“ THE LAST FRONTIER ” W. FRANK DELL II,CMC DELLMART & Company RETAIL PRICING.

““THE LAST FRONTIERTHE LAST FRONTIER””

W. FRANK DELL II,CMC

DELLMART & Company

RETAIL PRICINGRETAIL PRICING

DELLMART & Company

AGENDAAGENDA

INTRODUCTION

TYPICAL PROCESS

PHILOSOPHY & STRATEGY

PROPOSED PROCESS

DELLMART & Company

OBJECTIVESOBJECTIVES• Review current retail pricing process• Explore consumer perception & issues• Develop proposed retail pricing

– Process– Approach

DELLMART & Company

STAPLE / BASIC ITEM FOCUSSTAPLE / BASIC ITEM FOCUSSTAPLE SEASONAL/FASHION

Normal

Promotion

Normal Normal

Promotion

Mark Down

Close Out

• $425.1 Billion Retail Food Industry• Over-stored• Mature• Consolidating

DELLMART & Company

MANY NEW COMPETITORSMANY NEW COMPETITORS

MembershipClub

Convenience

Supercenter

Drug/Chemist

Fast Food

Home Shopping

DELLMART & Company

MASTER PRICING MASTER PRICING STRATEGIESSTRATEGIESEDLP

Advantages• Low cost maintenance• First market entry advantage

Disadvantages• Boring• Requires discipline

HI-LO

Advantages• Merchandising excitement• Provides flexibility

Disadvantages• High cost maintenance• Difficult execution

Fact - No retailer truly practices EDLP

DELLMART & Company

STORE SELECTION FACTORSSTORE SELECTION FACTORS

1

2

3

4

5

6

7

93 94 95 96 97

Low Prices

Clear Label

Accurate Scan

Source: Progressive Grocer

DELLMART & Company

STORE SELECTION FACTORS STORE SELECTION FACTORS

1

6

11

16

21

26

94 95 96 97

Freq. Sales

Unit Pricing

Double Coupons

Source: Progressive Grocer

DELLMART & Company

RETAILER GOALSRETAILER GOALS

Low

High

• Price Image

• Gross Margin• Quality Ratio

DELLMART & Company

CONSUMERSCONSUMERS• Recall up to 200 item prices• Frequently purchased items• High consumables

