Post on 01-May-2018
PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Tyson Foods Compe@@ve Pricing Strategies
Gurkan Munsuz
PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Tyson Foods Strategic Pricing | Today’s Objec7ves and Agenda
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1. Tyson is “walking the talk” on building leading edge capabili@es
2. Explain Tyson Revenue Management’s approach to pricing
3. Our vision on how we will remain ahead of the pack in this cri@cal space
Objec&ves
1) Tyson Foods’ Overview and Strategic Pricing Evolu@on
2) Tyson Pricing Framework
3) Next steps on the journey
Agenda
1. TYSON: OVERVIEW AND STRATEGIC PRICING EVOLUTION
PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Tyson Foods | Purpose and Vision
PURPOSE Making Great Food. Making a Difference.
VISION To be the global innova@ve leader of food experiences.
STRATEGIC INTENT To sell more branded protein-‐centric food profitably than any other company in the world.
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PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Tyson & Hillshire Together | Complementary Strengths
$42 BILLION BEST-‐IN-‐CLASS FOOD COMPANY
• Strong operational acumen
• Low cost provider
• One of the largest refrigerated trucking fleets in the U.S.
• Excellence in commodity purchasing and processing
• Iconic brands with leading share in important value-add protein categories
• Expertise in new product development and innovation
• Thought leadership in marketing and brand development
Combines the Protein Industry’s Best Marke7ng and Opera7ons Talent into One TEAM
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PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Tyson Foods Brand PorWolio | Leadership across meal occasions
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PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Tyson Foods PorWolio | Leading Share Posi7on in Core Categories
Source:IRI, Total US Mul2-‐Outlet, 52 weeks ending 08.23.15 *Nielsen Perishables Group, Total U.S. Fresh, 52 weeks ending 07.25.15 7
PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Tyson Foods Model | Delivering Sustainable and Profitable Growth
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Strengthen the Core
Extend Brands into Adjacencies
Fuel Growth through Efficiency
Build Industry- Leading Capabilities
q Strategic Pricing § Reinforce Brand Strategy § Brand Role § Price/Pack Architecture
q Trade Analy7cs § Event ROI § Annual JBP § Execu@on
Rev Man impacts
PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Fully integrated, holis@c approach maximizing advanced analy@cs to bring winning ideas and shape our strategic direc@on…
MUST op@mize the ROI from the biggest investment being made…..trade
Organiza&onal Commitment 1
• Structure, people, culture • Data, tools, processes • Senior leadership support
MUST op@mize the ROI from the biggest investment being made…..trade
2
• Proac@vely bridge short-‐term and long-‐term
• Cross func@onal collabora@on • Pragma@c solu@ons
MUST op@mize the ROI from the biggest investment being made…..trade
3
• Product/brand level elas@ci@es • Price gap, price thresholds, cross
channel elas@ci@es • Event ROI’s
MUST op@mize the ROI from the biggest investment being made…..trade
4 • Price/ Channel / Pack • Regional pricing opportuni@es • Category white space
MUST op@mize the ROI from the biggest investment being made…..trade
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• Sell-‐in stories and facts -‐ ra@onale for pricing changes – drive category growth
• Profit-‐based customer sell-‐in • Consistent pricing communica@on
MUST op@mize the ROI from the biggest investment being made…..trade
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• Measure outcomes • Deep dive on market changes and
compe@@ve responses • Develop pricing play book
Advanced Analy&cs
Price Commercializa&on
Bias for Ac&on
Price Architecture
Price Assessment
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PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Tyson Strategic Pricing Evolu7on …
q Performs simple pricing analyses on request
q Short term focused
q Market sets price and Tyson reacts to pricing and/or leads solely to cover P&L
q Elas@city by PPG and account
q Support BU in making pricing trade-‐offs
q Holis@c financial results for pricing decisions
q Price/discount strategy in 4 P’s
q Generate a pricing assessment of external market
q Create long-‐term pricing vision by combining “art and science”
q Generate pricing and discount architecture and guardrails by PPG
q Become thought / influence leader to retailer partners on Tyson and category pricing
q Inform innova@on pricing
q Understand cross-‐channel impact(s)
q Corporate pricing/discoun@ng philosophy and improvement opportuni@es
q Key cons@tuent for innova@on and acquisi@ons as per BU and corporate strategy
q Improved capabili@es with more use of granular data and insights (CoE realiza@on)
Inclusion of Science
Pricing Strategist
Long-‐term Value Crea7on
Transac7onal Pricing
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2. TYSON PRICING FRAMEWORK
PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Consumer 1
Customer/ Channel Compe7tor Category Cost /
Commodity
Brand Strategy and Business Unit Objec7ves
Corporate Strategy
• Elas@city • Thresholds • Loyalty • Percep@on
2 3 4 5
• Economics • Margin • Price Curves
• Subs@tutes • Price Gap • Game Theory
• Role • Merch level • White Space
• Gross Margin %
• Commodity Forecast
Tyson Foods Strategic Pricing | Pricing Framework
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PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Category Price Pack Structure | Category A – Retailer B
0 5 10 15 20 25 30 35 40 45 50
14
13
8
7
6
5
4
3
2
1
Pack Size (oz)
Avg Price/Unit
