KSS Retail: The Evolution of Retail Pricing
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The Evolution of Retail Pricing Lyle Walker VP Marketing KSS Retail, a dunnhumby company © 2011 KSS Retail
description
Summary version of presentation by Lyle Walker, VP Marketing, KSS Retail, at "Pricing & Revenue Management Strategy for Retail," a conference produced by IQPC. April 26 - 28, 2011, Lake Buena Vista, FL.
Transcript of KSS Retail: The Evolution of Retail Pricing
The Evolution of Retail Pricing
Lyle Walker
VP Marketing
KSS Retail, a dunnhumby company
© 2011 KSS Retail
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Global Provider of Price Modeling/Optimization, and Shopper Insight Solutions
Part of dunnhumby ltd, (Tesco, Kroger, Macy’s)
“Focus is on integrating customer insights with retailer market strategies, to model and execute effective pricing and promotions”
© 2011 KSS Retail
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The Evolution of Pricing
Optimization• Maximize units, $ sales and/or
profit• Optimize promotion features • Improve promotions effectiveness
Store/CategoryInsight
• Demand forecasting• Quantify cannibalization & halo effects• “What-if” predicts impact of prices & promotions• Quantify cross-category effects
Price RulesManagement
• Rules Compliance• Efficient management of price & promotion rules• Consistent implementation (zero errors)• Maintain price position vs. competition• Ability to simulate impact of rule adjustment
DataManagement
• Organize & manage data sources• Validate, clean, store & present pricing-specific data• Monitor competitive landscape – alerts to changes
Reporting &Analysis
• Distribute standard, custom or ad-hoc reports• Automated alerts to performance exceptions• Monitor progress toward targets
ShopperInsights
• Basket analysis• Segment customer • Improve price & promotions
effectiveness
ShopperOptimization
• Maximize units, $ sales and/or profit
• Optimize to customer segment• Improve promotions effectiveness
Productivity
Strategy Refinement
Customer Relevance
© 2011 KSS Retail
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Pricing Productivity
Pricing Foundation
Item Master: item setup
Basic pricing functionality…create a price
Cost change management
Competitor pricing management
Rounding rules
Target gross margin pricing
Spreads/parities
© 2011 KSS Retail
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Challenging How You Set Retail Prices Today
Today You:
Gross Margin pricing (start with cost)
Competitor Price Checks (match, get close, or don’t worry about it)
Price Parity, ie large sizes should be cheaper per uom than smaller sizes
Price Spreads, ie Private Label to National Brand
Price each item individually within a category
© 2011 KSS Retail
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Price Optimization: Strategy Refinement
Pricing Foundation
Strategy Refinement
How should I price private label, in each category?
How should I manage spreads and parities?
How should I price versus competition, in each category?
How do I create better promotions for my customers?
© 2011 KSS Retail
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Private Label VS National Brand Spreads
Current Practices:
Use an average spread, ie 20%
.99 .79
© 2011 KSS Retail
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Private Label VS National Brand Spreads
Current Practices:
Target margin for Private Label, ie 35% margin
$32.99
$19.99
© 2011 KSS Retail
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The Questions is…”What’s the Best Price?”
It depends on your strategy and objectives.
Are you trying to:Drive unit volume and profit?
Improve your competitive position?
Communicate Value and Quality?
All of the above?
© 2011 KSS Retail
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What happens when….
$32.99
$19.99
You create optimal prices that meet your objectives?
.73
$29.95
$24.99
.79.99
© 2011 KSS Retail
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What About Line-Item Pricing:
Flavors within a Brand….
Common practice across the store to manage pricing efficiently:
Soft Drinks
Jello
Baby Food
Salad Dressings
Yogurt
Candy bars
And On and On and On….
© 2011 KSS Retail
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Line-Item Pricing example
Line Price Items because of same or similar costs:Cost = .69/unit
.99Rch
.99Nat
.99Blue
.99Red
.99Yell
© 2011 KSS Retail
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What was accomplished?
