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RetailNet Group Pricing Optimization

RetailNet Group Pricing Optimization

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Published by Aaron Chio

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Published by: Aaron Chio on Dec 02, 2008
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06/29/2010

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RETAILNETGROUP STRATEGY ALERT No. 5 IssuePRICING OPTIMIZATIONAugust 2008
Greetings!
 RNG has recently updated our work onretailers developing pricing as a strategiccapability, a retailer growth strategy formerchandizing innovation that raises someinteresting opportunities for CPG firms.Pricing as a strategic capability focuses largelyon pricing optimization programs but has manyconsumer centric implications. Retaileradoption of pricing optimization tools andapproaches is widespread with RNG estimatingover 80% of supermarket ACV involved insome way. A recent survey by RSR Research indicated that 61% of FMCGRetailers rated pricing strategies as very high in strategic importance. Manyare engaging consultants and software firms likeSAP, Oracle, Revionics, andDemandTec to provide price optimization capability into their pricing and merchandising organizations.Unlike category management or even more recently the newer discipline of promotion management, pricing optimization programs have not beencollaborative between retailers and suppliers even when discussing thestrategies and rules that guide and constrain the process.This week's newsletter sheds some light as to why pricing optimization isan important enabler for both retailers and suppliers to find growth andprofitability in an increasingly challenging consumer environment.To access any of the reports mentioned below please follow the links oneach story orcontact us to request a briefing. Tim O'Connor, Vice PresidentRetailnetgroup.com
Why Pricing Optimization?
Price alone is no longer a strong differentiatorin itself, but it remains a critical driver of perception in the marketplace,competitiveness, and profit leverage.The current economic challenges heighten the need to be right on price astherecent scrambling by Whole Foods demonstrates. Retailers' dependenceon promotional programs continues to grow, increasing their vulnerabilityto shoppers that "cherry pick" rather than building a loyal core shopper
In This Issue
RNG's
New 
Website!
RNG has successfullylaunched its new web tools, effectively improvingnavigation, databasereporting tools, phototours, retailer newscapabilities, and manyother features.To learn more about RNG'sweb tool capabilities or toschedule a web demoplease contactMark Byrd at 757-270-3839
Prior Issues
Issue #1
Mobile Retailing - How mobilebased commerce andmarketing strategies are beingutilized by retailersworldwide.
Issue #2
Health Services- Explore howretailers are trying to re-organize the way that healthand wellness services areprovided.
Issue #3
 
base. And of course, cost pass-through is more strategically complex in arecessionary or "stagflationary" economic environment (when inflation andstagnation occur simultaneously). As the complexity of pricing increases,so does the risk of errors, further accelerating the need for an intelligentapproach to pricing.
What Does Pricing Optimization Do?
Price optimization ultimately simplifies the complex -enabling retailers to merchandise products withincreasing precision and efficiency, moving fromnational to zone to cluster to store-specific pricing,promotion and assortments. with standardheuristics, business processes, and metrics.These toolsets provide analytical horsepower andbreadth of view that traditional methods cannot.Pricing optimization tools generate optimized pricerecommendations based on the price elasticity of items, categories and departments all the way downto the store level, as well as provide the implicitmargin and sales consequences of thoserecommendations and the alternatives.This capability enables the retailer to focus on pricing strategies to satisfyits core shoppers, therefore, pricing optimization needs to focus onenabling suppliers and not to separate pricing or over complicate thebusiness process.
Price Optimization - Why is it Important?
Understanding pricing optimization is a key capability and enabler forgrowth. It enables suppliers to:
Determine the best role for categories profit builder, turf protector,and so on - given shopper preferences.
Meet category objectives by adjusting regular everyday prices inconjunction with promotions and clearance or markdown price.
Improve decision support with "what if" analysis to see the impactof pricing on sales, profit, and price image for any SKU across theassortment.Pricing optimization enables a strategic approach to pricing and freessuppliers to act on customer centric insights. While pricing optimization is adeveloping science, there remain a number of limitations, including:
Marketing drivers, which are not an input to the model.
Innovation, which is difficult to model.
Consumer/shopper insights, especially of key target segments,are still highly influential to pricing strategy.In-store promotion, marketing landscape and retailer expectations willchange and there is a big opportunity for vendors to guide and lead tobetter consumer solution.
Retailers and Price Optimization
Express Stores - Conveniencefood retailing is changingglobally as consumers expresstheir preference for healthy,fresh, and ready to go (orconsume) foods.
Issue #4
Private label - Strategic storebrand programs are asignificant growth strategy forretail leaders.
Meet Our Analysts
Dan W. O'Connor is thePresident & CEO of theRetailNet Group. He also isthe Founder of ManagementVentures, Inc. (MVI), a WPPGroup company. Dan is awidely known industry speakerand thought leader.Aaron Chiois a Senior Analystleading RNG's development onew research, insights andgrowth strategies in LatinAmerica.Tim O'Connoris Vice Presidentat RNG, currently responsiblefor RNG's Growth Strategies

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