Pricing power: optimize retail promotions for competitive advantage

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Pricing Power: optimize retail promotions for competitive advantage


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Today’s Presenter

Geoff Nairn

Enterprise Solutions Specialist @ Openbravo


How to Strike the Right Balance?

A Good Pricing Strategy Requires:

 a well-defined business strategy that is aligned with the

right set of performance objectives;

 a deep understanding of what motivates the retailer’s

target customer;

  clarity on pricing objectives in the context of larger

merchandising, planning and strategic goals.


Retailers Pay the Price of Excessive Promotions

Source: ;Marks & Spencer, 2015 financial results

“We have been too reliant on promotions and sales which has eroded our value credentials.

We will significantly reduce promotions and have fewer but better clearance sales in order to rebuild trust in our pricing stance.”


36%

36%

31%

25%

23%

21%

21%

20%

Compare prices

Research products

Access coupon code

Check reviews

Check confirmation email to pickup product bought online

Access loyalty program

Store information for purchase later

Pay for purchase

The Rise of In-store Price Comparison

Source: PwC

What do consumers use their smartphone for when in a store?


Disciplined pricing

strategy

Consistent price-value proposition

Customer loyalty

Pricing Discipline Builds Customer Loyalty


The Importance of Promotions

Source: RSR Research

84% of shoppers identify promotions

as an important factor in their

purchase decisions.

Source: National Retail Federation

62%

22%

16%

I usually buy apparel when its on sale

I only buy apparel when its on sale

Sales are not important to me when buying apparel


People-pulling Power of Promotions

In 2015, online shoppers in the US spent $3.07bn on Cyber Monday, 16% up on 2014.

Source: ;Adobe DigitalIndex


47%

32% 40%

45%

29% 23%

27%

40%

Driving top-line results

Driving bottom-line results

Driving revenue from best customer

segments

Building customer loyalty

How effective are your pricing strategies in achieving business goals?

2015 2016

Declining Effectiveness of Pricing Strategies



28% 26% 36% 35%

64% 56%

47% 50%

8% 18% 18% 15%

Driving top-line results

Driving bottom-line results

Driving revenue from best customer

segments

Building customer loyalty

How effective are your promotions in achieving business goals?

Very effective Somewhat Effective Not effective at all

Retailers Lose Faith in Promotions



23%

8% 8%

We offer fewer promotions at a lower discount

How has your promotional strategy changed over the past three years?

Retail winners Average performers Laggards


Winners get more Selective with Promotions


20%

7%

32%

We offer more promotions at a greater discount

How has your promotional strategy changed over the past three years?

Retail winners Average performers Laggards

Source: ;RSR Research

Laggards use More Promotions and Steeper Discounts


Smarter Promotions Target Specific Goals

Some Examples:

  Drive profitable sales of promoted item or loss-leader

  Grow the basket of customers already in the store

  Attract new customers

  Add customers to loyalty program


How not to do Promotions

“One of the biggest mistakes retailers make is using price as a blunt instrument to drive the business” Kurt Salmon


A B C D

Category 1 Value Volume Volume Frequency

Category 2 Value Value Frequency Penetration

Category 3 Frequency Frequency Penetration Penetration

Category 4 Volume Volume Penetration Penetration

CUSTOMER SEGMENT

Need for More Granular Promotions

Source: Simon-Kuchner


Tailor Discounts to Categories Source: Simon-Kuchner

Smaller discount produces greater effect for Category 1


Smarter Alternatives to Deep Discounts

•  Sell on value not on price

Adaptive Pricing

• Expand basket size by offering pricier alternatives or complementary products

Upselling & Cross-selling

•  Target promotions at your most loyal customers

Loyalty Programs


$250 $425 $778 $1995 $4400

Adaptive Pricing: Airline Example




Adaptive Pricing




Loyalty Programs


Up and Cross-Selling with Openbravo




Adaptive Pricing




Loyalty Programs


Customer analytics are a set of tools that allow a retailer to segment its customer base for the purpose of analyzing and targeting personalized campaigns

When used in a customer-focused way, can create great value not just for retailer, but most importantly for the customer as well

The success of a loyalty program depends on the use of customer data to personalize the relationship between retailers and

customers and move beyond a mere transaction.

Photo: Openbravo Analytics

Leverage Loyalty Programs with Customer Analytics


Disparate channels

• Products priced differently across channels.

• Promotions not synchronized among channels.

• Channels may be competing on prices, promotions.

Channel integration

• Prices across channels aligned (online and stores).

• Promotions synchronized.

• Channels not competing.

Channel optimization

• Optimized pricing policy recognizes difference in channel service levels.

• Policy proactively communicated to consumers.

Source: Deloitte

Source: Cisco

Pricing in the Omnichannel Era


Can regularly identify and eliminate bad promotions

48% Can measure the full impact of promotions

41% Use data modeling to identify candidates for promotions

31%

How Winners do Retail Promotions


Winners Losers

Regular price planning forecasting and management 67% 28%

Competitive price intelligence 48% 28%

Product movement data warehouse 43% 17%

Promotions planning 38% 44%

Promotions optimization 33% 39%

How Winners Value Pricing Technologies



43% 40% 40% 38%

35% 33%

6% 0%

6% 6% 0% 0%

Regular price planning,

forecasting, management

Markdown optimization

Regular price optimization

Product movement data warehouse

Promotions planning,


Markdown planning,


Retail winners Laggards

Winners Embrace Key Pricing Technologies



Promotions and Discounts in Openbravo

Rapidly develop and rollout targeted retail promotions to specific customers or customer groups, products or product groups, stores or to any combination of the above, thanks to a powerful discounts and promotions engine.


Advanced Promotions Engine in Openbravo

Define automatic and discretionary discounts, such as fixed percentage or amount discount, buy X pay Y of same or different product, buy X and get Y as a gift, packs, user-defined amount or percentage.


Key Takeaways

▪  Deep discounts and excessive promotions damage performance and retail brands.

▪  Promotions need to be targeted at specific product categories and customer segments.

▪  Consider adapting price to market demand, customer value, channels etc.

▪  Technology separates the winners from the losers in using pricing as a competitive weapon.


Thank you very much for your attention!

Geoff Nairn http://www.openbravo.com/contact

[email protected]