View
354
Download
0
Tags:
Embed Size (px)
Citation preview
IBM ExperienceOne
RSR Research, IBM and 360pi
9th December 2014
Price and Channel Convergence How Retailers are Harmonizing Price Intelligence with Omni-
Channel and Price Optimization
©2014 IBM Corporation
IBM ExperienceOne
Brian Kilcourse
Managing Partner
Today’s Speakers
©2014 IBM Corporation
Jenn Markey
VP of Marketing & Product Management
Tom Croke
General Manager
Merchandising Solutions
2
3
What Is RSR?
• Market Intelligence, focused on retail
• Context: the business challenges & opportunities that drive
technology investments
• Pragmatic insights
• Powered by extensive retail experience
• Fueled by a deep bed of research data
• We help retailers keep their IT strategies aligned with corporate
objectives
• We help solution providers align their products and messages
with retailers’ needs
4
Faint Praise
8%
20%
23%
26%
29%
37%
40%
43%
46%
To liquidate merchandise atend of life
Price is not our primary driver
To improve merchandise sell-through
To create excitement for ourbrand
To stave off competitivepressures
To convey value proposition
To drive demand
To build market share
To maximize gross margin
Top Three (3) Objectives of Pricing Strategy
27%
62%
11%
Veryeffective
Somewhateffective
Not effectiveat all
How Effective Are Your Pricing Strategies in Driving Top and
Bottom Line Results
Promotional Activity Is
Getting More Focused
Source: RSR Research, April 2014
6%
12%
12%
2%
16%
41%
18%
2%
2%
9%
10%
24%
26%
28%
We have become more luxuryfocused
We have become more discountfocused
We have become more focused oneveryday low prices
We have become more seasonaldriven
Our strategy has not changed
We have become more promotionsdriven
We have become more focused onkey items
Changes In Company Pricing Strategy Over the Past 3 Years
2014 2012
5
Except In The U.S.!
Source: RSR Research, April 2014
3%
3%
13%
13%
25%
44%
We have become more seasonaldriven
We have become more discountfocused
We have become more focused oneveryday low prices
Our strategy has not changed
We have become more focused onkey items
We have become more promotionsdriven
How Has Your Pricing Strategy Changed in the Past Three Years?
U.S. Only
Vs. 26%
overall
Vs. 28%
overall
6
The Result?
U.S. Consumers Are Addicted to
The Deal
RSR/Local Consumer Research, November 2014,
n= 5041
8%
10%
16%
34%
41%
18%
17%
25%
28%
31%
44%
33%
40%
28%
22%
25%
24%
13%
9%
4%
5%
17%
5%
2%
2%
I don't have a lot of time to spend on purchasedecisions.
I go to stores or the mall just to see what isnew.
I try to buy things online so I don't have to go tostores.
My shopping budget is tight. I don't have a lotof money to spend.
I get a thrill from finding the best deals.
Factors that Influence Shopping Behavior
Frequently Often Sometimes Unlikely Never
7
Retailers Are Pedaling
Faster… Not Necessarily In
the Right Direction
Source: RSR Research, April 2014
Vs. 26%
overall
21%
41%
38%
32%
34%
35%
38%
30%
42%
21%
22%
28%
3%
3%
2%
9%
2014
2013
2012
2011
The Number Of Price Changes Sent To Stores (Or Other Channels) Has...
Increased significantly Somewhat increased Stayed about the same Decreased
50% 8
“When You’re In a Hole, Stop Digging”
9
10
Optimization Is Increasingly
“Tablestakes” …
Source: RSR Research, April 2014
57%
58%
60%
61%
62%
Markdown planning, forecasting andmanagement
Competitive price intelligence
Promotions planning, forecasting, andmanagement
Regular price optimization
Regular price planning, forecasting, andmanagement
Optimization Techs Deployed or in Pilot
Deployed or in Pilot
… But A “Lifecycle” Perspective Is
A Potential Differentiator
33%
65%
47%
53%
61%
53%
63%
63%
66%
66%
Product Lifecycle Management
Promotion optimization
Inventory management - availability as aprice driver
Regular price optimization
Markdown Optimization
“Valued Technologies”
Winners Laggards
11
12
Optimization Opportunities:
Base Price
Set Price
Strategy
Set Price
Change
Budget
Set Price
Business
Rules
Price Plan Modeling /
What-if Analysis/
Select Price Plan
Retail Price
Release Compliance/
Exception
Monitoring
Competitive
Price
Monitoring
Price
Analysis
• A risk mitigation factor
towards selecting the right
strategy
• Better alignment between
optimal strategy and current • Improved price
budget effectiveness
• Additional price budget
effectiveness – better
alignment between
opportunity and
execution through more
localized rules
• Improved risk
mitigation towards
selecting the right
plan
• Improving compliance through more
consistent application of pricing business
rules – improves price budget effectiveness
• Split between revenue improvements vs.
