Strategic Pricing Trends &
Best Practices for Retailers
Larry Farnes Nov 2010
“Price optimization technology will
have a m...
Agenda
• Evolution / trends in price optimization
• Pricing impact
• Price optimization best practices
• Price optimizatio...
Evolution Of Price Optimization
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Gut
Rules
Based
Excel
Automated
Single SKU
Optimiz...
Evolution of Price Optimization
Source: Infosys – “Consumer-Centric Pricing”
More Retailers Are Using Price Optimization
To Drive Sales
“Winners” Use Pricing For A Seamless
Cross-Channel
SURVEY: 123 Respondents, winners are retailers with comp sales over 3%
The Importance Of Cross Channel Pricing To
The “Customer Experience”
“58 percent of retailers offered different promotions...
“Winners” Have A Separate Pricing Dept
Biggest Challenge: Measuring Pricing Impact
Pricing Systems Improve Margins By As Much
As 5-20% Of Promoted Products
• “Once deployed, retailers have seen benefits as ...
A 1% Improvement In Pricing Efficiency
Creates An 11% Increase In Operating Profit
Best Practices
• Clean-up the data
• Use demand information to help set strategies.
> Price sensitive – traffic-builder pr...
• Slow moving items
> Can we have an impact and drive real value with price optimization? Slow
moving items not only don’t...
What To Look For In A Pricing System
• Aligns all pricing decisions with retailer business goals and objectives
• Allows r...
The “100 Day” Starting Game-Plan
• Analyze current reporting (ad lift, marketbasket). Develop new
reporting needs.
• Colla...
of 15

Pricing Trends And Best Practices

Pricing Trends & Best Practices
Published on: Mar 4, 2016
Published in: Business      Technology      
Source: www.slideshare.net


