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Tuning your Retail Price Strategy for a Transforming Economy

Presenter: Christie Frazier-Coleman

Optimizing Retailer Profitability

About Revionics: • Company overview:

– Started in 2002– HQ in Granite Bay, CA

• Location in Scottsdale, AZ

– Fast Growing (110+ Customers)– We manage 10,000 stores– Approximately 70+ People– Deep Retail Industry Domain Expertise

• We offer a “Best of Breed” strategic pricing system.– Full Life Cycle Pricing (Base, Promotion, TPR and Markdown)

• Software-as-a-Service (SaaS) – a.k.a. “Cloud Computing”– Low Cost, Highly Available, Subscription-based, GRID Platform

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Revionics HQ Office


Speaker Introduction

• 20 years retail grocery expertise

– Purchasing

– Advertising and Loyalty Marketing

– Sales and Merchandising

– Strategic Planning

• Customer behavior expertise

– Focus group facilitation

– Data analysis

– Demographics studies

• Speaker at FMI, PPS, Gemcon, and other

industry forums• Manages Revionics’ Retail Pricing

Strategy Group

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Christie Frazier-ColemanManaging Principal

Price Strategy & Consulting


Transformation

Definition

“….a process of profound and radical change that orients an organization in a new direction and takes it to an entirely different level of effectiveness.

Unlike 'turnaround' (which implies incremental progress on the same plane) ….

transformation implies a basic change of character and little or no resemblance with the past configuration or structure.”

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Opportunities for Profit

• Staying at Home– Recent survey conducted by Nielsen Company

• 51% of consumers say they are staying home more often.

Restaurant Trends Gas Prices

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The Big Trend

“The U.S. recession has shifted the food market industry's focus to value from premium products, and this shift will continue into 2009……..In 2009, supermarkets' marketing efforts will concentrate on value and affordability, which means there will be an increase in coupons, special discounts and value displays.

“Rather than (only) lowering prices, I think 2009 will see other ways of adding value for the consumer, such as with incentives like buy one get one free or offering 25% more product for the same.”Forbes Industry: Food MarketsAnalyst Name: Erin Ashley SmithCompany: Argus Research CompanyOutlook: Bullish

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Profit Tactics

• Customer intelligence• Price control• Vendor negotiations• Competitor awareness• Private label • Merchandising• Profit/price optimization• Tools• Creative Programs

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Customer Intelligence

• Become your biggest customer advocate• Shop not walk your competitors

– Give permission to some of your employees to shop competition

and get feedback

• Internally defend your customers’ right to a value • Know your movement data by store

– Key in on shopping occasions and reasons

– Create impactful promotional events

• Stock up when they have the extra funds

• Convenience trips

• Pantry loading through promos

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Price/Cost Control

• Fuel costs have declined – Go after up-charges that created cost increases.

• Commodity pricing– Watch the market for cost declines– Use opportunities on reductions to stock up

• Be competitive on items your customers need– Review those items often

• Offer palatable pricing – Key items off promotion need to show value

• Create internal visibility of all pricing– Price decisions must be based on demand/profit impact– Establish role with weight to correspond with responsibility

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Price/Cost Control with Vendors

• The power of pricing control must shift away from manufacturers towards retailer-driven pricing.– Utilize price optimization and elasticity to negotiate

– Use vendor dollars to drive price and volume

• Manufactures need to move cases

– Push back on price increases

– Communicate price strategy for each category

– Measure programs often for ROI

Jim Hiller, CEO of Hiller’s Markets said he went directly to dozens of

product manufacturers to solicit price reductions to help his customers

in the hard hit Michigan market save money at the register.


Competitor Awareness for Profits

• Who are your real competitors in each category?

• Competitive responses– Early identification of pricing shifts and trends– Early identification of category trends and shifts

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Kroger Walgreens Family Dollar Home Depot

HH Cleaning .95 1.15 .90 1.10

Bottled Water

.99 1.14 1.10 1.10

Batteries 1.03 1.08 1.05 .90


Competitor Awareness for Profits

• Weighted index totals for a shopping trip• Conduct competitive price checks frequently

– Assess competition often• National Brand• Private Label

– Assess response to adjustments • Internally and externally

Kroger Safeway Target Walgreens

Ad Index .99 1.05 1.01 1.04

Base PriceIndex

1.04 1.07 .90 1.08


Private Label Profit Opportunities

• Retailers are creating and using: – Premium products

– Aggressive in store merchandising

– Feature support with multiples

• Customer usage increasing among high earners– Shoppers whose earnings exceed $100,000 or more are turning

to private label products

– Understand needs across all segments

• Growth rates are the highest in the drug channel– Self care

– Insurance funded programs

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• Relook at all categories for new private label items– Non-chocolate candy