margin improvements depending on the
dominant issue
• Better
compliance in
the selling
environment
• Fewer missed
opportunities, and
less risk of being
“too sharp”
• Risk mitigation
for a future
price plan
process
13
Optimization Opportunities:
Promotion
Set Event
Strategy
Select Target
Segments
Set Event
Business
Rules
Model Event/
What-if Analysis/
Select Optimal Event
Promotion
Release
Compliance/
Exception
Monitoring
Results
Analysis
• Promotion effectiveness
• Eliminating wasted promotional spend (the
wrong targets)
• Reducing the declining marginal return on
promotional spend (money left on table with the
wrong offers)
• An additional promotions
effectiveness factor –
better alignment between
opportunity and execution
through more localized
rules
• Improved risk mitigation
towards selecting the right
plan
• Improving compliance through more
consistent application of pricing business
rules – improves promotion effectiveness
• Split between revenue improvements vs.
margin improvements depending on the
dominant issue
• Better compliance in
the selling
environment
• Risk mitigation
for a future
promotion
process
14
Optimization Opportunities:
Markdown
Set MD Strategy
& Budget &
Rules
Select MD
Candidates
Forecast
Sales & Units
Model Event/
What-if Analysis/
Select Optimal Event
Release
Markdowns
Compliance/
Exception
Monitoring
Results
Analysis
• Shallower markdowns, executed
on a more granular basis, results
in more items sold at a net higher
price
• More localized markdowns
prevent marking down items that
might still sell strongly in a given
geography
• Identifying overly-constraining business
rules increases MD effectiveness
• Risk mitigation towards
selecting the right plan
• Improving compliance through more consistent
application of pricing business rules – improves
markdown effectiveness
• Split between revenue improvements vs. margin
improvements depending on the dominant issue
• Better compliance in
the selling
environment
• A risk mitigation
factor for a
future
markdown
process
15
Torn Between Two Issues
Source: RSR Research, April 2014
13%
21%
33%
40%
25%
41%
25%
34%
57%
16%
22%
24%
25%
27%
32%
42%
43%
56%
Respond to segment blurring (competition coming fromunexpected places)
Need to provide more localized pricing
Increased price transparency – the impact of comparative price shopping
Need to get better return on our inventory investmentthrough pricing
Increased promotional intensity of competitors
Increased pricing aggressiveness from competitors
Need to provide consistency in price across channels
Need to protect our brand’s price image
Increased price sensitivity of consumers
Top Three Strategic Pricing Business Challenges
2014 2013
22%
0%
11%
6%
6%
6%
50%
6%
6%
9%
12%
18%
21%
29%
Returned to one price
Zone pricing can't be implemented because ofchannel conflicts
We align store zone pricing with regional orzone-based web pricing
Web as lowest price
Channel-specific promotions
Channel-specific pricing (web-only or store-only)
No impact
How Has Channel Proliferation Impacted Your Pricing Strategy?
Retail Winners Laggards
Channel Proliferation Is Clearly
Driving (Some) Change
Source: RSR Research, April 2014
22% 25%
15%
Laggards Average Performers Retail Winners
Zone Pricing Plans Have Been Damaged "Agree"
16
Test varieties –
colors, flavors,
sizes, etc.
