w. frank dell ii, cmc dellmart & company the gold mine in retail pricing
Post on 21-Dec-2015
215 views
TRANSCRIPT
W. FRANK DELL II, CMC
DELLMART & COMPANY
THE GOLD MINE IN RETAIL PRICINGTHE GOLD MINE IN RETAIL PRICING
2DELLMART & COMPANY
AGENDAAGENDA
INTRODUCTIONMINING OPPORTUNTIES
PROMOTIONAL PRICING
PRICING FOR PROFIT
3DELLMART & COMPANY
ObjectivesObjectives
Identify pricing improvement opportunities
Describe approach to achieve resultsPresent new research
4DELLMART & COMPANY
ScopeScope
Retail Food– Excluding perishable commodities
Mass Merchant - Basics– Excludes fashion & seasonal
5DELLMART & COMPANY
ObservationObservation Much of retail
pricing seems to be follow the leader
Not unlike a dog chasing its tail
6DELLMART & COMPANY
ThemeTheme
Price for the consumer– Consider competition
Price for Net Profit– Not Gross Margin
7DELLMART & COMPANY
AGENDAAGENDA
INTRODUCTION
MINING OPPORTUNTIESPROMOTIONAL PRICING
PRICING FOR PROFIT
8DELLMART & COMPANY
#1 Slow Seller#1 Slow Seller
Why is an item a slow seller?– Small consumer market– Inadequate retail space– Priced wrong
9DELLMART & COMPANY
25,000 SKU’s In Typical 25,000 SKU’s In Typical StoreStore1,000 sell more than 1 case/week4,000 sell between .5 and 1 case/week20,000 sell less than .5 case/week
Slow Seller
10DELLMART & COMPANY
SKU UniverseSKU Universe
Estimate 4 to 5 millionAverage store stocks
.0056%
Many unique items and opportunities
Slow Seller
11DELLMART & COMPANY
Slow Seller
ApproachApproach
Identifyunique
slow seller
Identifyunique
slow seller
Changeprice
Changeprice
Monitormovement
Monitormovement
12DELLMART & COMPANY
Case Study - Grey PouponCase Study - Grey Poupon
Selling 4 units/weekPrices $1.79Increased price to $2.79
– Sold 4 units/week– Increased sales $4.00 per store– Increased profit $4.00 per store
Slow Seller
13DELLMART & COMPANY
#2 Private Label#2 Private Label
If product quality is equal to National Brand
Why is the price 25% plus lower?
14DELLMART & COMPANY
Low Retail Not The AnswerLow Retail Not The AnswerPrivate Label
CATEGORY SHARE GM% RETAIL
Breadcrumbs NB 90.6% 18.0% $2.17
PL 9.4% 26.5% $1.03
Carb. Beverage NB 92.4% 12.6% $2.13
PL 7.6% 14.5% $1.05
Popcorn NB 84.7% 23.5% $2.81
PL 15.3% 47.0% $1.32
Short. & Oils NB 78.2% 24.8% $4.60
PL 21.8% 34.7% $2.23
15DELLMART & COMPANY
ApproachApproachPrivate Label
Price offcategoryleader
Price offcategoryleader
Determinevalue
proposition
Determinevalue
proposition
Changeprice
Changeprice
Monitorperformance
Monitorperformance
Note: Quality must be equal or superior
16DELLMART & COMPANY
Value ConceptValue ConceptPrivate Label
PRICE
QUALITYVALUE =
17DELLMART & COMPANY
AGENDAAGENDA
INTRODUCTION
MINING OPPORTUNTIES
PROMOTIONAL PRICINGPRICING FOR PROFIT
18DELLMART & COMPANY
Why Promote?Why Promote?