Transcripts - Pricing Trends And Best Practices

  • 1. Strategic Pricing Trends & Best Practices for Retailers Larry Farnes Nov 2010 “Price optimization technology will have a more direct impact on increasing revenue or margins than any other CRM technology” -Michael Dunne, Gartner VP
  • 2. Agenda • Evolution / trends in price optimization • Pricing impact • Price optimization best practices • Price optimization issues & implications • Principles of pricing systems • Starting game-plan
  • 3. Evolution Of Price Optimization Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Gut Rules Based Excel Automated Single SKU Optimize – “Science” “Gut Feel” Multi – Variable Optimize •Standard markup •Merchant driven •Gut feel •Intuition •Merchant driven •Standard Markup •Simple correlations •Competitive reaction •Merchant / pricing dept driven •Zone pricing •Simple correlations •Maximize profit, sales, or share •Pricing dept driven •Rise of “science” •Single SKU optimize’ •Zone pricing •Seasonal / timing •Multi – correlations - halo, cross- product, cannibalize •Optimize marketbasket •Pricing dept driven •Optimize category •Zone / store pricing
  • 4. Evolution of Price Optimization Source: Infosys – “Consumer-Centric Pricing”
  • 5. More Retailers Are Using Price Optimization To Drive Sales
  • 6. “Winners” Use Pricing For A Seamless Cross-Channel SURVEY: 123 Respondents, winners are retailers with comp sales over 3%
  • 7. The Importance Of Cross Channel Pricing To The “Customer Experience” “58 percent of retailers offered different promotions across channels. When a customer is presented with an inconsistent experience, it can breed several levels of discontent. First of all, there is the immediate frustration that they aren’t getting the best deal. Second, and perhaps more important, the customer may feel that they are being treated unfairly, creating feelings of mistrust and damaging brand loyalty. In a true cross-channel environment, promotions and pricing are addressed once by the merchant and then leveraged across all channels. The retailer has the ability to initiate a promotion across the board, so the shopper who browses the catalog at home finds the same deals when they log on online or stroll through the store.” – Max Fodor, CEO, Crossview
  • 8. “Winners” Have A Separate Pricing Dept
  • 9. Biggest Challenge: Measuring Pricing Impact
  • 10. Pricing Systems Improve Margins By As Much As 5-20% Of Promoted Products • “Once deployed, retailers have seen benefits as a result of price optimization exercises as follows: Sales improvements of 1-3% of base price, and 1-12% improvements of promoted items. Gross margin improvements of 2-5% of base price, and 5-20% of promoted products.” (Mike Griswold, AMR Analyst) • “Among those with revenue management systems, the study found that more than 75% earned at least 1% in incremental revenue gains as a result of their technology deployment, with close to a third earning more than 3% in incremental gains. As for returns, a whopping 96% of pricing and revenue management system users reported achieving a return on investment (ROI) within three years of deployment. In fact, more than 42% of those with deployed systems achieved ROI within the first year.” (JDA 2010 survey of 120 customers)
  • 11. A 1% Improvement In Pricing Efficiency Creates An 11% Increase In Operating Profit
  • 12. Best Practices • Clean-up the data • Use demand information to help set strategies. > Price sensitive – traffic-builder priced competitively – “maximize revenue” or “maximize volume” > Not price sensitive -- profit-builder based on margin targets or consumer demand – “maximize profit” • Use competitive data selectively. Identify Key Value Items (KVI) that are most price sensitive to follow the competition – versus following/matching a competitor’s pricing on ALL items > Priced competitively on the category not necessarily on each item > Maximize the category per demand information • Understand price elasticities • Allow the optimization engine to recommend the ‘optimal price’ • Make analysts a strategic resource to merchants • Continually measure success Ideas from: *DemandTec White Paper: Best Practices in Implementing Advanced Price Optimization Solutions” *Revionics White Paper: “Price Optimization for Retailers”
  • 13. • Slow moving items > Can we have an impact and drive real value with price optimization? Slow moving items not only don’t generate a lot of money, but they may not have enough history to generate good models • History of pricing changes > How many price changes have occurred in the past? Price elasticity is based upon historical variation in price • Price Sensitivity of items > Do your items have an elasticity level that allows for reasonable changes in price to have a sizeable impact? • Rules-based pricing versus model-based pricing > How much is your current process driven by rules? How open is your organization to trusting models? If rules limit available price points severely, then price optimization model can’t help much • What factors to control for > Product price, seasonality, promotion conditions (such as in-store activities, circulars, coupons, and mailers), store type or format, cannibalization & cross- sell effects, availability & pricing of substitutable products, competitive presence and / or pricing Price Optimization Issues & Implications
  • 14. What To Look For In A Pricing System • Aligns all pricing decisions with retailer business goals and objectives • Allows retailers to customize the system to their specific business needs and attributes • Automates price changes and updates weekly (at a minimum) or as often as is required • Accounts for all identifiable business variables and conditions > Demand forecasting, cross-category, group / KVI, halo, cannibalization, market-basket, competition, zones, shelf / promotion, seasonality, trending • Identifies “why” a particular price is correct • Incorporates past customer demand and purchase behavior • Enables “what-if” scenario planning for price recommendations • Is able to scale the number of prices recommended to the retailer’s implementation capabilities • Predicts the effects of price changes on future customer behavior • Enables pricing across a retailer’s stores and between categories and subcategories • Is universally accessible and easy to use • Includes ample supplier support and retail expertise • Is cost-effective, allowing retailers to pay only for services they use • Calculates the impact of pricing decisions for continuous learning Major ideas from Revionics white paper: “Science Propels a New Era of Retail Price Optimization”
  • 15. The “100 Day” Starting Game-Plan • Analyze current reporting (ad lift, marketbasket). Develop new reporting needs. • Collaborate & interview team members – understand issues • Analyze business drivers > 80 / 20 rule – biggest baskets / markdowns • Propose price elasticity study / price elasticity reports • Develop pricing category policies & roles (web & store) > “Traffic builder” > “Profit generator” > “KVI” (Key Value Items) match the competition where appropriate • Develop price optimization system requirements • “Crawl / Walk / Run” > Automate processes > Optimize some key categories & monitor the benefits > Optimize the store including promotion / halo / etc. • Test & learn

Related Documents