accurately do what others simply cannot do.   We can account for demand influencing factors such as:

• price, promotion, markdown
• Seasonality and holidays
• Inventory Supply and Demand
• Cannibalization and affinity
• Weather and other events

In this unique economy, for retailers, it is all about serving the consumer.   Right price, right promotion and right product!   Our technology can make a huge difference in optimizing retailer profitability while improving customer satisfaction along with shopper loyalty.

If you have any questions or are interested in further information, please feel free to contact me at tmichaud@revionics.com.   I also would like to personally welcome you to stop by our booth at the NRF Show (Booth #1971) in New York City to say hello on either January 11th or 12th.  For more information, please visit our website at www.revionics.com.

PS – Watch this space for some further updates on new innovations from Revionics.   I will blog about our new Vendor Collaboration Portal (RAPS Collaborate) in the coming weeks.

By: Christie Frazier-Coleman, VP Consulting, Revionics, Inc.

According to Antony Karabus, President and CEO of Karabus Management these five strategies for retailers are important in order to emerge as a strong retailer.

1. Optimize cash and cost management
2. Understand what is relevant and motivates your customer
3. Use science to improve gross margins and inventory productivity
4. Invest in technology correctly and on the right projects
5. Get your supply chain right

There is a lot here to do.  I want to focus on item number two.  This strategy is rapidly gaining attention as a key initiative for 2010.  How are you planning to accomplish that?

How do you determine what is relevant and what motivates customers?

Your data is rich in insights into these questions.  Have you spent the time and resources to mine that data and discover what makes your customers tick?  This is equity that you own.  Use it.

Determining your Key Value Item list is a critical place to start.  It sets the stage for your pricing, promotional, and merchandising strategy.  Here are a few tips.

Key Value Item lists should not be defined from:
1.    A top mover list in units and/or dollars.
a.    Store can sell a lot of Ramen noodles…….
2.    Items your competitors have chosen to price at low margins
a.    You may not be buying right
3.    Items your competitors promote frequently
a.    They may be wrong
4.    Items only your best customers purchase
a.    You cannot live off of them alone
5.    What your seasoned executives carry around in their heads
a.    They may not be there tomorrow

Key Value Items should exhibit several of these criteria:
1.    Items that exhibit a high penetration rate in the basket
a.    Key in on key times of the month or week
2.    Items that drive traffic into the store
a.    Loyal customers make more trips for what items
b.    Non loyal customers come into your store for which items?
c.    When?
3.    Items that create bigger basket purchases
a.    Key in on important items that require additional products to prepare
4.    Items that exhibit significant demand shifts when the price is changed
a.    Both in units and dollars
5.    Items that are top of mind due to rising costs
a.    These items can come and go as the market dictates

Develop a list for each of these criteria
It is important to note that these lists do not necessarily contain the same items.
If you have only one list you have not done enough homework.

The key to improving your customer relevance starts and ends with what they tell you each and every trip they make into the store.  Someone once said: “We really don’t know what we don’t know.”  Ignorance is not bliss in this competitive world.  Get into your customer’s baskets and find out what you don’t know.

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

Don’t be embarrassed…You may think that everyone else in the retail industry is using advanced pricing tools and that you are still in the era of the dinosaurs; the fact it: you are in the land of the dinosaurs, but so is the majority of retailers!

Many retailers that I talk to appear to be somewhat embarrassed, and reluctant to admit that they still do their everyday and promotional pricing in Excel. The truth of the matter is, there really hasn’t been a better tool until recently. Advanced price optimization tools have recently been introduced into the retail arena, before that, margin management and competitive positioning was about all that could be leveraged to determine the best price point.

The first generation pricing technologies have gone through a typical technology introduction life cycle. Initially there was great excitement from the early adopters in the industry for this magical ‘cure all’. A few brave souls ventured into the promised land, only to find that it wasn’t all that it was hyped up to be; there were issues with the first generation solutions. Some of the early adopters got burned and had a bad experience, but there was still optimism that something was there to help price products and services better.

As the first generation solutions lost some of the sizzle, the technologists went away and tried to figure out how to make this promising invention usable by the people that would need to adopt it. These technologists appear to have accomplished their mission, because we are now seeing a significant renewed interest in what is now called “full lifecycle pricing”, and the industry appears to be moving this technology into the “must have” category instead of the “that’s interesting” category.  With many successful installations now in place for several years, across many different retail verticals, the “second generation” technology is now becoming mainstream.

