The Price is Right: Strategies for Omnichannel Pricing

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Wednesday, June 17, 20152:00 pm ET

The Price is Right: Strategies for Omnichannel Pricing

Sponsored By:

Moderator:

Speakers:

Web Seminar Panelists

Joe SkorupaEditorial DirectorRIS News

Josh PollackAssociate PartnerThe Parker Avery Group

Jeff MooreChief Science OfficerRevionics Sponsored By:

Confidential ©2015 Revionics, Inc.

The Price is Right:Strategies for Omnichannel Pricing


Age of Disruption• Technological advances are creating two opposing forces

driving regular pricing policies– Improved ability to price discriminate - leading to differentiated pricing– Increases in price transparency - leading to enterprise pricing

• In deciding which path to take, retailers must consider and balance three factors

– Incremental margin derived from differential prices– Ongoing cost to deploy the different pricing models– Impact on customer perception

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Differentiated Pricing• Move to differentiated pricing is driven by:

– Availability of tools / software

– Desire to capture margin

– Increasing customer acceptance

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Differentiated Pricing: Benefits

• Incremental gross margin

• Ability to respond to local pricing

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Differentiated Pricing: Implications• A price zone strategy must be developed, considering a variety of

factors:– Regional / cross-shopping– Competitors– Marketing– Elasticity– Cost-to-serve– Sales channel

• Appropriate policies and employee training must be in place to reduce negative customer perceptions

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Enterprise Pricing• Move to enterprise pricing is driven by:

– Increase in customer touchpoints

– Omnichannel customers are most likely to discover price discrimination

– Negative perceptions of price discrimination from younger, tech-savvy consumers

– Cumbersome mechanisms for isolating price messages

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Enterprise Pricing: Benefits• Ease of enabling and maintaining

• Lower investment required

• Ease of managing promotions and promotional pricing

• Reduced risk of being wrongly identified as “gouging” or “deceptive”

• Reduced risk of legal action

• May reinforce price leadership position


• Factors that influence customer acceptance– Product offering

– Cost to serve

– High vs. low involvement purchases

– Ability to isolate price messages to distinct customers

– Age and tech-savviness of the customer

Which Way to Go?

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If your company is considering changing their approach to omnichannel pricing, how are you evaluating the options?

1. Moving from enterprise (single) to differentiated pricing2. Moving from differentiated to enterprise pricing3. Refining existing approach (getting better at it)4. We are still using Excel spreadsheets, making choosing the 'right'

strategy challenging

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If your company is considering changing their approach to omnichannel pricing, how are you evaluating the options?

(actual poll results from June 17 webinar participants)


The Price is Right…Strategies for Omnichannel Pricing


Elasticity Characteristics

• Low Elasticity• Limited product choices (few

substitutes)• Strong brand loyalty• Perishable / not stockpiled• Inflexible customer consumption

behavior• Low price per unit relative to basket• Generally, less commoditized

Low elasticity products:Candidates for price increases

• High Elasticity• Extensive product choices (many

substitutes)• Lack of brand loyalty• Items that are stockpiled• Flexible customer consumption

behavior• High price per unit relative to basket• Generally, more commoditized

High elasticity products:Candidates for price reductions

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• Effective clustering is a tradeoff between opportunity (benefits) and ease of execution.

• Store cluster analysis helps to find the “sweet spot” between opportunity and ease of execution in zone pricing.

Localized PricingOpportunity vs. Ease of Execution

Number of Clusters

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 150.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%Pr

ofit

Impr

ovem

ent

Number of Price Zones

Zone Pricing Opportunity

Profit OpportunityIncremental Benefit

Opportunity from Localized Pricing

5 zones yield 2.1% profit improvementover a single-zone

pricing

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• Group stores with similar customer and elasticity characteristics

• Group by two different elasticity variables: – by revenue, by confidence

Clustering by Elasticity

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• Principal Components Analysis (PCA) is used to “separate” variables into uncorrelated factors

• The factors are filtered for significance using a statistical t-test

• Filtered factors are used in a linear regression against raw elasticity to compute regressed store elasticities

• Regressed store elasticities are clustered for similarity

Demographic ClusteringWhat factors explain differing price sensitivity?

PCA

Demographic Variables

Store Attributes

Competitive Information

Regressionagainst

ElasticityClustering

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Confidential ©2015 Revionics, Inc. 19

Customer Price Sensitivity


Factor Ranking Contribution Interpretation

Latitude (-) 1 12% Elasticity generally increases to the south

Population Growth (+) 2 8% High elasticity associated with high-growth areas

Sales Per SqFt (-) 3 6% Elasticity decreases with greater sales productivity per sq. ft

Population Density (+) 4 5% Elasticity increases with greater pop. density

Longitude (-) 5 5% Elasticity generally increases to the west

Median Age (+) 6 5% Elasticity increases with median population age

Total Competition (+) 7 5% Elasticity increases with competition

WmrtSC Proximity (+) 8 2% Elasticity increases with proximity to WalMart Super Centers

Primary Influencing Factors


Customer Price Sensitivity Varies

High

Medium

Low

Elasticity

0 5 10 15 200

0.5

1

1.5

2

2.5

Number of Zones

Opp

ortu

nity

(Per

cent

)

Opportunity versus Zone Count

Current ZonesRandom ZonesOptimal Zones

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Items exhibit higher price sensitivity online

e-Channel vs. Brick-and-Mortar

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Promotional vs. Base Elasticity

Promotions drive increased price response from consumers. We can observe this behavior in the demand history by comparing base price vs. promotion elasticity

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Regional Variations in DemandPool Recreation Accessories

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Moderator:

Speakers:

Q & A Session

Joe SkorupaEditorial DirectorRIS News

Josh PollackAssociate PartnerThe Parker Avery Group

Jeff MooreChief Science OfficerRevionics Sponsored By:

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RIS News thanks the panel for their participation and insight and also our sponsor:

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The Price is Right: Strategies for Omnichannel Pricing

Retail

Transcript of The Price is Right: Strategies for Omnichannel Pricing