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Challenging Historical Pricing PracticesLyle Walker Dave Auerbach VP Marketing EVPKSS Retail KSS Retail

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KSS Retail

Premier Global Provider of Price Modeling/Optimization

Owned by dunnhumby ltd, (Tesco, Kroger, Macy’s)

“Focus is on integrating customer insights with your market strategies, to model and execute effective pricing and promotions”

Retail customers including: Kroger, United Supermarkets, Haggen, Super S, Lunds Byerly’s

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Challenging Historical Pricing Practices

“We’ve always priced this way”

“Our suppliers influence these price points”

“I don’t have enough time”

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How Do You Set Retail Prices Today?

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

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The Challenge

40,000+ items in a typical Grocery Store

2500 – 5000 in a C-store

Small pricing departments

Current tools are designed to manage the historical process and automate it

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What About Your Customers?

They vote daily with their purchases

They don’t know your margin or cost

Depending on the item, they might know a reference price, ie milk, diapers, cigarettes, etc.

They will have a perception of value and convenience

Question: Can you hear, comprehend and react to what they are saying?

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Measuring How Your Customers React to Price

Price Modeling and Price Elasticity

Elasticity measures how consumers react: To price of the item To prices of other items (Cross-

effects)

2.4 .02

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Private Label VS National Brand Spreads

Current Practices:

Use an average spread, ie 20%

.99 .79

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Private Label VS National Brand Spreads

Current Practices:

Target margin for Private Label, ie 35% margin

$32.99

$19.99

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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?

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What happens when….

.99 .79

$32.99

$19.99

You set prices for your customers that meet your objectives?

.73

$29.95

$24.99

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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….

What about your Customers?

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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

.79Blue

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What was accomplished?

Improved Competitive Position on the Key Item

Offered Value to Customers

Through their purchases, your customers have been telling you they would respond favorably

.99Rch

.99Nat

.99Blue

.99Red

.99Yell

.79Blue

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Pricing off Competitors

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?”

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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

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What About Promotions?

Combo Promotions

Weekly Ads

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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 profit?

What happens to category sales/profits?

What if you run it super hot for 1-week

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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%

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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%

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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)

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Will You Still Run It?

Maybe Yes, Maybe No, Maybe Something Different

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Summary

Your customers communicate with you daily

Are you able to:

Mine real-time transaction data

Understand what’s relevant in the data

Model and optimize prices and promotions

Execute and evaluate quickly

All of this is being done with a focus on:

“Becoming more relevant for your customer”

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Thank You! Questions?

Lyle Walker

VP Marketing

KSS Retail

Lyle.Walker@KSSRetail.com

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Safe Harbor for Forward-Looking Statements: Except for statements of historical fact, the information presented herein constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and U.S. federal securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Retalix, including revenues, income and expenses, to be materially different from any future results, performance or achievements or other guidance or outlooks expressed or implied by such forward-looking statements. Such factors include risks relating to Retalix’s anticipated future financial performance and growth, continued roll-outs with existing customers, continued interest in Retalix’s new platforms, the perception by leading retailers of Retalix’s reputation, the potential benefits to food and fuel retailers and distributors, expansion into new geographic markets, and other factors over which Retalix may have little or no control. This list is intended to identify only certain of the principal factors that could cause actual results to differ. Readers are referred to the reports and documents filed by Retalix with the Securities and Exchange Commission, including Retalix’s Annual Report on Form 20-F for the year ended December 31, 2008, for a discussion of these and other important risk factors. Except as required by law, Retalix undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

Thank you!