July  14,  2011   #LiveWebinar  

Pricing  Success  in  an  Infla<onary  Economy  

Welcome  Webinar  A.endees  Your  GoToWebinar  A.endee  Viewer  is  made  of  2  parts:  

1.  Viewer  Window   2.  Control  Panel  

Type  your  quesBon  here  

#LiveWebinar hashtag.

Follow  this  webinar  on  Twi0er  using  the    

About  Retail  TouchPoints  

ü  Launched in 2007

ü  Over 20,000 subscribers

ü  To provide executives with relevant,

insightful content across a variety of

digital medium

Free subscription to our weekly newsletter: www.retailtouchpoints.com/signup

Panelists  

SP

EA

KE

R

Mark Kelso Director of Pricing Pamida Stores

Debbie Hauss Editor-in-Chief Retail TouchPoints

MO

DE

RAT

OR

Cheryl Sullivan VP Product Management Revionics, Inc.

Spe

aker

Spe

aker

Consumer  Confidence  Declining  

Is the economy heading in the right direction?

Source: American Pulse™, June-2011, N=5406

Regardless of political party, more Americans think the economy is heading in the wrong direction compared to those who think it is at least somewhat on track.

Adults  18+ Republicans Democrats Independents

1  –  No,  not  at  all 25.8% 39.8% 12.3% 26.7%

2  –  No,  not  really 34.1% 37.2% 29.5% 37.6%

3  –  Neutral 18.1% 12.3% 21.7% 18.3%

4  –  Yes,  somewhat 19.7% 9.2% 32.4% 16.0%

5  –  Yes,  definitely 2.3% 1.4% 4.1% 1.4%

Total 100.0% 100.0% 100.0% 100.0%

Average 2.4 1.9 2.9 2.3

Not  at  all/Not  really 59.9% 77.1% 41.8% 64.4%

Somewhat/Definitely 22.0% 10.6% 36.5% 17.3%

And They are Coping By:

Source: BIGresearch® CIA®, May-2011, N=8,344

16.7%  

22.7%  

29.6%  

34.8%  

38.7%  

41.3%  

43.7%  

47.2%  

0%   10%   20%   30%   40%   50%  

Shopping  more  online  

Doing  more  compara<ve  shopping  online  

Doing  more  compara<ve  shopping  with  ad  circulars/newspapers  

Buying  more  store  brand/generic  products  

Using  coupons  more  

Shopping  for  sales  more  oWen  

Shopping  closer  to  home  

Taking  fewer  shopping  trips  

As  a  result  of  fluctuaBng  gas  prices,  are  you  doing  any  of  the  following?  (Check  all  that  apply)  

PracBcality  in  Purchasing  In the last 6 months, have you made any of the following changes? Adults 18+

Source: BIGresearch®, Consumer Intentions & Actions® Survey, MAY 06-11

40.9%  

36.7%  

42.2%  

47.4%  

42.9%  

48.8%  

44.8%  

49.5%  

44.8%  

50.7%  

56.9%  

51.5%  

57.9%  

54.9%  

0%  

10%  

20%  

30%  

40%  

50%  

60%  

May-­‐06   May-­‐07   May-­‐08   May-­‐09   May-­‐10   Apr-­‐11   May-­‐11  

I  have  become  more  pracBcal  and  realisBc  in  my  purchases  

I  focus  more  on  what  I  NEED  rather  than  what  I  WANT  

Upward Trend

Continues

Retailer Challenges: Brought On By The New Economy

Source: RSR Research, April 2011

Commodity  InflaBon  Puts  Pressures  on    Retail  Prices  

Source:  Interna<onal  Monetary  Fund  

Right  Pricing  with  Price  Op<miza<on:    Experiences  and  Benefits  Mark  Kelso,  Director  of  Pricing  

mkelso@pamida.com  

Today’s  Agenda  

•  About  Pamida  •  Price  Op<miza<on  Strategy  

– Planning  approach  – Devising  strategies  – Measuring  results  

About  Pamida  

•  Regional  retailer    –  200  stores,  17  Midwest  states  –  Convenience  retailer  in  rural  communi<es  –  Grocery,  apparel  and  general  merchandise  –  Charitable  founda<on  suppor<ng  our  communi<es  –  Affiliate  of  Sun  Capital  Partners,  Inc.  

