Efficient Price And Promotion Critical

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:

  • Evaluating which products are most important to the shopper
  • Determining the value perception they help drive
  • Getting the prices right on those 5% of items within the total store or within your portfolio

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:

  • 59% of items are priced too aggressively between private labels and branded equivalents
  • For 33% of items, the value proposition between the private-label and branded products is priced in-line and maximizes overall category sales
  • One in 10 private-label products is not priced aggressively enough to drive shoppers’ willingness to trade between the two and grow overall category sales

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:

  • As an industry, many deep promotions on products aren’t impacting the bottom line. But moving high-deep items to the high-shallow bucket could help balance pricing strategies
  • It’s important to pay attention to everyday low price (EDLP) products. By understanding when demand is larger for products in the EDLP bucket, retailers and manufacturers can use this demand to capture more share of category

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.

  • 48% of UPCs receive feature support at some point throughout the year, but only 22% of them respond to this support
  • From a display perspective, 75% of items receive display support, but only 28% of items are responsive enough to justify that support

Price For Profit Nets Down To Three Big Ideas

  • Win on price with shoppers by investing in KVIs.
  • Ensure proper pricing strategies across all items.
  • Reallocate support to the most responsive items.

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.


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