Today’s rapidly changing omnichannel retail environment is dramatically affecting the way merchants approach product pricing and promotions. Shoppers are accessing product, promotion and pricing information in real time via their mobile devices, allowing them to compare competitive information while on your site or in your store — and make a decision to purchase on the spot, sometimes from the competitor.

This consumer digital savvy is motivating retailers to deliver more frequent pricing changes and initiate more creative promotional programs. A recent study conducted by Retail Systems Research (RSR) confirms the trends:

• 76% of retailers are continuing to increase the number of pricing changes sent to stores;
• 67% of retailers report consumer price sensitivity as a top-three business challenge; and
• 41% of retailers said they are not able to execute at the level of granularity that pricing solutions provide.

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This new pricing directive prompts a number of questions, such as:

• How do we get to know our best customers across all touch points?
• What price points are our customers willing to bear?
• How do we deliver a seamless pricing strategy across channels?
• Are consumers fatigued by certain promotions?
• Which data sources do we need to analyze in order to deliver the most successful pricing and promotion campaigns?

Possibly the most all-encompassing question is:

How can advanced analytics help us apply consumer insights across the business in order to deliver on our goals?

Greg Girard, Program Director of Merchandise Strategies for IDC Retail Insights, offered his take on the importance of successful pricing and promotional strategies in a recent Merchandise Strategies report: “Retailers must remain on the journey toward advanced capabilities in productcentric Price Optimization — there’s money to be made along the way.” He added: the solutions “serving each side of the revenue management equation — product prices and customer offers — drive high single-digit improvement in revenue, product margins, and same-shopper sales.”

This E-book will examine the key factors affecting merchants’ plans for improved pricing and promotions, with a focus on how to consolidate and analyze the disparate data sources. By understanding the components of the building blocks outlined in this report, retail organizations will be poised to deliver on the promise of optimum pricing and promotions.

1. Consolidate And Analyze Data From All Channels To Define The Wants And Needs Of Your Target Customers

Today’s disparate sources of data present significant hurdles for retailers looking to properly price and promote products to reach target customers. In an effort to achieve that goal, retailers must be sure to collect and analyze consumer information from a number of sources including:

• Mobile phones and tablets;
• Social media (including direct feedback as well as outside customer-to-customer communications);
• Email (inbound and outbound);
• In-person, in-store interactions;
• Call center discourse; and
• Internet activity.

“My number-one recommendation is to think through how to get a complete view of every customer, through as many different touch points as possible,” noted Katherine Busey, Vice President of Business Development for the International Institute for Analytics (IIA). “Then put that information together to be analyzed — in order to segment pricing or promotions so they are relevant to a specific customer group. Optimally you will achieve the sometimes-elusive ‘strategy of one.’”

For example, following an offer sent out via Twitter, a retail company could coordinate Nielsen customer data with Twitter data to determine the success of that promotion among a specific set of potential customers.

A recent IIA report on Omnichannel Analytics in Retail stated the charge for retailers clearly: “Retailers must use analytics to better understand consumer behaviors and create a superior customer experience. Omnichannel analytics can improve targeting, messaging and pricing, and can enable retailers to deliver more customized service.”

For retailers that are just beginning the process of collecting and analyzing segmented customer data, Busey suggests taking a step back to determine a realistic go-forward plan. “If an organization has never thought through segmentation, or tried to apply data to it, then forming 57 different pricing segments probably isn’t realistic,” she noted. “Look at what makes sense in your ability to operationalize those analytics. The value is in being able to deploy strategies.”

Additionally, in order to realize the successes that can be achieved with advanced pricing and promotional data analysis, retailers must be in step with the competition. “When talking about the ecosystem of competitors — retailers want to think about where they want to be relative to their competitors: Do you want to be within 5% of pricing with specific products?” Busey queried. Perhaps that 5% pricing limit will be the key to maintaining brand loyalty, if other aspects of the customer experience are delighting shoppers.