So, you may currently still have a lot of company in the land of the dinosaurs, but it doesn’t appear retailers will stay there long.  Revionics is seeing significant interest in adoption – not just from one department at a retailer, but as a collaborative decision between business users and the IT team.   If you haven’t looked at a price optimization solution demonstration in the last 12 months – it’s a great time to look and see if it’s time to leave the land of Excel.

By: Christie Frazier-Coleman, VP Consulting, Revionics, Inc

In my retail career, I have had the opportunity to implement many types of software.  Each and every selection and installation had the intent of assisting the business to improve processes, implement new strategies, and increase efficiencies.  Companies today are looking for tools to squeeze extra margins, reduce costs, and help make better decisions.  How do the great companies succeed in capturing the changes and efficiencies needed from those investments?

The Pricing and Project team at Revionics combined their expertise to offer some thoughts on what has worked well in their experiences.  These ideas come from the great partnerships we have had the opportunity to build over the years.   We thought it would be beneficial to put all of these best practices in one good list and we hope you agree.  I am sure there are plenty more and we would welcome any comments or suggestions that we can publish next quarter.

So where are you on the successful project scale?  Measure yourself.  Pat yourself on the back if you are doing them all!

1. Begin with the end in mind.  Implementing software is not a goal. Using software to solve a problem or achieve a measurable improvement is a goal.  Ask yourself and the team what is it you want to accomplish?  What will that measurement look like in terms of success? Decisions become very simple.   All decisions must assure that the goal and measurement can be accomplished above all else.  For example:

Question: Why do I need to capture a separate sales type in my data to indicate base sales versus promotional sales?

Answer: In order to measure the effectiveness of my promotional dollars those designations are critical.

2. Protect your data integrity fiercely from inventory purchase to point-of-sale purchase. Benefitting from technology enhancements requires good data.  Clients with clean data complete projects on time and produce results much quicker in every case.  Above all else, your data is the lifeline to understanding your customer, measuring success, capturing efficiencies effectively, and setting strategies for the future.  Not being able to trust your data breeds “by the gut” decisions.

3. Executive support is a must from both sides. Executives should make impromptu visits to project meetings.  They need to ask the tough questions and expect executive updates and feedback on successes and barriers from project teams both internal and external.  They must be able to hear the truth and help solve problems when needed.

4. Do not put old practices into new tools. Test those paradigms with a review.  Perform a business analysis to look at old processes and make improvements.  The reviewer should be skilled at asking the right questions to identify the root of the problem or opportunity before a project begins.

5. Set realistic but aggressive goals for completion in each stage. Projects will always slip.  What are the critical junctures in a project?  Push to do it right but meet deadlines.  Teams need to understand that when you agree to a date it means something.  Hold everyone accountable and keep the project moving forward.  Lack of momentum will de-motivate the team.

6. If a project is slipping expose the cause. The longer it drags on the less effective the result will be.  The team will be de-motivated and begin to compromise.  User embracement and excitement will suffer.  Demand complete honesty and professionalism from your project managers.  You need level-headed and forthright project management on both sides.

7. Implement and rollout in stages. Successful projects are implemented in stages with clear objectives. Expectations and measurements should be set for each stage.  Risks are then kept to a minimum and lessons learned along the way are captured and improvements made.

8. Balance project demand with resource capacity in order to maintain momentum. Work backward into the timeline to make sure it is realistic in time and resources.  Successful projects are completed in stages without stressing resources.

9. Expect the unexpected. As you move through implementations, you will always discover multiple opportunities for improvement.  Each new request needs to be evaluated against the goals, timelines, and resources.  Make sure those new requests are placed into a “parking lot” for a future stage.  Manage the scope!

10. There will always be a function or a feature that is not yet available. A good partner will work to address your needs in the future and ask for feedback in order to maintain a forward-thinking roadmap for development.

11. Train, Train, and Train. Your teams need as much training as possible.  Identify each role that will be impacted by the project and get them trained on the appropriate skills.  Schedule one-on-one sessions.  Do not let a user return to their desk confused and flustered by what they cannot recall or understand.  People learn at different paces and some are afraid to raise their hand.  Make sure that materials are provided and measure their proficiency and progress.

12. Count on change management challenges. Within every organization there are individuals who need more convincing that they can and need to learn new ways of doing things.  There are a few key steps to keeping resistance from stalling or compromising a project.  Identify and include “strugglers” in relevant decisions, conduct extra training, talk about the benefits of the new process,  and, as a last resort, make a change.

13. Learn and practice the art of communication up and down. Encourage open dialogue and honesty among the project team, the departments that will be affected, and partner company.  All of the ideas stated above are a function of listening and learning.

14. Celebrate each stage with the team. They deserve the recognition.

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.