 

Pricing  Ini<a<ve  

•  Opportunity  to  project  updated  branding  –  Price  image  was  a  key  factor  –  Lacked  systema<c  way  to  

execute  price  strategy  

•  Why  Price  Op<miza<on?  –  Provided  capabili<es  to  

forecast  poten<al  impact  of  mul<ple  strategies  

–  Recommended  the  best  op<ons  for  maximizing  ROI  and  strategy  impact  

Easy   Reliable  Affordable  

Convenience  Retail    in  Rural  Towns  

•  Price  op<miza<on  implementa<on  approach  –  Crawl,  Walk,  Run  Approach  

•  Simplicity:  Limits  variable  to  analyze  and  refine  •  Focus  on  most  impaciul  •  Gained  benefits  sooner  

–  Financially  –  Understanding  

•  Layer  on  complexity  once  perfected  

Approach    

•  Price  op<miza<on  implementa<on  approach  –  Designed  test  and  control  for  proof  of  

concept  •  Limited  number  of  stores    •  Specific  dura<on  •  Developed  test  goals  

–  Fine-­‐tuned  strategies  as  test  progressed  

–  Executed  full  Zone  rollout  upon  exceeding  desired  results  

Approach    

Optimized Prices

Proof  of  Concept    

•  Why  Proof  of  Concept?  –  Provide  a  sandbox  to  model  strategies  

•  Test  without  great  risk  •  Accelerate  organiza<onal  buy-­‐in  

–  Iden<fy  and  mi<gate  data  integrity  issues  

–  Validate  vendor  and  technology  solu<on  

–  Develop  lean  process  •  Minimize  impact  of  new  pricing  process  on  organiza<on  

Enterprise  Strategy  

•  Define  enterprise  strategy  with  intended  results  –  Full  understanding  of  our  role  in  marketplace    

•  Easy  -­‐    Reliable  -­‐  Affordable  •  Iden<fy  the  set  of  strategies  that  meet  those  goals  

–  Tie  in  other  marke<ng  components  •  Product  assortment,  placement,  packaging,  promo,  people  

•  Leverage  consumer  insight  to  execute  detailed  strategies  ―  Items  ― Category  ― Store  

Strategy  Approach  

Brand  PosiBoning  

Merchandise  Strategies   Core   Convenience  

Easy   Reliable   Affordable  

   

Convenience  Retail  in  Rural  Towns  

Pricing    Strategies  

Turf  Protector  

DesBnaBon  

Maintain  Margin   Margin  Enhancer  

Price  OpBmizaBon  

Item  Specific  Strategy  

•  Item  level  analysis  •  Ul<mate  traffic  drivers  

– Determined  items  that  are  the  most  important  to  our  customer  (known  value  items)  

•  RepeBBve  purchases:  buy  on  regular  basis,  typically  know  compe<ng  prices,  may  change  primary  shop  based  on  price,  highly  elas<c  items  

•  Non-­‐repeBBve  purchases:  higher  priced  items,  will  shop  around  based  on  price,  decision  driven  more  on  price  and  service  than  convenience  

– Defined  item-­‐specific  strategy  –  Combina<on  of  consumer  behavior  analysis  and  compe<<ve  shopping  approach  

– Tie  into  visual  merchandising  programs    

Category  Specific  Strategy  

Traffic  Driver  

Turf  Protector  

Maintain  Convenience  

Margin  Enhancer  

1.80  

1.20  

1.00  

0.85  

Elas<city  

P  R  I  C  I  N  G  

Price  Aggressive  

Margin  Friendly  

1.  Calculated  product  hierarchy  elas<city  

2.  Created  bands  or  stratums  based  on  consumer  elas<city  

3.  Set  strategies  at  band-­‐level  to  maximize  consumer  buying  behavior  

Category  Strategy  Refinement  

•  Determined  category  candidates  for  greater  price  image  impression  or  category  branding  –  Upgrade  band  strategy  to  drive  greater  price  impression  

–  Used  as  gateway  category  into  a  department  

•  Elas<city  insight  makes  this  possible.  

Store  Specific  Strategy  

•  Determine  which  groups  of  store  consumers  reacted  similarly.  

•  Vendor  provided  analy<c  service:  –  Scien<fic  analysis  of  

consumer  buying  behavior  –  Cluster  recommenda<on  

based  on  consumer  buying  behavior,  cost/  benefit  analysis  

Store  Cluster  Analysis  Notable  ElasBcity  Factors  

 Popula<on  Density  

Spending  per  Household  Income  Level  

People  per  Household  Percent  Blue  Collar  Distance  to  Big  Box    

Number  of  Grocery  Stores  Number  of  Dollar  Stores  

Store  Cluster  Analysis  

•  Perfect  blend  of  art  and  science  –  Ini<ated  

•  Price  Sensi<vity  •  Demographics  •  Opportunity  Cost  

–  Refined  •  Business  Intelligence  •  Minimize  Risk    •  Market  Poten<al    

1 1.2 1.4 1.6 1.81

1.05

1.1

1.15

1.2

1.25

1.3

1.35

1.4

Elasticity (Quantity Weighted)

Elas

ticity

(Con

fiden

ce W

eigh

ted)

Cluster results with re-modeled elasticity data

4

2

1

3

Strategy  Refinement  

Traffic  Driver  drove  unit  sales  

Margin  Enhancer  drove  profits  

Current  scenario  

Sales,  Margin,  and  Profit  Forecasts  compare  scenario  outcome.  

