building a retail revenue management-ready enterprise
TRANSCRIPT
Building A Retail Revenue Building A Retail Revenue Management-Ready Enterprise Management-Ready Enterprise
Randy Kluck, VP Software Development
KhiMetrics
AgendaAgenda
Retail Revenue Management
Perspectives
Defined
Benefits
RRM-Ready Enterprise
Planning
Execution
Historical PerspectiveHistorical PerspectiveChanging Demographics
Post War Boom-US Economic Influence
Pent-Up Demand
Shift From Downtown to Malls
Increased Ease of Entry into Retail Space
New Retail Concepts
Category Killer
Discount
Off-Price
Manufacturer Outlet
Single Price
Superstore
Warehouse Club
Organizational Efficiency
Equipment & Process Automation
Downsizing/Rightsizing
Information Technology
Supply Chain Optimization
50’s
&
60’s70’
s
&
80’
s90’
s
till
now
Margins &
Profitability
Changing Demographics
and New Concepts in
Retailing have resulted in
Increased Competition, Low
Prices & High Product
Availability.
The Net Effect, increased
Pressures on Margins &
Profitability
Retailers have responded
by focusing on
organizational efficiency
and cost reduction
A New PerspectiveA New Perspective
Supply Chain
ProductsMoney
Information
Demand Chain
Supplier RetailerProducts
MoneyInformation
Consumer
Value Chain
Evolution of Profitability
Shift in Focus from Supply Side (Cost) to Demand Side (Revenue) to Improve Profitability
Two Components in the Profit Equation
Revenue & Cost
Retail Revenue Management is
an iterative closed-loop process to measure consumer demand and optimize prices consistent with category and enterprise goals for
revenue, profit and price image.
RRM DefinedRRM Defined
Applying Science to the Art Of Retail Pricing
Measuring Consumer DemandMeasuring Consumer Demand
Consumer Price Elasticity
Inverse Relationship
between
Price and Unit Movement U
nit
s S
old
Retail Price
$2 $10
In concept…
Measuring Consumer DemandMeasuring Consumer Demand
Variables Affecting Elasticity
Seasonality
New and Discontinued
Products
Regular Sales vs. Promotional Sales
The reality…
Un
it S
ales P
rice
Optimizing PricesOptimizing Prices
3.39
3.29
3.19
3.09
2.99
1.99 2.09 2.19 2.29 2.39
Pro
du
ct B
Pro
du
ct B
Product AProduct A
In concept…
•
•
••
•
Sales Profit
184.00 55.00
151.00 58.00
122.00 40.00
140.00 38.00
124.00 36.00
Optimizing PricesOptimizing Prices
Infinite Number Available
Selecting the Scenario
that Maximizes
Profits Critical
The reality…
PsychologicalThresholds
Pro
du
ct B
Pro
du
ct B
Product AProduct A
••
•
••
Enterprise GoalsEnterprise Goals
Short Term Profits vs. Long
Term Sales
Customer Perception of
Overall Pricing
Strategies
Current (un-optimized)
Range of Optimal Strategies
Target
Target
Revenue
Gro
ss P
rofi
tUnachievable
Inefficient Pricing
Adaptive
Demand Modeling
Data
Discovery
Optimize
Pricing
Manage
Goals
Review &
ImplementAnalyze
Competition
ERP System
Data POS Cost Competitive
Pricing
RRM-Closed Loop ProcessRRM-Closed Loop Process
Adaptive Modeling
Infers Consumer Behavior
Identifies Market Dynamics
Learns from Past Activities
Goal ManagementIdentify Financial/Competitive Opportunities
Inform Management
Set & Maintain Strategic Direction
Price Optimization
Maximize Opportunity
Maintain Price Image
Review
Layer in Analyst Intuition
Data DiscoveryInterrogate Data
Evaluate/Educate
Improve Processes
BenefitsBenefits
Leverages Existing Organizational Data Requires Nominal Organizational/Operational Changes Adapts to Both Micro & Macro-economic Conditions Supports Rapid Adjustment to Shifts in Organizational
Revenue/Profit Strategies Maintain Competitive Price Image in the Marketplace Produce Measurable Return on Investment
Non-Intrusive & Adaptive
Unlike Cost Focused Solutions, RRM does not require any significant changes to the Organization, yet can generate significant additional revenue and profit
RRM-Ready EnterpriseRRM-Ready Enterprise
PlanningSuccess Factors
StrategiesData Sources
Execution Data Analysis
Process Integration
PlanningPlanning
Executive Ownership
Measurable Objectives
Committed Project Team
Realistic Plan
Clear Communication
Success Factors
Success of any Software Project is dependent on the People and Organization ,
