3 Building Blocks Of
Optimized Price & Promotion Strategies
Boosting Brand Loyalty And Profits
With Visual Analytics
Sponsored by
E-book
3 Building Blocks Of Optimized Price & Promotion Strategies
Table of contents
Introduction................................................................................................................................................ 3
Consolidate And Analyze Data From All Channels To Define The Wants And Needs Of Your
Target Customers....................................................................................................................................... 5
Use Visual Analytics To Maximize The Value Of Data................................................................................ 7
Define And Execute The Pricing Strategy.................................................................................................. 8
Define And Execute The Promotional Strategy.......................................................................................... 10
Conclusion................................................................................................................................................. 14
About Retail TouchPoints........................................................................................................................... 15
About SAS.................................................................................................................................................. 15
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3 Building Blocks Of Optimized Price & Promotion Strategies
Today’s rapidly changing omnichannel retail environment is
dramatically affecting the way merchants approach product
Top Operation Challenges in Setting Prices
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.
48%
Forecasting the impact of potential pricing decisions
45%
Measuring the impact of executed pricing decisions
Maintaining visibility into promotional profitability
37%
35%
Making sure that stores change prices accurately and timely
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:
27%
Getting access to robust competitive price data
24%
Coordinating with marketing on promotions and offers
Inability to effectively manage all pricing rules and/or
understand impact of rule violations
20%
19%
Managing promotions across channels
u
76% of retailers are continuing to increase the
number of pricing changes sent to stores;
Keeping up with pricing and packaging changes by manufacturers
Keeping up with promotional deals between buyers & manufacturers
u
67% of retailers report consumer price sensitivity
as a top-three business challenge; and
17%
15%
Source: RSR Research, April 2013
u
41% of retailers said they are not able to execute at
the level of granularity that pricing solutions provide.
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3 Building Blocks Of Optimized Price & Promotion Strategies
This new pricing directive prompts a
Greg Girard, Program Director of Merchandise Strategies
number of questions, such as:
for IDC Retail Insights, offered his take on the importance
of successful pricing and promotional strategies in a recent
u
How do we get to know our best customers across
all touch points?
Merchandise Strategies report: “Retailers must remain
u What price points are our customers willing to bear?
centric Price Optimization — there’s money to be made
u
How do we deliver a seamless pricing strategy
across channels?
of the revenue management equation — product prices
u Are consumers fatigued by certain promotions?
u Which data sources do we need to analyze in order
to deliver the most successful pricing and promotion
campaigns?
on the journey toward advanced capabilities in productalong the way.” He added: the solutions “serving each side
and customer offers — drive high single-digit improvement
“Retailers must remain
on the journey toward
advanced capabilities
in product-centric
price optimization —
there’s money to be
made along the way.”
- Greg Girard
IDC
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.
Possibly the most all-encompassing question is:
By understanding the components of the building blocks
How can advanced analytics help us
apply consumer insights across the
business in order to deliver on our goals?
outlined in this report, retail organizations will be poised to
deliver on the promise of optimum pricing and promotions.
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3 Building Blocks Of Optimized Price & Promotion Strategies
The 3 Building Blocks Of Advanced
Price & Promotion Optimization
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;
“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
“Segment pricing or
promotions so they are
relevant to a
specific customer group.
Optimally you will achieve
the sometimes-elusive
‘strategy of one.’”
- Katherine Busey
International Institute for Analytics (IIA)
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.”
• Call center discourse; and
• Internet activity.
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3 Building Blocks Of Optimized Price & Promotion Strategies
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.”
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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.
“Big data is not just
about the columns,
rows or size. It’s about
getting closer to how
the human mind
thinks about data.”
- Rajeeve Kaul
Senior Vice President, OfficeMax,
during the SAS Global Forum
Executive Conference
✔ L
ocalize 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.
✔ E
nhance 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.
Easy analytics.
Better data visualization.
A world of possibilities,
now available in the SAS® Cloud.
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3 Building Blocks Of Optimized Price & Promotion Strategies
2. Define And Execute
The Pricing Strategy
“A retailer’s markdown
strategy can be optimized
by having a separate
markdown strategy for
each store and updating
pricing recommendations
dynamically during
the day.”
Analytics For Lifecycle Pricing Strategies
An overall pricing strategy includes a continuum of decisions
around initial pricing, regular everyday pricing, promotional
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:
pricing and markdown pricing. Each step in the cycle
is valuable in terms of overall business profitability.
In the example of markdown pricing, analytics can play a key
role in determining pricing down to the store and product level.
• Personalized vs. zone pricing;
“A retailer’s markdown strategy can be optimized by having
• Channel-specific vs. cross-channel pricing; and
pricing recommendations dynamically during the day,” reported
- Dr. Barry Leventhal
IIA
a separate markdown strategy for each store and updating
Dr. Barry Leventhal, Retail Analytics Council Faculty for IIA, in
• Short- vs. long-lifecycle products.
a report, titled: Leveraging Analytics for Markdown Pricing.
“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.
2.
3.
4.
Look at the data and
thereliability of the data
within internal systems and
elements (inventory, supply chain,
marketing, sales)
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.)