Market Basket Analysis Helps To Guide Pricing Strategies

Pricing strategies are not just about the customer; they also are about the products. For example, if paper towels and plastic forks are typically purchased together, does it make sense to discount the forks if they will be purchased anyway? Market basket analysis can answer that question and save retailers potentially lost revenue. By identifying products that are purchased together, retailers can drive incremental revenue.

Some industry segments will benefit from a keen focus on market basket analysis more than others. Grocers, for example, are starting to work more closely with their consumer product goods (CPG) partners to “maximize the efficacy of pricing and promotional activities,” said Busey. “It’s still emerging, though. The leaders are doing it but there is a long way to go until it is a seamless process” across the industry. One of the barriers, she added, may be that legacy systems were not set up to seamlessly share data, in addition to the fact that retailers and CPG companies did not see a business need for sharing the data. “But today that data is becoming such a valuable asset that in order to see higher profitability and improve promotions, they are realizing they will have better outcomes if they work together.”

Use Visual Analytics To Maximize The Value Of Data

Retailers have massive amounts of data and great ideas, but the question is: How do we start leveraging the data?

Because the IT staff often is stressed and busy with other business tasks, and retailers don’t have quantitative staff available, the best way to start using the data is to tap into Visual Analytics in the cloud.

Visual Analytics allow retailers to explore customer data from every channel to uncover hidden insights in order to:

• Create more granular customer segments;
• Spark innovative ideas for retaining valuable customers and growing wallet share; and
• Personalize offers, and localize pricing and assortments.

With Visual Analytics, retailers can examine the vast amounts of data coming in from internal and external sources — sales transactions, loyalty programs, demographic information, social media, external market analysis, etc. — across brands, channels and time to quickly uncover insights and relationships that can direct future strategies. This user-friendly solution encourages collaboration among business users while freeing IT resources.

By harnessing the ability to evaluate data coming in from disparate sources and channels, retailers can expect a number of benefits, including:

• Drive innovation: Visually explore data to identify previously unseen correlations and patterns that can spark innovative ideas for attracting new customers, growing existing customers’ market basket or wallet share, and retaining valuable customers.
• Localize offers, pricing and assortments: Explore sales, demographic and customer loyalty data to uncover hidden insights that can help reach individuals with localized pricing and assortments.
• Enhance the customer experience: Share analytical insights with store managers and associates and those who can use the information to offer personalized experiences to customers via preferred channels.
• Identify and solve supply chain issues: Find hidden problems in the supply chain — vendor quality, error repetition, etc. — by visualizing supply chain data, sales transactions, call center complaints, and more.
• Prevent losses: Quickly identify suspected loss areas — employee theft, fraudulent refunds, misuse of coupons, unauthorized discounts — and persistent behavior patterns in order to develop effective programs to prevent future losses.

2. Define And Execute The Pricing Strategy

When working to define a go-forward pricing strategy, merchants must determine whether they plan to provide one price across all channels, and how deep pricing must be optimized — across the entire enterprise, per region and/or to the store-SKU level. Other key strategy decisions involve:

• Personalized vs. zone pricing;
• Channel-specific vs. cross-channel pricing; and
• Short- vs. long-lifecycle products.

“These are the things you need to be looking at when setting pricing strategies, and Visual Analytics can help,” said Busey. She shared a four-part explanation of how to benefit from the use of Visual Analytics:

1. Look at the data and thereliability of the data within internal systems and elements (inventory, supply chain, marketing, sales)
2. Determine what other data will help understand pricing influencers (economy, competitor actions, ecosystem of competitors, Manufacturer/CPG discounts and trade promotions, socio-economics, value in terms of market you work within, etc.)
3. Think through how to dealwith all the channels: “What are the channels you’re working within and how do you deal with pricing across channels?”
4. Ask one final question: Are there any other unique factors to consider?

