10 Steps. to Maximize Profits with Pricing. A guide for achieving and sustaining pricing excellence

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Morgan Arnold
7 years ago
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1 10 Steps to Maximize Profits with Pricing A guide for achieving and sustaining pricing excellence

A.T. Kearney go-to-market framework for retailers

management Pricing Promotions 10 Steps to win in Format

Steps to improve Category Profit A guide to achieving

Profits with Pricing A guide for achieving and

2 A.T. Kearney go-to-market framework for retailers Go-to-market strategy Formats and channels Category management Pricing Promotions 10 Steps to win in Format Mangement A guide to designing the right store format 10 Steps to improve Category Profit A guide to achieving excellence in category management 10 Steps to Maximize Profits with Pricing A guide for achieving and sustaining pricing excellence Marketing and communication Source: A.T. Kearney 2

3 Context Retailing requires making thousands even millions of pricing decisions every year. Taken together, these decisions form an indisputable core component of retail business strategies. After all, pricing has a significant impact on profits: A successful 1 to 2 percent price increase that does not jeopardize volumes easily boosts profits by a double-digit percentage. But achieving pricing excellence is not easy. It involves a complex process that is shaped by a variety of factors. For example, while retailers typically have access to large amounts of pricing data, is this data thoroughly analyzed and used to its best advantage? Achieving pricing excellence requires doing more than dusting off and using analytical skills to derive reasoned business decisions. It also requires cultivating an understanding of (and ability to influence) customers price perceptions, and this calls for a different skill set. To nudge overall profits upward, each and every lever that improves your retail price position and price perception must be considered. And while you are at it, bear in mind the importance and the challenges in implementing and sustaining new prices. reflects A.T. Kearney s latest thinking. Based on many years of advising retailers around the world, predominantly in the grocery sector, we showcase a holistic approach to pricing that encompasses unique insights, strategy development, and sustainable execution. And our approach extends far beyond grocery retailing to include other retail formats such as health and beauty, do-it-yourself, and electronics. 3

4 10 Steps to Maximize Profits with Pricing Insights 1 Measure actual price position and perception 2 Analyze price performance Strategy 3 Define overall pricing strategy 4 Set category guidelines 5 Anticipate competitor moves 4

5 Tactics 6 Optimize line price architecture 7 Differentiate prices by zone or store 8 Adapt prices in real time Enablers 9 Communicate effectively 10 Sustain price management 5

6 % A.T. Kearney has supported leading retailers on pricing topics Northern European Grocery retailer Western European Cash & Carry retailer North American Multi-banner retailer Situation Large grocery retailer with 700-plus stores in four formats Cash & Carry segment of leading European grocery retailer $30 billion multi-banner, multi-format retailer Perceived to be the most expensive in the marketplace (only partly true) Declining customer base and fierce competition Pricing decisions largely uncoordinated Improvement needed in customer value-perception and enhanced pricing and promotion strategy Approach Performed thorough internal analysis (processes, price structure, price ladders) Refreshed price promise Developed new pricing architecture more focused on price ladder integrity than individual key value items Implemented price management system Created insights on actual price position and customer perception Launched immediate pricing measures to fix price ladders, optimize margins, and boost sales Developed long-term pricing strategy Identified customer valueperception drivers Developed and implemented pricing strategy Rationalized assortment and conducted vendor negotiations Built capabilities, systems, and center of excellence to sustain overall long-term program Impact and Advantage Prices reduced by 1%, gross margins rose Price ladders and mix optimized Price investments made in the right places Margins rose by 1% of sales Volumes increased through better price perception Pricing aligned with promotions Top-line revenues rose by about 3% (same-store sales) Profit margins grew by 0.5% Value-perception scores increased Source: A.T. Kearney analysis 26

7 A.T. Kearney is a global team of forward-thinking partners that delivers immediate impact and growing advantage for its clients. We are passionate problem solvers who excel in collaborating across borders to co-create and realize elegantly simple, practical, and sustainable results. Since 1926, we have been trusted advisors on the most mission-critical issues to the world s leading organizations across all major industries and service sectors. A.T. Kearney has 57 offices located in major business centers across 39 countries. For more information, permission to reprint or translate this work, and all other correspondence, please insight@atkearney.com. Authors Mirko Warschun, Partner, Munich Mirko.Warschun@atkearney.com Americas Atlanta Calgary Chicago Dallas Detroit Houston Mexico City New York San Francisco São Paulo Toronto Washington, D.C. Geir Olsen, Partner, Oslo Geir.Olsen@atkearney.com Gotfred Berntsen, Partner, Oslo Gotfred.Berntsen@atkearney.com Matthias Rucker, Principal, Munich Matthias.Rucker@atkearney.com Asia Pacific Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Tokyo Niklas Vogelpohl, Consultant, New York Niklas.Vogelpohl@atkearney.com Europe Amsterdam Berlin Brussels Bucharest Budapest Copenhagen Düsseldorf Frankfurt Helsinki Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea. 2013, A.T. Kearney, Inc. All rights reserved. Middle East and Africa Abu Dhabi Dubai Johannesburg Manama Riyadh The signature of our namesake and founder, Andrew Thomas Kearney, on the front of this document represents our pledge to live the values he instilled in our firm and uphold his commitment to ensuring essential rightness in all that we do.

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