Channel-driven
affinities – halo,
substitution
Demand
aggregation
“Omni-Channel” Adds New Dimensions To
The Lifecycle
Product
Intro Distribution
Ramp
Replenishment End of
Life
Total
Inv
Time
Test
demographics
and geography
Price elasticity
by channel
Promotion
effectiveness
by channel
Price perception
protection
17
18
Competitive Price Intelligence –
Increasingly Important
Source: RSR Research, April 2014
19%
21%
21%
20%
8%
20%
3%
23%
33%
13%
25%
11%
Promotion optimization
End-to-end price lifecycle management
Rules-based pricing engine
Markdown optimization
Product movement data warehouse
Inventory management - availability as a price driver
Customer data warehouse
Markdown planning, forecasting and management
Competitive price intelligence
Promotions planning, forecasting, and management
Regular price optimization
Regular price planning, forecasting, and management
Percentage Increase In Price Optimization Technologies 2013-2014 (Implemented or In Pilot)
19
Still Lots Of Work To Do
Source: RSR Research, April 2014
28%
33%
6%
22%
28%
50%
56%
28%
17%
6%
26%
32%
35%
35%
35%
38%
38%
41%
We can’t execute at the level of granularity that pricing solutions provide
Lack of coordination with Marketing
Resistance to change from Stores or other channels
Resistance to change from Merchandising
Lack of the right skill sets
The possibility of negative customer reaction to changes inour pricing strategy
Conflicting IT priorities for newer solutions
Our channel organizational structure makes it difficult tocoordinate pricing strategies across channels
Lack of clean price, competitor and purchase data
Inhibitors: Winners vs. Laggards
Retail Winners Laggards
Opportunities:
Dynamic, Responsive, Goal-Oriented Pricing
Winners Always Focus on “How”
Source: RSR Research, April 2014
But Laggards focus on the “what”
6%
6%
39%
50%
17%
61%
18%
24%
26%
35%
35%
59%
Gain margin advantage through more dynamicpricing
Provide more localized offerings to customers
Create more profitable promotions
Improve top-line sales
Provide a more seamless cross-channelexperience to customers
Improve margins
Top Three Opportunities - Winners vs. Laggards
Retail Winners Laggards
21
Cross-Channel Coordination
Is a Strategic Differentiator
Source: RSR Research, April 2014
28%
56%
39%
33%
44%
39%
44%
53%
68%
61%
55%
71%
62%
65%
My company currently targets our promotions at theappropriate level of granularity.
It will become important to deliver personalizedprices to shoppers within the next three years
We are collecting data from new channel promotionsand are using them to make better decisions
Dynamic pricing is more effective than pricematching
My company feels confident that our promotions areeffective overall
We have processes in place to manage promotionalplanning across the various organizations within our
company
We have the ability to respond quickly tocompetitors' price changes
Pricing Capabilities: "Agree"
Retail Winners Laggards
22
23
The Current State Of Technology
Enablement
35%
35%
36%
36%
39%
39%
40%
40%
41%
42%
46%
47%
11%
12%
19%
15%
22%
16%
12%
13%
16%
16%
16%
13%
22%
17%
19%
22%
19%
16%
14%
16%
15%
18%
20%
22%
11%
4%
9%
4%
4%
7%
8%
5%
5%
8%
5%
5%
21%
33%
18%
24%
16%
22%
26%
26%
24%
17%
13%
13%
Promotion optimization
End-to-end price lifecycle management
Inventory management - availability as a price driver
Rules-based pricing engine
Regular price optimization
Customer data warehouse
Markdown optimization
Product movement data warehouse
Markdown planning, forecasting and management
Competitive price intelligence
Regular price planning, forecasting, and management
Promotions planning, forecasting, and management
Stage of Adoption for Technologies
Fully Deployed Piloting/ In Rollout Evaluating/ Selecting Exploring/ Budgeting No Plans
Recommendations
KNOW WHAT YOU WANT TO DO, AND
THEN EXECUTE
Recommendations
• Pricing today is a multi-dimensional challenge
• Pricing strategies must be: competitive, dynamic, coordinated, and
consistent
• “Omni-Channel” is a harmonized digital/physical shopping experience
(not new and separate selling channels). New dimensions must be
considered.
• When it comes to COMPETITORS, ask yourself:
• Who are your competitors by category?
• Which competitors should you react to, and which you shouldn’t
• Focus on DATA
• Internal trend data, market data
• External price intelligence data
25
IBM ExperienceOne
Brian Kilcourse
Managing Partner
Today’s Speakers
©2014 IBM Corporation
Jenn Markey
VP of Marketing & Product Management
Tom Croke
General Manager
Merchandising Solutions
26
© 2014, 360pi Corporation.
All Rights Reserved.
Retail is Changing
52% of in-store sales are
influenced online.
- Forrester, March 2014
© 2014, 360pi Corporation.
All Rights Reserved.
Increasing Price Transparency
Pro
duct lif
e c
ycle
Consideration/Average price Low High
Short
Long
Grocery
CPG
Furniture
Consumer
Electronics Media
Appliances
Home
Improvement Apparel
Office Equipment
…across more & more categories
28
© 2014, 360pi Corporation.
All Rights Reserved.