Leventhal also noted that with an advanced analytics solution in place, retailers can enhance overall markdown pricing using a number of strategies, such as:

• Localized markdowns – per store or region;
• Dynamic markdowns – updated throughout each selling day; and
• Link between loyalty data and markdowns – to find out how the most loyal shoppers react to the current markdown strategy.

Markdown projects typically improve margins and produce better inventory sell-through or turns. It’s about keeping up with today’s shopper, added Busey. “Retailers will have to speed up their ability to adjust their pricing strategy, find new ways for customers to interact with shoppers who are walking in the door with their cellphone, online, or accessing Facebook,” she said. “They will have to keep up with the expectations of their customer base. Any retailer out there needs to be looking at that and what makes sense for them and what their customers are looking for. It won’t be the same for a retailer competing against Best Buy compared to a retailer selling products that are unique and esoteric.”

Busey continued: “Value is different at different price points.” For example, an item at Nordstrom may be considered a value at $500, while an item at Target could be considered a value at 50 cents. “Even though it may not be well made and long lasting; it may be disposable, trendy and cute. Shoppers are looking for something completely different from one retail experience to the next.”

Advanced Price Optimization using Visual Analytics can help define this strategy effectively. In a recent report, IDC noted that retailers are finding success with SAS optimization tools: “The total economic value return on SAS pricing projects is high… 93% of retail customers overall renew their SAS software. SAS reports that regular price deployments have produced value in fewer than five months and positive project value within the first year.”

3. Define And Execute The Promotional Strategy

The promotional strategy functions hand-in-hand with the pricing strategy. Once the pricing strategy is defined, promotions can be aligned to deliver a complementary program.

But retailers should be wary about overdoing their promotional strategies. In a recent report, RSR noted: “Those who overperform on year-over-year comparable sales are far more likely to stay the course in their pricing strategy than their competitors. Their competitors continue to up the promotions ante, yet as we’ll see, they don’t get the sales or margin kick that they crave. The data is clear. Even as Laggards continued to ramp up their promotional activities, for at least half, their margins have declined, and their sales have failed to improve.”

Using the tools provided by advanced Promotion Optimization using Visual Analytics, merchants can design promotional programs that coordinate with successful pricing strategies, feed brand image and loyalty, and drive incremental revenue.

With real-time cross-channel shopper data in hand, retailers can now customize promotions based on:

• Scheduled holidays, seasons and unplanned events;
• Trade/vendor collaboration;
• Individualized offers; and
• Frequent pricing changes.

Retailers achieving success with Promotion Optimization are coordinating those efforts across multiple business units and channels, and they are measuring the impact of promotion decisions. RSR’s retailers defined as “Winners” are embracing these scenarios and finding success:

• 43% of Winners feel confident in their promotional effectiveness vs. 25% of Laggards. Additionally, as many as 47% of Winners have a process in place to coordinate promotions across internal organizations vs. 20% of Laggards.
• 50% of Winners vs. 38% of Laggards are confident that they can respond quickly to competitors’ price changes.
• Winners and average performers are three times more confident in their ability to target promotions (32% to 38% vs. 13% of Laggards).

“The biggest challenge with promotions is breaking corporate myths,” RSR reported. “Retailers think they are good at promotions because mass promotions have worked so well in the past, and because you can see the lift after a promotion runs. But in today’s fragmented marketing world, where ‘mass’ becomes more and more difficult to achieve, and the retail industry is growing less and less dependent on store traffic over time, the idea of what a promotion is and what it’s supposed to accomplish is ultimately going to have to change.”