•  Analyze  and  refine  price  strategies  – Make  mid-­‐course  correc<ons  to  strategies  based  on  data  analysis  

–  Perform  what-­‐if  analysis  for  poten<al  changes  in  new  strategy  prior  to  implementa<on  

 

Price  Op<miza<on  Results  

•  Targeted  goals  were  measured  against  actual  results  •  Pilot  &  Roll-­‐out  outperformed  targets  

10241539

Leverage Price Optimization to Succeed in an

Inflationary Economy

Cheryl Sullivan VP Product Management

Retail Challenges

29

Frequent Sentiment Changes!

Price Sensitivity! Hyper-competition!

Declining Consumer Confidence!

Protecting Price Image!

Commodities Cost Increases!

New Retail Challenges

Historical Pricing Practices

Ø  Blanket price to cover cost increases Ø  Blindly matching competitors prices Ø  Less frequent prices changes Ø  Basic pricing rules X Less Spending!

Why Use Price Optimization

"   Blends Art & Science

"   Listens to your consumer demand signal

"   Productized Science - goes where traditional methods cannot

"   Predicts and responds to economic changes & challenges

"   Systematically & surgically execute strategies

30

Leveraging Price Optimization to Succeed

31

Loyal Shoppers!

Increase Market Share!

Increase Sales & Margins

Larger Baskets!

Improve Price Image

Alignment to Category Plans

Results!

Price Optimization Best Practices

►  Category Strategy Alignment ►  Use Key Value items Strategically ►  Take Advantage of Competitive Price Data ►  Elevate Private Label Strategy ►  On-Demand Simulations

ü  Increase Brand Image & Loyalty

Supporting the Category Planning & Review Process

32

Categories are managed as “Strategic Business Units” focused on delivering consumer value using a Consumer Centric Approach.

Category Roles are implemented through the Right Mix of Strategies & Tactics in a category

The Result: Leverage the power of pricing to achieve the higher level category roles and objectives

Category Definition

Category Role

Category Assessment

Category Scorecard

Category Strategies

Category Tactics

Plan Implementation

Ca

teg

ory

Re

vie

w

Best Practice Category Management Strategies (The Partnering Group Model)

• Draw consumer traffic into the store

Traffic Building

• Increasing the size which drive higher Basket Ring

Transaction building

• Protect against targeted Competitors

Turf Defending

• Generate Profits Profit Generating

• Generate Cash Flow Cash Generating

• Communicates desired image in price, quality, service , variety

Image Enhancing

33

High share, high price awareness, frequently purchased, high spend

Large transaction size/baskets, high movement, impulse purchases

High moving products, highly price-sensitive, highly promoted by competitors

Higher margin products Low price sensitive, high loyalty, high basket ring

Fast turning products, low inventory, efficient payment terms & suppliers

Price image, reinforcement of retailer theme of topical subject (i.e.

sustainability, health, etc.), quality image

Best Practice Category Strategies

Intent Product Characteristics

Pricing Strategies Support Category Strategies

34

Category -Pet Care

Destination Role

Subcategory -Bagged Pet Food

Subcategory - Canned Pet Food

Subcategory -Toys, Misc

Key Value Items (KVI)

Revionics Pricing Strategies

Increase Vol/Share, Price Sensitive

High Freq

Increase Vol, Price Sensitive,

Competitive

Large transaction size/baskets, high

movement, impulse purchases

Increase Margins Maintain Sales

Traffic Generator Turf Defending Transaction

Builder Profit Generator

Category Strategies

Predicting Price Impact Prior to Execution!

Real-time “What-if” - Plan and optimize price scenarios on-demand

"   Analyze & refine price strategies

"   Identify the best options to accomplish business objectives

"   Forecast Performance

"   Laser Focus on Key Value Items

"   Transparency into price recommendations

35

Category Strategy Definition

36

Profit Gen

Adjust optimization to align to different strategies

Competitive Original Price Anchor

Margin Price Elasticity

Private Label Good, Better, Best

Volume Margin Brand Sensitivity

General Rules

Opportunity Items (Profit

Drivers)

Key Value Items

(Sales Image Drivers)

Background Items

Sensitive Low Impact Items

KVI Items: "   Demonstrate high demand

response to price changes

"   Create traffic into store

"   Are core to customer baskets

"   Score high on price awareness surveys

"   Compliment core customer demographics

"   Are key to positioning against competitors

Evolving KVI Strategies to Align With Consumer Behavior

37

Vo

lum

e

Elasticity

Low High Lo

w

Hig

h

Q&A  Your  GoToWebinar  A.endee  Viewer  is  made  of  2  parts:  

1.  Viewer  Window   2.  Control  Panel  

Type  your  quesBon  here  

SP

EA

KE

R

Mark Kelso Director of Pricing Pamida Stores

Cheryl Sullivan VP Product Management Revionics, Inc.

Spe

aker

S

peak

er

White  Paper  Offer  

The  Pricing  Balancing  Act:    How  To  Succeed  In  An  Infla<onary  Economy  With  Recessionary  Undertones    Download:    hrp://rtou.ch/Pricing-­‐WP