Retailers)don’t)need)to)match)compe2tor)prices)to)be ... ·...

1 Disclaimer: All pricing decisions are at the sole discre4on of the retailer. Promo4on Op4miza4on Ins4tute | Fall Summit 2015 | Dallas Tx

Know Your Shopper | Price Perception

Source: Willard Bishop, PPS, Retail Pricing Cer9fica9on Workshop

Not All Shoppers Know the Price of Everything

Consumer Perceptions of Total Store Price Differentials

4-5% 5-8%

Retailers don’t need to match compe2tor prices to be considered “even”


How to Win? | Kellogg’s Approach to Pricing


•  Role of the Category

•  Zone Pricing

•  Comping Strategy

•  Role of Promo2ons

•  Shopper Segmenta2on

•  Pricing Decision Process

•  Other Key Factors?

Know Your Account | Understand your account pricing Strategy?

Account X


How to Win? | Kellogg’s Approach to Pricing


Optimize Price & Sales | 4 Key Steps

Retailers can achieve op4mal shelf prices by understanding the following factors for each item/promoted group:

Kellogg’s has the tools, people, and experience to provide insights to drive increase in sales and profit

Impact of Price Change on Sales?

Price Threshold and Gap

Role of Category and Items

Situa4on Assessment 1

2

3

4


Optimize Price & Sales | Situation Assessment

Total US

2.01 2.11

2.39

Unit Price - Feat & Disp Unit Price Base Unit Price

2.00

2.40

2.68

14% Discount

26% Discount

34%

66%

Promo/No Promo

4.41 4.68 4.79 4.93

5.24 5.40

2.84 3.12 3.39

Pricing Pricing

2.58 2.82 2.93

7% Discount

12% Discount

9% Discount

16% Discount

24%

76%

31%

69%

No Promo Promo

Retailer X Retailer X

Product A

Product B

Product C


Source: Kellogg Global Revenue Management

Optimize Price & Sales | Leverage science to define role of each item in the category

Response to Promoted Price

Res

pons

e to

She

lf Pr

ice


Optimize Price & Sales | Using price quadrant technique, roles can be defined by item

Source: Global Revenue Management – Nielsen Pricing Models Spring 2015

Kelloggs | Retailer X |Category A


Price Gaps

Optimize Price & Sales | Base Price Thresholds/Gaps

•  Pricing thresholds represent psychological unwillingness to pay beyond certain price points

•  Proper management of base

price threshold can add 2-‐10% addi4onal sales on the shelf

•  Op4mize gap vs compe44on and develop guidelines to stay compe44ve

Price Sensi2vity

Thresholds

Stay Within Major Price Thresholds

Stay Compe22ve vs. Compe22on

Source: Global Revenue Management – Nielsen Pricing Models Spring 2015


Optimize Price & Sales | Leverage Science and Art to Deliver Goals of Pricing Strategy

*Pricing Models include: Nielsen pricing tools and Home grown models


Agenda

•  Revenue Management Discipline BenneN

•  Pricing Challenge Malik

•  How to Win? | Kellogg’s Approach to Pricing Malik

•  Does EDLP Work for Highly Merchandized Categories? Malik •  Case Study # 1 | Base increases but incremental sales drops •  Case Study # 2 | Increased merchandizing delivers success

•  Key Take-‐aways Malik

•  Q&A All


Background: •  Retailer wanted to improve price percep4on •  Implemented lower prices on shelf across all manufacturers •  Started to share display between private label and branded manufacturers

Case Study | Retailer #1

At end of 6 months, panel and scanner data trends were not favorable…...

Source: Global Revenue Management Analysis | Retailer A


Key Takeaways: •  Ini4al growth in base sales may not make up for incremental losses •  Success in EDLP may take awhile…..pa4ence is needed! •  Loss of pantry loading and HH penetra4on

Case Study | Retailer # 1

Dollar Grew after 5 years!

A number of tweaks were made to EDLP strategy to make it work…...…

Source: Global Revenue Management Analysis | Retailer A


Background: ‒  Implemented EDLP in collabora4on w/retailer to improve sales for product

X and Y -‐ decreased shelf price by 20% ‒  U4lized mul4ple price strategy on shelf (2/$5) ‒  Nego4ated retailer margin decrease (3-‐7%) and addi4onal display ac4vity

Case Study | Retailer # 2

Key Takeaways: ‒  EDLP for high base price elas2city categories can work with retailer

support ‒  Nego2ate strong merchandizing to improve chances of success

At end of 7 months, scanner data trends were favorable…...

Product X Product Y

Source: Global Revenue Management Analysis | Retailer B


Agenda

•  Revenue Management Discipline BenneN

•  Pricing Challenge Malik

•  How to Win? | Kellogg’s Approach to Pricing Malik

•  Does EDLP Work for Highly Merchandized Categories? Malik •  Case Study # 1 | Base increases but incremental sales drops •  Case Study # 2 | Increased merchandizing delivers success

•  Key Take-‐aways Malik

•  Q&A All


EDLP for Highly Merchandized Categories | Key Take-Aways

Typical outcomes

•  Significantly more incremental dollar loss than base gain for highly merchandized categories

•  Retailer less inclined to merchandise

•  Consumer less inclined to stockpile

•  Less expandable consump4on

•  Retailer margin and profit erosion

•  Success may take a while


EDLP for Highly Merchandized Categories | Key Take-Aways

We will need to work together smartly with consumer and POS data

•  Consumer reac4on is not always intui4ve: Your consumer may respond differently than other retailers’ to this change

•  Clearly define role of each item

•  Leverage pricing and promo4on tools

•  Strong merchandizing plan

•  Communica4on and collabora4on is vital

• Measure and adjust, as needed


Q & A

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