Segment-Specific Price and Promotion Strategies

For any retailer, regardless of product, maximizing margins and revenue while maintaining a competitive price point is the name of the game. Each sector of retail manages pricing strategies a bit differently based on several key factors, including:

• Vendor trade funds;
• Competitive prices;
• Private label considerations;
• Multiple customer trips;
• Hyper-promotional strategies; and
• Lifecycle pricing

Vendor Trade Funds:

Grocers, Mass Merchants, Drug Stores and Convenience Stores (C Stores) all work closely with their CPG trading partners to optimize event plans and align strategic pricing objectives. Trade Fund and Promotion Optimization can maximize promotion plans and pinpoint pricing sweet spots that maximize event lift and brand share and help retailers build bigger baskets. A large percentage of retailers’ profits, revenue and market share are predicated on the successful selection and implementation of trade funds. Trade funds are proven traffic drivers and a key pricing determinant for these retail segments.

Competitive Pricing:

Grocers, Mass Merchants, Drug Stores and C Stores are susceptible to the effects of the pricing strategies of their major competitors. The leading retailers in these sectors utilize a plethora of data to help them create pricing strategies that counteract the effects of their competitors in each market; that data ranges from Nielsen/IRI market share, other thirdparty service providers and competitive pricing services.

Private Label Considerations:

The decision regarding when to create and promote store brands versus national brands provides all retailers (except C Stores) with the ability to truly differentiate themselves from their competitors. Private Label products can provide a clear alternative to higher priced national brands, but retailers must ensure private label products are perceived as “just as high quality” as nationally advertised brands that may have millions of dollars of marketing spend behind them.

Grocers and Mass Merchants have long known that promoting private label brands to some of their customer segments ensures higher traffic and larger margins. Apparel retailers also promote private label merchandise both within department and specialty stores as a means to build margin within several departments.

Building Multiple Customer Trips:

Long a staple of the Grocery sector, Mass Merchants and C Stores now target all customer segments for a larger share of wallet by creating promotions and product categories that entice multiple trips per customer. The goal of building bigger baskets over a sustained period of time produces the margin and revenue that all retailers crave.

Grocers, Mass and C Stores drive multiple trips by offering promotions on different days of the week, often with vendor trade funds as the basis of the promo. Retailers have always realized that customer segments tend to shop differently, but with advanced analytics and Price Optimization tools, retailers can now help themselves by suggesting additional items for customers’ baskets.

Hyper Promotional Strategies:

Grocers and C Stores are the most highly promotional retailers with mass merchants and some apparel retailers close behind. Promotions have long sustained the grocery business, with a full 60% of a typical grocery store’s revenue being driven through promotional pricing. Promotional pricing must take into account brand building and market share, plus customer segment targeting and competitive pressure.

Lifecycle Pricing:

For long-term success, many retailers plan their pricing strategy by engaging the entire product lifecycle — from initial price through promotions and ending with markdown pricing. Leading fashion retailers, for example, are better able to maximize sales, margin and sell-through by leveraging integrated Price Optimization systems. Two of the primary benefits of this type of solution include the ability to:

• Maximize profitability through optimal pricing: Set and manage regular prices; quantify the impact of promotional activities to create optimal promotions; and identify nonperforming or slow-moving items to plan optimal markdown schedules.
• Improve productivity with automated, exceptionbased pricing: Ease decision-making by responding quickly to product performance, market opportunities and competitive actions.

Conclusion

As shoppers become more digitally savvy and demanding, retailers must rethink traditional pricing and promotional strategies. Decisions around how and when to price and promote now center around an expanding set of data coming in from numerous touch points, including social media and mobile technology. Visual Analytics can help make sense out of it all and guide merchants in their quest for the most effective pricing and promotional programs.

With the help of Visual Analytics, retailers can use all available data to quickly identify opportunities, as well as improve information sharing and collaboration while liberating the IT department from these day-to-day tasks.

This E-book has made the case for advanced pricing and promotional strategies using Visual Analytics, supported by third-party research and insights from IDC Retail Insights, Retail Systems Research and the International Institute for Analytics.

By constructing a strategy based on the three building blocks outlined in this E-book, retailers will be able to move forward into the future of omnichannel retail.