Segment 2 Segment 1 88% of category dollar sales represented
Source: Tyson Revenue Management | IRI 4 we 9/27/2015
Underserved price point – OPP
Smaller size opportunity
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Category Structure | Good Beber Best Pricing – Retailer X
Key Points 1. Each segment has a price
point at which dollar velocity is maximized; going beyond that price leads to velocity decline
2. Beqer segment has the highest diminishing returns and hence strongest effect
3. Op@mal gap between segments is $1.65 between good and beqer and $3.00 between beqer and best
1
2
Each dot represents a month
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00
Good $3.34
Best $7.95
MM$/AC
V
Beber $4.99
Price/Unit
3
14
CPG companies are realizing the margin enhancing power of pricing and are implemen7ng price pack architecture (PPA) strategies
“… We have learned over the years that if we do have the right price/pack architecture that caters to different consumer needs and if we have the right marketplace execu@on, we call that winning at the point-‐of-‐sale …”
EVP and President, Coca-‐Cola Intl
“… We grew or held share in four of our top six gum markets, including the US, Japan, Brazil and China, driven by improved price pack architecture and a focus on freshness …” CEO, Mondelez Intl
“… We tested a new price-‐size architecture for Lay's for one full year… Customer margins are up, unit share and growth is accelera@ng, and we're geung excellent price mix and P&L flow-‐through; all green on our scorecard …”
CEO, Frito-‐Lay North America
“… We now have more tools in our kit to drive price realiza@on and higher margin through price/pack management. A case in point is our 12-‐ounce glass boqle, which sells at a more than 100% premium to a 12-‐ounce can …”
CEO, PepsiCo
Coca-‐Cola
Source: Food Business News, Seeking Alpha, Nasdaq, Company websites
Mondelez Interna7onal
Frito Lay Pepsi Co
PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX 15
These PPA projects are a “win-‐win” for food manufacturers and retailers as they help to achieve category expansion through sustainable price-‐pack and
break-‐through price-‐pack idea@on and tes@ng
Break-‐through price-‐pack Ideate new package / size / price configura7ons to posi7on products for new uses and new occasions
Sustainable price-‐pack Generate price-‐pack sustaining ideas to add value
to exis7ng offerings
1 2
Goal: Achieve sustainable, profitable growth through category expansion
Inelas7c Highly Elas7c
Highly Inelas7c Mildly Elas7c Elas7c
Value packs
Segment customers to de-‐commodi@ze certain brands and grow the category
through value enhancement
Premium packs
Heinz Ketchup
• From iconic 24oz glass Red Rocket (.99/boOle promoted price) to FridgeFit 28/40oz.
• Package improvement/upsize/higher price point and improved trade profitability
Consumers willingness to pay
PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX 16
ILLUSTRATIVE
Product development priori7za7on Pricing op7miza7on
Market simula@on helps to inform profitable growth enhancement levers to pull in order to op@mize price vs. consumer willingness to pay for key
aqributes
0
2
4
6
8
10
0 2 4 6 8 10
Everyday price
Perceived price vs. base price – by brand Dollars
Brand A Brand E
Brand D
Brand G
Brand F
Brand C
Brand B
Attribute Consumer willingness to pay ($)
Cost ($) Margins ($)
Attribute A $0.10 $0.30 ($0.20)
Attribute B $0.10 $0.25 ($0.15)
Abribute C $0.50 $0.05 $0.45
Perceived be
nefit
ILLUSTRATIVE
Priori2zed product innova2on
PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX 17
Segmented Pricing quan@fies impact of price and promo strategies accurately using longitudinal household-‐level purchase data
Products Segments
• Category • Sub-‐category • Manufacturer / Brand
• PPG • Custom aggrega@ons
• Socio Demographics: Urban, Millennials, Families, Income
• Purchase behavior: Loyalists vs. Non Loyals, Branded vs. PL focused
• Consump@on: HML • Geography: DMAs, Store types
• Custom segments
Price Promo behavior
• Base Price elas@ci@es • Promo Price elas@ci@es
• Quality Merchandising impacts • Stockpiling • Brand Switching • Basket Dynamics
Boomers Millennials
Families Low-‐income
18 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
ILLUSTRATIVE
Color Price Sensi@vity
Strength of Price Threshold / Gap
Threshold
Inelas@c
Moderate Low
Elas@c Moderate
High High
Grocery 1. Monitor price gap threshold 2. Own price 3. Price point threshold
-‐1.62 -‐1.20
-‐2.25 -‐3.00
-‐2.50
-‐2.00
-‐1.50
-‐1.00
-‐0.50
0.00
Base, No Comp. Follow Base, All Comp. Follow Promo Elast.
-‐1.31 -‐0.97
-‐3.00
-‐2.50
-‐2.00
-‐1.50
-‐1.00
-‐0.50
0.00
Avg., No Comp. Follow Avg., All Comp. Follow
$5.99 $4.98
+$0.50 vs. Competitor X -$0.25 vs. Competitor Y
Less frequent, deeper-depth displays Reduce Comac duration by 25%
100 126 148 185 256
No Promo $5.49 $4.99 $4.49 $3.99
TOP PRIORITIES
ELASTICITIES
SIMULATED LIFT BY PRICE POINT
PRICE POINT THRESHOLDS
PRICE GAP THRESHOLDS
QUALITY MERCH. RECOMMENDATIONS
Based on 2014 – 2015 IRI PTA Elas2city Modeling
Tyson Foods | Price Playbook
PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
ILLUSTRATIVE
Mass 1. Price point threshold 2. Own price
3. NEXT STEPS ON THE JOURNEY
PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Tyson Foods Strategic Pricing | Best In Class Journey
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TYSON WILL CONTINUE TO UTILIZE ADVANCED ANALYTICS TO EVOLVE PRICING STRATEGY BASED ON LEADING RESEARCH
Employ abribute-‐based pricing dynamics in future strategy, including usage occasions
3
2
1
Refine understanding of cross-‐retailer price and promo7on interac7on to improve total market pricing strategy and achieve op7mal price curves
Con7nue to integrate our understanding of pricing mechanics among loyal consumers (including thresholds among loyal consumers)