According to a recent Nielsen study, by Morgan Seybert, SVP, Retail Analytics, whether you’re a retailer or a manufacturer, pricing and promotion spend is one of the largest costs of doing business. But it is also one of the most inefficient, says the report. The fast-moving consumer goods (FMCG) market saw two consecutive quarters of retail sales decline just this year. And the industry's response may be adding to the problem, says the report.
The study shows a slowing of price increases across nearly every category and department, and at the same time, sees an increase in promotion frequency. However, these investments have resulted in very little lift and few dollars returned, says the report.
According to the research, Nielsen identifies opportunities to create more efficient price and promotion strategies, reverse negative trends and drive profitability.
Make Key Value Items Your Compass
A handful of items, known as key value items (KVIs), drive more than 50% of a shoppers’ perception of a retailer or brand’s overall value. Take an 8-ounce bag of cheese, for example. A shopper may develop a “value perception” based on what they think the price of the cheese should be, thus making it a KVI.
The study of multiple retailers found that only 5% of UPCs drove U.S. shoppers’ value perception of the franchises. That’s a lot of importance attributed to a small percentage of items, says the report. And, looking at these KVIs showed that 55% of them were over-priced to shopper’s value perception and negatively affected ROI.
Leveraging KVIs can improve shoppers’ value perception of you, drive extra trips into the store and ultimately win a greater share of wallet, says the report. For retailers and manufacturers looking to make KVIs their compass, three steps can help drive results:
Adjust UPCs That Are Price Insensitive And Underpriced
The report says that 32% of all items were price insensitive and underpriced versus where they should be, meaning that shoppers were not attuned to price or willing to purchase the product regardless of cost.
The first step is to identify the price insensitive products within your store or portfolio that are underpriced versus their benchmark. Next, use your underpriced UPCs to invest in your overpriced KVIs to win on price with the items that matter to shoppers and drive profitability, says the report.
In thinking about price changes, says the report, it’s important to not just look at these adjustments from an item perspective, but also in the context of portfolios and categories. In reviewing, the report shows that:
Retailers can look at their portfolio to understand the price gaps between items, such as private-label and national brand offerings. Consider what value each item brings to the marketplace versus the alternative, then choose the value that maximizes total combined margin or volume to support better pricing strategies.
Implement An Optimal Pricing Strategy
On a tactical level, being strategic in how you deploy price is critical. There are many levers around deploying price, with the two biggest being the everyday shelf price and the promoted price, says the report.
Two points stand out:
When it comes to promotions, physical in-store space to communicate with shoppers is limited, and companies are giving far too much support to items that aren’t returning the favor. Circulars should focus on driving traffic into the store, while displays should help shoppers build baskets and increase rings in the store.
Price For Profit Nets Down To Three Big Ideas
These ideas, paired with regular measurement against targets every week, provide a reliable framework that you can use to quickly price items for maximum revenue and profit, concludes the report.
For more from the Nielsen report, please visit here.