– Frozen

– Salad dressing

• Private label vs. brand gap• Innovative products for trial

– Archer Farms introduced a slim

oblong shaped cereal canister

with a re-closable lid

– Innovations can offer better profit margin

• Track consumer feedback• Obtain pricing surveys on Private Label

Private Label Profit Opportunities

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Private Label Positioning

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ITEM Size Cost Price Margin Gap Target

OSPRAY CRANBRY JC CKTAIL 64 2.85 4.49 36.5%

O/FM CRANBERRY COCKTAIL 64 2.11 3.49 39.5% 78% 85.0%

V-8 VEGETABLE JUICE 46 1.74 2.79 7.6%

O/FM VEGETABLE JUICE 46 1.13 1.89 40.2% 68% 85.0%

LIBBY PUMPKIN 15 1.04 1.79 41.9%

O/FM PUMPKIN 15 0.68 1.25 45.6% 70% 85.0%

YOP LITE STRAWBERRY 6 0.55 0.83 33.7%

O/FM F/F STRAWBRY YGRT 6 0.37 0.59 37.3% 71% 90.0%COFFEE MATE KILO CNSTR 35.3 4.18 6.49 35.6%

O/FM NON DAIRY CREAMER 35.3 3.07 4.99 38.5% 77% 80.0%

SCOOP AWAY CLEAN UNSCNTD 14 4.68 7.44 37.1%

V/C CAT LITTER SCENTED 10 1.51 2.49 39.4% 33% 90.0%

FRENCHS YELLOW SQZ MSTRD 20 1.78 2.99 40.5%

O/FM SQZ MUSTARD BONUS 20 0.85 1.39 38.8% 46% 82.0%


Merchandising to Support Pricing

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Merchandising Support for Pricing

• Communicate price values in key areas

• Support price message all around the store

• Manage out of stocks

• Offer values on key holiday items early

• Use stock up tactics

• Focus on needs of customers staying home

• Assortment should be a reflection of your customer base

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Different Promotion Types

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Multiples/10/$10

BOGO/Percent Discount Fuel Promos

Multiple Purchases


Retailers are Creative!

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News Now Network talked to Martha Winklebreck who was buying her entire family gift cards from Giant Eagle. The

cards offered her a chance to get back double rewards, equal to 20 cents per gallon for every $50.00 in product purchased. In total she spent about 200.00 that day on the cards, netting her about 80 cents per gallon of fuel

purchased or about $45.00 while filling her Ford Explorer gas tanks.


Retailers are Creative!

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Optimizing Retailer Profitability 21

Price Optimization Overview

• Evaluates costs, competition, assortment, margin targets & promotions. • Incorporates consumer demand intelligence (captured from POS)• Analyzes retailer data with advanced Retail Pricing Science

– Uses sophisticated “behind-the-scenes” mathematics, economics & statistics.– Incorporates retailer specific price strategies, rules and best practices.

• Full-Life-Cycle Pricing - Base, TPR, Promotion, and Markdown prices.• Integrates with existing POS, Back Office and HQ systems.

Predicts Generates Monitors Learns Responds


Impact of Price on Volume and Profit

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Raise Price Lower Price Q Revenue Profit Margin Q Revenue Profit MarginPepcid AC -6.8% 2.6% 25.2% 6.4% 7.3% -3.5% -29.5% -7.9%Tomato Soup -6.1% 3.3% 26.9% 6.5% 6.5% -4.1% -30.9% -7.9%Laundry Detergent -21.3% -13.5% 14.2% 7.1% 27.1% 14.4% -30.4% -8.7%Gold Medal Flour -16.5% -8.1% 19.7% 7.0% 19.7% 7.7% -32.2% -8.5%


Next Steps to Tuning your Strategy

• Put plans in place to accomplish goals

• Set measurements & measurement cycles

• Identify process changes

• Identify champions

• Tools need to be:

– Flexible

– Comprehensive

– Efficient to implementation to ROI

• Identify people / positions required and give authority

and accountability

Questions?

Register to join us for more educational web seminars:

www.revionics.com/educate

Contact us for more information:

[email protected]

Phone: 866-580-7727 x1

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Business

pricing price decisions

price increases

retail price strategy

price reductionsto

private label products

base price index

commodity pricing

power of pricing control