Grocery pricing can get complicated quickly. With a lot of products, tough competition, and fickle consumers, pricing is one of the most important levers a merchandiser can pull to increase margin and drive revenue. But, you already know that. How specifically can you improve pricing?
When we analyze pricing we first try to understand the process. For instance:
- Are there competing prices and how conflicts are resolved?
- Do multiple systems own pricing? One system for day to day pricing, a different one for promos, and a third for overrides at the store?
- How are competitive prices analyzed and responded to?
- What is the promo process?
Once we understand the landscape, we tackle the problem spots. Below are some common issues we find and how we address them.
Too Many Owners of Prices
In grocery, many retailers have organically built systems that handle pricing. In some cases, there might be one platform for permanent prices and a second for promotions. Then, day to day pricing analysis might be done on spreadsheets and a custom built system moves those prices to stores. Another process could be in place for manager’s specials at the store level. All these different sources of prices make it hard for merchants and category managers to get a holistic view of prices which can lead to profit leaks and lower margin. We address this by consolidating the different systems into a single one that simplifies the process.
Resolving Competing Prices
A second area where we see profit leaks is in competing prices. What is a competing price? A lot of pricing is often done in silos which results in multiple valid prices for an item at the same time. For example, in one grocery store we had the following competing prices:
- Regular Retail
- Weekly Special
- Hard Limit Discount
- Store Manager Special
A winning price had to be selected for the item and store combinations. When there are multiple systems that can set prices, the correct price doesn’t always win which can lead to confusion with customers and store associates. We solved this problem by putting in a rules based pricing system that resolves conflicts. In some cases the hierarchy of price rules wins and in others the best price wins.
Once the prices are set, how do they get to downstream systems? Prices must get to point of sale systems, eCommerce, tagging systems, printers, store operations, and other users of prices. Sometimes millions of prices need to be published in a short time. Many grocers struggle with the volume of prices that need to go downstream and there are delays in getting prices out. If an incorrect price or price change needs to be sent intraday, it can take hours. We solve this by using a system that is optimized for making millions of calculations per hour and can operate in parallel to generate prices quickly. Also, in some cases, we have put systems in place that allow stores to make real time calls to a central pricing service which greatly improves efficiency. We have also implemented a hybrid approach where eCommerce calls real time and stores get prices through a batch process.
Store managers have to adjust some prices on a daily basis. Fresh produce is a prime example of where they might elect to discount when produce is about to expire or doesn’t look fresh. Also, store managers might find out about a competitor’s promotion that the central pricing team is unaware of which could prompt a discount match. Whatever the reason, store managers need to be able to discount at their discretion. When allowing for these updates, the central system needs to be aware of the discount and then propagate the new price down to the stores. We have solved this by putting in a central system which allows the store manager to enter the new price, reason for the change, capture the competitive price if available, and go through an approval process with the central pricing managers. The price is then immediately visible in the store systems once approved.
Pricing Against Competition
Understanding competitor’s prices is paramount to doing analysis and setting the correct price. Without accurate competitor prices, you are flying blind. Second to that is what your competitive strategy is. What is your process for gathering competitive data and who are your main competitors in a market? Are you always trying to beat your competitor’s price on a certain category? Are you trying to stay slightly above a competitor? We help grocers answer these questions and put in a process for analysing competitive prices, setting rules for pricing against competitors, and review the sales performance after the prices are in place.
Promo Management and Optimization
What is your promotion process? Are there cross organizational teams that execute promotions? How do you coordinate dependent activities such as printing, advertising, tagging, and outbound campaigns along with pricing? How do you analyze the promotional lift and coordinate with your supply chain? Do you have trade funds that can offset marketing costs and how do you account for that when you’re analyzing your promotion? Many companies address these questions with spreadsheets and emails which limits the effectiveness of the campaign. We help grocers fix these processes and give them the tools they need to optimize their prices leading to much more effective campaigns.
Clearance Pricing Optimization
Do you have expiring items, limited inventory or end of season items? What is your process for clearance pricing? Are you following a prescribed discount schedule or optimizing price based on local inventory and sell through? Better clearance pricing can improve profit up to 10% on these items. In many cases, grocers will follow a prescribed discount schedule which leaves money on the table. We help grocers by putting in a system that analyzes local conditions and optimizes the price for that store or zone.
These are just some of the tools and techniques we use to help grocers price better. Every company is different and may have solved some, but not all of these processes. When working with customers we tailor a plan to address the most pressing or profitable need first in short business releases. This delivers business results quickly which we then follow on to address the remaining problem spots. Contact us if you would like us to perform a free analysis to determine where your opportunities are.