Transcript Retail Pricing Updated.ppt

Retail Pricing:
Beyond EDLP and HiLo
James Alford
Jeremy Keller
Matt Muller
EDLP

Everyday Low Prices Strategy
– Consistently low prices on many brands
and categories
– Used by Food Lion, Lucky, and of course
the evil Wal-Mart
HiLo
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Steep temporary price discounts with
higher “regular” prices for many
brands and categories
– Used by Kroger and Safeway
Other Pricing Strategies

Three additional pricing strategies
customized to fit brand, category, and
market conditions at store level
– Exclusive Pricing
– Moderately promotional pricing
– Aggressive pricing
Changing Retail
Landscape

Increased competition
– Retailer consolidation and
growth of Wal-Mart

Consistently lower prices
– IT innovations
– Supply chain management
innovations
– Centralized buyers
Customized Pricing

Step 1: Identify key determinants of
local store pricing
– Will include market, store category,
manufacturer/brand, customer, and local
competition
– Consistent with recent trends in retail

Wal-Mart stocks 60 SKU’s of chili but only 3
SKU’s are carried nationwide
Customized Pricing

Step 2: Segment market by store
format and cluster
– Manage price and promotion by store
format and clusters, including
accommodations for chain size, store
size, and demographics
– Variable pricing easily applied to each
format and cluster based on store needs
Customized Pricing
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Step 3: Choose positions on key dimensions
to neutralize price as competitive weapon
– Pricing decisions influenced by competitors but
also by category characteristics (storability),
chain position and size, store size and
assortment, brand preference and advertising,
and customer factors (price sensitivity).
– Set competitive price points on “known value
items” and feature or display them.
Customized Pricing

Step 4: Manage promotion intensity
to avoid head-to-head competition
– Intensity of retailer promotions depends
on market type, chain size, chain
positioning, store size, category
assortment, storability, necessity, etc…
– Focus on “known value items”
– Consider trade promotion management
software for additional support
Customized Pricing

Step 5: Create distinctive categories
– Large category assortment targeted
towards price-sensitive shoppers
– Highly storable items (TP) with high
price-promotion intensity
– Perishable categories that require
consisted pricing strategy to manage
inventory
Customized Pricing

Step 6: Tailor prices by market,
category, customer, competitor, and
brand
– Retailers charge lower prices when
consumers are more own-price elastic
and less own-deal elastic
– Allow for flexibility for those brands in
discretionary categories that are less
price consistent (seasonal items)
Summary
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Increased competition causes need for
non-traditional pricing strategies
Successful retailers moving from EDLP
and HiLo pricing strategies
Retailers need to take more of a
micro- rather than macro- approach to
pricing
From Price to Purchase

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Price promotion strategy effectiveness
depends on how well it is aligned with the
retail offering’s assortment overlap and
assortment life span
Assortment Overlap:
– Degree to which retailer’s product assortments are similar
to, rather than distinctive from, one another

Assortment Life Span:
– Function of the speed at which a typical assortment loses
value or becomes obsolete over time
Seven Questions

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First four serve to position company
on the matrix
Remaining three help evaluate
companies current price promotion
strategy
Variety Promoters
• Focused specialists
• Promotional pricing is optimal
• Increase traffic and protect share
with targeted discounts, coupons,
and sale events
Price Point Rivals
• Efficient generalists
• Everyday low pricing is optimal
• Reinforce low price image with
positional price communication
Broadscope Promoters
• Large-scale generalists
• Promotional pricing is optimal
• Increase traffic and retention with
extensive price promotion and loyalty
program incentives
Differentiators
• Innovators
• Everyday fair/high pricing is optimal
• Sell select, obsolescent products
using targeted discounts,
seasonal sales, and retail outlets
Clearout Promoters
• Large-scale generalists
• Promotional pricing is optimal
• Increase traffic, attract fringe
customers, and sell
obsolescent products with
frequent discounting
Low
Assortment Lifespan
High
Retail Price Promotion
Matrix
Low
Assortment Overlap
High-gain promoters
Low-gain promoters
High
Matrix Position
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Which position defines our sector on the
matrix? Is it clearly defined or on the
boundary?
What is the promotional norm in our sector? Is
it consistent with matrix?
What is our current strategy relative to price
variation, promotional ad volume, and depth of
discount? Does it follow sector norm?
Will our current or future merchandising
strategy change our position on the matrix?
Current Strategy
Evaluation
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How well is current price promotion
strategy working? How confident are we
in this assessment?
If we were to fine tune any of the three
promotional dimensions which would
they be and why?
Is there a need or significant opportunity
to pursue a radical shift in our price
promotion strategy?