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?”
Ask one final question:
Are there any other unique
factors to consider?
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3 Building Blocks Of Optimized Price & Promotion Strategies
Leventhal also noted that with an advanced analytics
Busey continued: “Value is different at different price points.”
solution in place, retailers can enhance overall markdown
For example, an item at Nordstrom may be considered a
pricing using a number of strategies, such as:
value at $500, while an item at Target could be considered
a value at 50 cents. “Even though it may not be well
• 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
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
“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.”
- Katherine Busey
IIA
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.”
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.”
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3 Building Blocks Of Optimized Price & Promotion Strategies
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.
Those who overperform on year-overyear comparable sales
are far more likely to
stay the course in their
pricing strategy than
their competitors.
- Retail Systems Research
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:
üü 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.
üü 50% of Winners vs. 38% of Laggards are confident that
they can respond quickly to competitors’ price changes.
üü Winners and average performers are three
times more confident in their ability to target
promotions (32% to 38% vs. 13% of Laggards).
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3 Building Blocks Of Optimized Price & Promotion Strategies
“The biggest challenge with promotions is breaking corporate
While grocers live and breathe via promotions — and want
myths,” RSR reported. “Retailers think they are good at
customers to be acutely aware of them — specialty apparel
promotions because mass promotions have worked so well in
retailers are more apt to play down the pricing aspect of their
the past, and because you can see the lift after a promotion
strategy in favor of promoting the lifestyle and experience of their
runs. But in today’s fragmented marketing world, where
brands. The following chart shows examples of how different
‘mass’ becomes more and more difficult to achieve, and the
segments use each type of price and promotion strategy.
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.”
Pricing
Considerations
Segment-Specific Price and
Promotion Strategies
Apparel
revenue while maintaining a competitive price point is the name
Grocery
For any retailer, regardless of product, maximizing margins and
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;
Vendor
Trade Funds
Competitive
Prices
Private
Label
Multiple
Customer
Trips
Hyper
Promotional
Mass Merchants
Drug Stores
Convenience Stores
Not a consideration
Key consideration
Source: SAS, 2013
• Multiple customer trips;
• Hyper-promotional strategies; and
• Lifecycle pricing.
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3 Building Blocks Of Optimized Price & Promotion Strategies
Vendor Trade Funds:
Private Label Considerations:
Stores (C Stores) all work closely with their CPG trading
brands versus national brands provides all retailers (except
partners to optimize event plans and align strategic pricing
C Stores) with the ability to truly differentiate themselves
objectives. Trade Fund and Promotion Optimization can
from their competitors. Private Label products can provide a
maximize promotion plans and pinpoint pricing sweet spots
clear alternative to higher priced national brands, but retailers
that maximize event lift and brand share and help retailers build
must ensure private label products are perceived as “just
bigger baskets. A large percentage of retailers’ profits, revenue
as high quality” as nationally advertised brands that may
and market share are predicated on the successful selection and
have millions of dollars of marketing spend behind them.
Grocers, Mass Merchants, Drug Stores and Convenience
implementation of trade funds. Trade funds are proven traffic
The decision regarding when to create and promote store
drivers and a key pricing determinant for these retail segments.
Grocers and Mass Merchants have long known that promoting
Competitive Pricing:
higher traffic and larger margins. Apparel retailers also promote
private label brands to some of their customer segments ensures
Grocers, Mass Merchants, Drug Stores and C Stores are
private label merchandise both within department and specialty
susceptible to the effects of the pricing strategies of their
stores as a means to build margin within several departments.
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;
A large percentage of
retailers’ profits, revenue
and market share are
predicated on the
successful selection
and implementation
of trade funds.
Building Multiple Customer Trips:
Long a staple of the Grocery sector, Mass Merchants
that data ranges from Nielsen/IRI market share, other third-
and C Stores now target all customer segments for a
party service providers and competitive pricing services.
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.
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3 Building Blocks Of Optimized Price & Promotion Strategies
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:
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.
• 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.
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3 Building Blocks Of Optimized Price & Promotion Strategies
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.
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.
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.
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.
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3 Building Blocks Of Optimized Price & Promotion Strategies
About SAS
World Headquarters
SAS Institute Inc.
100 SAS Campus Drive
Cary, NC 27513-2414, USA
P: 800.727.0025
SAS helps retailers and grocers spend less time crunching numbers and more time growing
revenue with key technologies customized for today’s multichannel merchants. Built around
a powerful core of market-leading business analytics, our comprehensive suite of retail
solutions tackles the industry’s greatest challenges, including customer insight (customer
intelligence and social media analytics); price optimization (regular, promotion and markdown);
size optimization (size profiling and pack optimization); assortment planning; integrated
merchandise planning (allocation, space management and optimization); forecasting
(across the enterprise and across market segments); and loss prevention. With more than
35 years of experience working with leading grocers and retailers, SAS helps retailers
make better decisions faster. Learn more at www.sas.com/retail www.sas.com/va
About Retail TouchPoints
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optimizing the customer experience across all channels. Tapping into the power of the Web 2.0
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