• Translates to 500 - 1,000 items creating the price image

DELLMART & Company

PRICE COMPONENTSPRICE COMPONENTS

RetailPriceRetailPrice

ShelfShelf

Adv/PromoAdv/PromoFreq.Shopper

Freq.Shopper

CouponCoupon

DELLMART & Company

AGENDAAGENDA

INTRODUCTION

TYPICAL PROCESS

PHILOSOPHY & STRATEGY

PROPOSED PROCESS

DELLMART & Company

TYPICAL PRICING PROCESSTYPICAL PRICING PROCESS

Collect DataDetermine

Price

Promotion Process

Implement Price

Price Check

DELLMART & Company

COLLECT COMPETITIVE DATACOLLECT COMPETITIVE DATA

Weekly

Monthly

Semi-annual

Data Entry Data Edit

Price Data Base

DELLMART & Company

DETERMINE PRICEDETERMINE PRICE

Price Data Base

Cost Movement

Gross Margin AnalysisKey Changes

New Price List

DELLMART & Company

IMPLEMENT PRICEIMPLEMENT PRICE

New Price List

Print Shelf Label

Deliver Label

Change Shelf Label

Download Prices

Update POS

Minimum cost is $1.00 per item per store

DELLMART & Company

PRICE CHECKPRICE CHECK

Shelf POS

DELLMART & Company

RESULTRESULT

Chain AChain A

Chain BChain BChain CChain C

DELLMART & Company

AGENDAAGENDA

INTRODUCTION

TYPICAL PROCESS

PHILOSOPHY & STRATEGY

PROPOSED PROCESS

DELLMART & Company

RETAIL STRATEGYRETAIL STRATEGY

LocationLocation SelectionSelection ServiceService

DisplayDisplay PricePrice DecorDecor

DELLMART & Company

ESTABLISH DEPT. STRATEGYESTABLISH DEPT. STRATEGYHI-LO EDLP

Edible

Non-Edible

Bakery

Dairy

Deli

Frozen

Meat & Seafood

Produce

HBC

GM

DELLMART & Company

UNDERSTAND COMPETITORSUNDERSTAND COMPETITORSSTRENGTH NEUTRAL WEAKNESS

Edible

Non-Edible

Bakery

Dairy

Deli

Frozen

Meat & Seafood

Produce

HBC & GM

DELLMART & Company

DEFINE CATEGORY ROLEDEFINE CATEGORY ROLE• Traffic Builder• Transaction Builder• Profit Contributor• Cash Generator• Excitement Creator• Image Creator• Turf Defender

• Destination• Routine• Occasional/Seasonal• Convenience

DELLMART & Company

DEFINE IMAGE PRICE DEFINE IMAGE PRICE CHAIN A Z1 CHAIN A Z2 CHAIN B

Edible = < >Non-Edible < = =Bakery > = <Dairy = < =Deli < = =Frozen < > >Meat & Seafood = < <Produce < > =HBC & GM < > =

DELLMART & Company

PRICE FOR PROFITPRICE FOR PROFIT• 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

DELLMART & 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

10

1 2 3 4 5

Sales

Cost

Fixed

DELLMART & Company

SIZE PHILOPSOHYSIZE PHILOPSOHY• Larger sizes priced lower

than smaller sizes• Promotes selling larger sizes

– Increase volume

– Lower transaction cost

• Supported by vendor pricing– Lower package cost

– Lower transaction cost

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

5oz

10oz

15oz

20oz

Sales

Cost

Fixed

DELLMART & 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

Orange Grape

Raspberry

DELLMART & Company

MAGIC 9’s PHILOSOPHYMAGIC 9’s PHILOSOPHY• Food is a pennies business• Price with a last digit of 9• Consumer perceive lower

cost

DELLMART & Company

AGENDAAGENDA

INTRODUCTION

TYPICAL PROCESS

PHILOSOPHY & STRATEGY

PROPOSED PROCESS

DELLMART & Company

PROPOSED PRICING PROPOSED PRICING PROCESSPROCESS

Collect DataTrigger Pricing

Determine Price

Implement Price

Promotion Process

Price Verification

DELLMART & Company

COLLECT COMPETITIVE DATACOLLECT COMPETITIVE DATA

Weekly

Monthly

Semi-Annual

Internet

Data Entry Data Edit

Price Data Base

DELLMART & Company

TRIGGER PRICINGTRIGGER PRICING

Price Data Base

Cost Movement Promotion

Candidates

Trigger Tests

DELLMART & Company

PRICING CANDIDATESPRICING CANDIDATES

ItemTriggerItem

Trigger

CompetitorPrice

CompetitorPrice MovementMovement CostCost

DELLMART & Company

DETERMINE PRICEDETERMINE PRICE

Candidates Price Tables

Proposed Prices

Determine Price

DELLMART & Company

PRICE TABLEPRICE TABLE

Department

Category Category

SubCategory

SubCategory

SubCategory

SubCategory

ImageItem

DELLMART & Company

PRICE CONTROLSPRICE CONTROLSMinimumGM %

MaximumGM %

ProfitObjective

CompetitivePosition

Department

Category

Sub-Category

Sub-Category

Item

DELLMART & Company

INTERATIVE PROCESSINTERATIVE 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 $13.421. Competition

2. GM Limit

3. Profit Objective

DELLMART & Company

IMPLEMENT PRICEIMPLEMENT PRICE

Price Filters

Select Prices

Proposed Prices

Print Shelf Label

Deliver Label

Change Shelf Label

Download Prices

Update POS

DELLMART & Company

PRICING FILTERSPRICING FILTERS

NewPricesNew

Prices

OscillationsOscillations PennyChangePenny

ChangeCost

ChangeCost

ChangeImplementation

LimitsImplementation

Limits

DELLMART & Company

PRICE VERIFICATIONPRICE VERIFICATION

ShelfPOS

Pricing System

DELLMART & Company

KEY TO SUCCESSKEY TO SUCCESS• Understand competition• Price for profit• Consider all factors

– Competition

– Movement

– Cost

• Justify implementation• Test item sensitivity