Narrowed Pricing Range
5 years ago Today Tomorrow?
Narrowing Pricing
“target range”
Lost Sales
Lost Margins
Dynamic Pricing | Zone / Regionalized Pricing | Pricing in Time
29
Price Optimization + Price Intelligence
30
© 2014, 360pi Corporation.
All Rights Reserved.
IBM + 360pi
360pi real-time price intelligence accessible directly within IBM portal.
“(we) make smarter pricing decisions .... this enhanced integration will
enable us to more rapidly and dynamically adjust prices ...”
31
© 2014, 360pi Corporation.
All Rights Reserved.
Benchmark at a Point in Time
32
© 2014, 360pi Corporation.
All Rights Reserved.
Benchmark Over Time
33
© 2014, 360pi Corporation.
All Rights Reserved.
Benchmark by Zone
34
© 2014, 360pi Corporation.
All Rights Reserved.
Secret to Omni-Channel Pricing
Is it about being priced the same in every channel?
Or presenting the same offer to the same shopper across channels?
• Leverage customer loyalty programs to:
– Deliver personalized offers
– Eliminate the individual price match
35
IBM ExperienceOne
Brian Kilcourse
Managing Partner
Today’s Speakers
©2014 IBM Corporation
Jenn Markey
VP of Marketing & Product Management
Tom Croke
General Manager
Merchandising Solutions
36
IBM ExperienceOne
Consumers rate price consistency as #1 omni-channel
requirement (out of 39)
37 ©2014 IBM Corporation
Price consistency across channels
In-store, locate out-of-stock item and get it shipped home
Track order status
Consistent assortment across channels
Return in store of online purchase
1
2
3
4
5
Source:
Greater Expectations – Consumers are asking for tomorrow, today
IBM Institute of Business Value, 2014
IBM ExperienceOne
But what does price consistency really mean to customers?
38 ©2014 IBM Corporation
Source:
IBM Institute of Business Value 2013 Consumer Survey
Q21_1 & Q21_3 Importance of Pricing Consistency
Conclusion:
“Consistency” pertains to strategy, not matched prices across channels
IBM ExperienceOne
Reality of Retail organizations often sees separate approaches
for pricing
39 ©2014 IBM Corporation
IBM ExperienceOne
Price and Channel Convergence
40 ©2014 IBM Corporation
IBM ExperienceOne
Fast but typically very simple
rules-based
Doesn’t maintain relationships
Brand and private label
Size relationships
Line relationships
Channel relationships
Be wary of the Dynamic Pricing downward spiral
41 ©2014 IBM Corporation
Lower the price of
branded product to
match competitor
Lower the price of
private label products
to maintain price
differential
Further reduce price of
branded product to
match competitor
Further reduce price of
private label products
to maintain price
differential
..and so on
Impact to Private Label example
$$$$
$
IBM ExperienceOne
Retailers are applying various levels of analytics to support
pricing decisions
42 ©2014 IBM Corporation
IBM ExperienceOne
Will sales in one channel be cannibalized by price changes I
make in another channel? How does it vary by category?
43 ©2014 IBM Corporation
Reducing the store price by 1% cannibalizes online
sales in category A, but has less effect in Category B
Reducing the online price by 1% has minimal effect on
store sales of either category
IBM ExperienceOne
How are my sales affected by various competitors changing their
prices? And which changes should I react to?
44 ©2014 IBM Corporation
…but limited impact in Category B
What is the impact on my sales for every 1% decrease
in my competitors’ prices?
Competitor B price reductions have the most
impact on my online sales in Category A…
IBM ExperienceOne
Determine image items, considering localization and personalization
Figure out who the key competitors are for various product sets
Put together a solid data foundation for store and online competitor information
Understand where there are strong cross-channel relationships
Define strategic rules based on knowledge of the above to support pricing
Optimize margin or revenue across channels where opportunity exists
Best Practice Approach
45 ©2014 IBM Corporation
46
Recommendations
• The science has advanced dramatically in the past 10 years.
Learn new capabilities
• Insure corporate pricing practices are consistent with goals
• Develop a step-wise approach
• The lifecycle is important, don’t ignore it
• Become more surgical in pricing practices
• “The race to the bottom has no Winners” – build traffic AND
profits, not traffic OR profits
IBM ExperienceOne
RSR Research, IBM and 360pi
9th December 2014
Price and Channel Convergence How Retailers are Harmonizing Price Intelligence with Omni-
Channel and Price Optimization
©2014 IBM Corporation