Create merchandising excitementAttract customersPresent savingsShow valueReward loyal customers
19DELLMART & COMPANY
Promotions Are DifficultPromotions Are Difficult
SelectionSelection
CompetitionCompetition
HolidayHoliday
WeatherWeather
SeasonSeason
ThemeTheme
PricePrice
ProfitProfit
ExecutionExecution
StoresStores
AdvertisingAdvertising
BuyingBuying
20DELLMART & COMPANY
Promotion FactorsPromotion Factors
Advertising(ABC)
Advertising(ABC)
PricePrice DiscountDiscount
DisplayDisplay POPPOP SeasonSeason
21DELLMART & COMPANY
Breakeven on 11% DealBreakeven on 11% Deal
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
10 15 20 25 30
Units
GM
Dol
lars
Non-Promo
10%
15%
20%
22DELLMART & COMPANY
Low Private Label ShareLow Private Label Share
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%1 3 5 7 9
11 13 15 17Weeks
NP-Brand
Pro-Brand
Pro-PL
23DELLMART & COMPANY
Moderate Private Label Moderate Private Label ShareShare
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%1 3 5 7 9
11 13 15 17
Weeks
NP-Brand
Pro-Brand
Pro-PL
24DELLMART & COMPANY
Promotional IndexPromotional Index
DESCRIPTION LOW MODERATE
Brand Share 90% 75%
Brand Index 1.1 .3
Private Label Index 3.0 .8
Total Index 1.3 .4
25DELLMART & COMPANY
Promotion ConclusionPromotion Conclusion
Low Private Label share
Moderate Private Label share
Private Label
Private Label
Natl. Brand
Natl. Brand
26DELLMART & COMPANY
AGENDAAGENDA
INTRODUCTION
MINING OPPORTUNTIES
PROMOTIONAL PRICING
PRICING FOR PROFIT
27DELLMART & COMPANY
Activity Based CostingActivity Based Costing
ABC is a cost allocation or assignment methodology
Cost assigned based on the activities and drivers– Activities are tasks within a process– Drivers are factors creating costs
28DELLMART & COMPANY
GM Vs ABCGM Vs ABC Gross Margin
– Relationship between cost and selling price
– Not a predictor of profit
– Percentage ineffective during deflation times
Profit Contribution
Sales
- Cost of Goods Sold
= Gross Margin
+ Direct Revenue
- Inbound Costs
- Outbound Costs
= Profit Contribution
29DELLMART & COMPANY
Primary ProcessesPrimary Processes
Product-In Product-Out
Buying DistributionStore
OperationsAccounting
30DELLMART & COMPANY
Costs Follow Product FlowCosts Follow Product Flow
Distribution Center
Direct Store Delivery
Drop Ship Wholesaler
Store
31DELLMART & COMPANY
Greatest Cost Is DSFGreatest Cost Is DSF
32DELLMART & COMPANY
Proposed Pricing ProcessProposed Pricing Process
Collect DataTrigger Pricing
Determine Price
Implement Price
Promotion Process
Price Verification
33DELLMART & COMPANY
Collect Competitive DataCollect Competitive Data
Weekly
Monthly
Semi-Annual
Internet
Data Entry Data Edit
Price Data Base
34DELLMART & COMPANY
Trigger PricingTrigger Pricing
Price Data Base
Cost Movement Promotion
Candidates
Trigger Tests
35DELLMART & COMPANY
Pricing CandidatesPricing Candidates
ItemTrigger
CompetitorPrice
Movement Cost
36DELLMART & COMPANY
Determine PriceDetermine Price
Candidates Price Tables
Proposed Prices
Determine Price
37DELLMART & COMPANY
Price TablePrice Table
Department
Category Category
SubCategory
SubCategory
SubCategory
SubCategory
ImageItem
38DELLMART & COMPANY
VELOCITY PHILOSOPHYVELOCITY PHILOSOPHY Faster sellers priced
lower than slower sellers
Reinforces low price image
Basis for power curve
0
1
2
3
4
5
6
7
8
9
1 2 3 4 5
Sales
Variable
Fixed
39DELLMART & COMPANY
SIZE PHILOSOPHYSIZE PHILOSOPHY Larger sizes priced
lower than smaller sizes Promotes selling larger
sizes – Increase volume– Lower transaction cost
Supported by vendor pricing– Lower bracket cost– Lower transaction cost
$0.00
$0.02
$0.04
$0.06
$0.08
$0.10
$0.12
$0.14
$0.16
$0.18
5oz
10oz
15oz
20oz
Sales
Cost
Fixed
40DELLMART & COMPANY
FLAVOR/PATTERN FLAVOR/PATTERN PHILOSOPHYPHILOSOPHY Create sub-group Price all items the
same– Even if cost differs
Consumers perceive all items as equal
Cherry Raspberry
Orange Grape
41DELLMART & COMPANY
Price ControlsPrice ControlsMinimumGM%
MaximumGM %
ProfitObjective
CompetitivePosition
Department
Category
Sub-Category
Sub-Category
Item
42DELLMART & COMPANY
Iterative ProcessIterative ProcessPrice Competition GM Profit
Item A $1.79 $1.79 23% $5.15
Item B $2.39 26% $2.11
Item C $1.49 $1.45 25% $3.41
Item D $2.19 $2.22 24% $2.75
Total $13.42
43DELLMART & COMPANY
Implement PriceImplement Price
Price Filters
Select Prices
Proposed Prices
Print Shelf Label
Deliver Label
Change Shelf Label
Download Prices
Update POS
44DELLMART & COMPANY
Pricing FiltersPricing Filters
NewPrice
OscillationPenny
ChangeCost
ChangeImplementation
Limits
45DELLMART & COMPANY
Unlock The GoldUnlock The Gold Understand your
competition Price for net profit Consider all factors
– Competition– Movement– Cost
Justify implementation
Test item sensitivity
46DELLMART & COMPANY
47DELLMART & COMPANY
W. Frank Dell II, CMCPresident
DELLMART & Company125 Hardesty Road
Stamford, CT 06903 USA
Tel: 203-968-8609Fax: 203-968-8613
e-mail [email protected]