Make Room for Mobile

A tight economy is causing consumers to be more price-conscious, and many are basing their loyalty on the chains that can provide them the best value for their discretionary dollars. This means that retailers cannot afford to increase sales margins based on unnecessary price markups.

Price optimization could be a means to providing this value, but retailers that initially used price optimization merely to measure price elasticity might want to rethink their strategy. Price optimization could be the competitive advantage retailers need to execute the ideal pricing strategies, rebuild their price image and grow customer loyalty, especially in tight times.

Lance Jacobs, CEO, KSS Retail, Florham Park, N.J., discussed with senior editor Deena M. Amato-McCoy how retailers and vendor partners can use price optimization to collaboratively create the best in-store promotions that ensure the highest level of sales.

How is the economy impacting retailers’ store operations? 

The current economy is unprecedented in our lifetime. And this is impacting the retail industry in a couple of ways.

First, consumers are eating out less and eating at home more, so they are shopping more regularly for groceries. This actually provides a buffer for traditional grocery chains as well as mass merchandisers, drug and discounters that have made the transition into grocery categories over the last few years.

The second factor impacting retailers is that when consumers plan their weekly shopping trips, they are staying in tune to prices across different chains. In fact, shoppers are more price-sensitive today than they have been in decades. That puts the pressure on retailers to ensure they have the right price on the right items.

Across the grocery segment, for example, there are known value items, or KVIs. KVIs drive more than 90% of the consumers’ perception of price.

The price image of a retailer is tied to 1,500 to 2,500 specific KVIs in a typical supermarket. Of course, a store may carry 50,000 items, so a retailer’s first order of business is to uncover its KVIs in each marketplace in which it competes and price them correctly.

How does pricing optimization play a role in this process? 

Price-optimization software accurately models, forecasts and optimizes retail prices for regular and promotional pricing. KSS Retail features an intuitive, fast, merchant-friendly analytical tool that integrates price modeling, optimization and rules-based pricing into the daily workflow of a merchant.

Studies have shown that no other retail activity can increase the bottom line more dramatically than to improve pricing effectiveness. Pricing is unbelievably mission critical. We consistently see strong financial gains from retailers as they leverage our real-time optimization solution across their merchandising organization. And this is especially helpful in this economy.

We often see that 50% or more of retailer promotions are actually unprofitable to the category. We strive for our customers to use price optimization as a modeling tool when evaluating vendor deals. It should be a collaborative tool that ensures the deal is a good one for both the retailer and vendor. With collaboration, both parties are primed to make money in the category through more consistent pricing.

What types of companies are benefiting from the solution? 

Our customers range from grocery and drug chains to convenience stores and online retailers. For example, Associated Food Stores is one of our newest clients.

The independent, retailer-owned wholesaler services nearly 500 grocers in eight Western states. By leveraging the real-time predictive modeling solution, it will model, refine and optimize pricing and promotions to drive value for the consumers of their member stores.

Similarly, Lunds Food Holdings recently added price-optimization software throughout its merchandising organization. The company is eager to accurately model pricing and promotions across the company.

Looking ahead, how will price optimization become a mission-critical system within the store operations portfolio? 

Back in the late 1970s and 1980s, many retailers didn’t use modern point-of-sale systems, which provided a competitive advantage for the early adopters. But as the technology became more commonplace, not having POS represented a major competitive disadvantage.

The same can be said for price optimization. Companies are increasingly coming to the realization that they can be at a real competitive disadvantage in not using price optimization. By not using it, retailers are leaving money on the table, and their price image is suffering. They are also subject to more bad promotions.

By using price-optimization solutions, retailers and vendors can be more collaborative. If both parties can use the analytical tool to forecast consumer demand and price elasticity, retailer and vendor partners can work together to create successful promotions and simultaneously provide tremendous value to the consumer. And ultimately, that’s what it’s all about—providing value to the consumer.