The traditional model of retail promotions and consumer responses is changing. Retailers are shifting their pricing strategies and circular ad mix, while consumers are responding to discounts in a variety of ways.
Understanding pricing and promotion intricacies is essential to remain competitive in an evolving fresh food retail environment. The challenge for suppliers and retailers alike is to understand and modify pricing and promotional strategies to stay in sync with consumers based on the unique conditions of a department or item.
A progression of promotional reporting and tools, the Promotion Path, helps clients understand the promotional landscape and make fact-based decisions.
|The Promotion Path starts with a Promo A to Z, which is a customizable report to provide the promotional landscape of a category. Ongoing monitoring is achieved with FreshFacts® promotional reports delivered on a quarterly basis. Finally, to enable clients to successfully leverage the promotional information at retail, the proprietary Promotional Scenario Planning Tool is deployed. This tool utilizes the results of past promotional activities to guide users through a step-by-step process to create a promotional plan with the desired ad details and target lifts.
Price Elasticity Modeling
A price elasticity study provides understanding of pricing versus key competitors and determines if a price increase is warranted, plus its potential impact. The study provides a forecasted demand curve for sales dollars and volume across a range of price points. The statistical model takes into account seasonality, store variations, competitive products and promotional pricing effects. A price elasticity study investigates:
- What retail price point maximizes volume?
- What retail price point maximizes dollars?
- How sensitive are consumers to price changes?
- What is the expected effect on sales dollars and volume if prices are higher/lower?
Price Point Threshold and Price Gap Studies
Price Point Threshold and Price Gap Studies investigate price in the marketplace using a price point and price gap analysis of historical point-of-sale information. Executed at a regional or retailer level, sales rates are smoothed over price points so price thresholds are exposed. When an item is in direct competition with other items or brands, we hone in on consumer trade-offs at various price gaps.
- This type of study is best for a basic look at the current pricing landscape in the marketplace:
- What is the most common price point for a category/item across the region or retailer?
- What is the sales rate across all price points?
- What are the threshold price points above which sales drop off?
- What are the most common price gaps for an item versus the competitor’s item?
- At which price gap do consumers switch from an item to the competitor’s item?
Activity-Based Costing Modeling
An activity-based costing (“ABC”) model is used to understand the costs, resources, limitations and retail climate associated with supply chain operations, in order to determine areas of opportunity. The model uses a database of observations at all stages of the supply chain (i.e. distribution center, transportation and in-store preparation) and merchandising activities to quantify storage, transportation and labor costs. Also included are other available data set, including point-of-sale (POS) syndicated data, shipment/shrink tracking and merchandising protocols.
An ABC study investigates:
- What are the costs and profit drivers associated with a category?
- What are the most profitable product formats in a category?
- How many dollars are lost to category shrink occurring at the store?
- How can price and position of a product be changed if the ABC study shows the opportunity for labor or transportation savings over currently used product formats?