Improved Competitive Position on the Key Item
Offered Value to Customers on key item
Did not dilute whole line
.99Rch
.99Nat
.99Blue
.99Red
.99Yell
.79Blue
© 2011 KSS Retail
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Pricing off Competitors
Today You:
1.Identify Key Competitive Items
2.Price Check Competitors (they are also price checking you)
3.Review Price Checks and make random determinations to match or be close to them
“Who’s following who?
© 2011 KSS Retail
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How Can You Do It Differently?
Determine if your KVIs are right (are they relevant)
Understand the role of the category for your customers
Model pricing, for the whole category, that accomplishes your objectives:
Does lowering price drive more volume (do you get recognition for it)?
Should you match competition, or can you be close and obtain the same results?
Manage the total mix of prices in the category to accomplish multiple objectives
© 2011 KSS Retail
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Model and Understand Promotional Pricing
Does 2 for $5 sell more than $1.88?
Which drives more units?
What happens to profits?
What happens to category sales/profits?
What if you run it super hot for 1 week?
© 2011 KSS Retail
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Price Modeling in the hands of a Merchant
Vendor Deal evaluation and negotiation: Item: Beer Retail: $24.99 Cost: $21.00
Baseline
Units: 3,448
Sales: $ 86,166
Profit: $ 13,758
Margin: 16%
© 2011 KSS Retail
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Price Modeling in the hands of a Merchant
Vendor Proposed Promotion: Item: Beer Cost: $2.00 off (List is $21.00, deal cost is $19.00) Promo Retail $21.99 (Reg retail is $24.99)
Promo Scenario Lift
Units: 4,311 25%
Sales $ 94,798 10.1%
Profit $ 12,889 -6.3%
Margin 13.6% -2.4
Baseline
Units: 3,448
Sales: $ 86,166
Profit: $ 13,758
Margin: 16%
© 2011 KSS Retail
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Category Promotional effect
Category Baseline
Units: 38,335
Sales: $ 610,790
Profit: $ 85,426
Margin: 14%
Category Scenario Lift
Units: 38,402 .1%
Sales $ 581,110 - 4.9%
Profit $ 79,001 - 7.5%
Margin 13.5% - .5
Vendor Proposed Promotion: Item: Beer Cost: $2.00 off (List is $21.00, deal cost is $19.00) Promo Retail $21.99 (Reg retail is $24.99)
© 2011 KSS Retail
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Will You Still Run It?
Maybe Yes, Maybe No, Maybe Something Different
© 2011 KSS Retail
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Understand Why you are Relevant
Pricing Foundation
Strategy Refinement
Customer Relevance
Who are your best shoppers?
Why to they shop with you?
What products do they buy?
What products do they not buy from you?
What promotions do they like?
How do you serve them better and have them buy more?
© 2011 KSS Retail
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Your Customers are Talking To You…
They speak to you every day through their transactions in your stores
They tell you what they like and don’t like
They make decisions to spend, or not spend their hard-earned money with you
They want to be heard and to have you serve them better!
Can you hear, understand and react to what they are saying?
© 2011 KSS Retail
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The Evolution of Pricing
Optimization• Maximize units, $ sales and/or
profit• Optimize promotion features • Improve promotions effectiveness
Store/CategoryInsight
• Demand forecasting• Quantify cannibalization & halo effects• “What-if” predicts impact of prices & promotions• Quantify cross-category effects
Price RulesManagement
• Rules Compliance• Efficient management of price & promotion rules• Consistent implementation (zero errors)• Maintain price position vs. competition• Ability to simulate impact of rule adjustment
DataManagement
• Organize & manage data sources• Validate, clean, store & present pricing-specific data• Monitor competitive landscape – alerts to changes
Reporting &Analysis
• Distribute standard, custom or ad-hoc reports• Automated alerts to performance exceptions• Monitor progress toward targets
ShopperInsights
• Basket analysis• Segment customer • Improve price & promotions
effectiveness
ShopperOptimization
• Maximize units, $ sales and/or profit
• Optimize to customer segment• Improve promotions effectiveness
Productivity
Strategy Refinement
Customer Relevance
© 2011 KSS Retail
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Thank You!
Lyle [email protected]
Understand what customers want
Become more relevant
Keep customers engaged for longer; engender trust; drive long term loyalty and value creation
© 2011 KSS Retail