not the Software
PlanningPlanning
Corporate Pricing Philosophy
Category Pricing Philosophy
Regular vs. Promotion Positioning
Margin Sensitivities
Ending Number Preferences
Price Structure within a Product Line
Store/National Brand Relationships
Price Change Frequency
Activity Cost per Price Change
Strategies
Have the Answer to the
Question before it is Asked
PlanningPlanning
Sources of Data
Transaction FilesCurrent Retail Price/Future Cost
POS Sales History
Competitor Price Change History
Price Change History
Cost Change History
Master FilesLocation Information
Product Information
Competitor Stores
Promotional Calendar
Price Constraints
Know Where the Data Is, and
How to Make it Available
Execution-Execution-Data AnalysisData Analysis
Validation
Duplicate Data
Missing Products/Locations
Missing Period Sales
Product Introductions/Deletions
Correct Costs and Prices
Un-flagged Promotions
Store Promotional Compliance
Out-of-Stocks
Product/Brand Analysis
Product Relationships Are Complex
$7.99P
rice
Fam
ilyP
rice
Fam
ily$7.99
$5.99
$3.99
Size
$5.99
$3.99
Sto
re B
ran
d$5.99
$3.99
$1.99
Execution-Execution-Data AnalysisData Analysis
Price Review
Real World Data May Have Limited
Price Activity
Inappropriate Analysis May Lead
to Wrong Conclusion
Price
Un
it S
ales
Average
Small price increase can
create a negative elasticity
Execution-Execution-Data AnalysisData Analysis
Elasticity Modeling
Elasticity May Be Discontinuous
$2 $3 $4 $5 $6 $7 $8 $9 $10
Retail
Un
its
Execution-Execution-Data AnalysisData Analysis
RMM Closed Loop & You
File Formats
Delivery Method
Timing
Import Sales Activity
Analyze Market Reaction
Adaptive Modeling
Generate Optimized Prices
Review/Approve Prices
Implement Prices in Stores
Execution-Execution-Process IntegrationProcess Integration
PRICE FILE GENERATION FLOW
ERP SYSTEMREVENUE
MANAGEMENTSYSTEM
PRICE FILEDISTRIBUTION
SYSTEM
POINT OFSALE
Client System Client System Client SystemKhiMetrics System
Revenue Management Application Process
Data ImportDemandModeling
PriceOptimization
PriceRev iew &Analy sis
Price FileGenerated
And to ease the pain of integration…
Educate on best practices, processes, integration simplicity and financial opportunity.
Accelerate value creation through adoption of optimization solutions and standards.
Demonstrate rapid ROI from optimization
Goals
Retail Optimization CouncilRetail Optimization Council
Founding MembersMercari Technologies
Net PerceptionsSpotlight Solutions
KhiMetrics
Academic ParticipationUniversity of Arkansas
Center of Retail Excellence (CRE)
Supply Chain Research Management Center (SCRMC)
Retail Participation2 Tier One Retailers (TBA)
Retail Optimization CouncilRetail Optimization Council
Organization
Seamless integration of all demand chain solutions:
Sophisticated data integration capabilities
Cross-functional analytics
Standardized gateway for products
Soft ROISystems
ERP Systems
FinancialSystems
RevenueManagement
PromotionManagement
Markdown
AnalyticSystems
Point of SaleSystems
SpacePlanning
Hard ROISystems
StandardizedXML
Interface
Retail Optimization CouncilRetail Optimization Council
Technology Viewpoint
Technology Neutral Requirements
XML SOAP
Flexible ✔ ✔
Acceptance ✔ ✔
Secure ✔ ✔
Hardware, O/S Support ✔ ✔
XML-Data & Request Format
SOAP-Transport Protocol
Industry Standard
Single technology framework
Single development effort
Protection of development investment
Concept OverviewConcept Overview
Retail Optimization CouncilRetail Optimization Council
ERP creates XML document…
ERP sends SOAP request with imbedded XML
document to receiving application Web server…
Receiving application Web server parses XML document , authenticates
the sender and format, and places data into database if valid, other wise
sends error status…
Receiving application process data
Process Integration @ 10,000 FeetProcess Integration @ 10,000 Feet
Retail Optimization CouncilRetail Optimization Council
Definition of Terms
Basic Data Element Specifications
Combined Data Element Specifications
Error/Status Definitions
Certification/Security Management Definitions
Transaction Specifications
Transport Protocol Specifications
Sample Code
details,
details,
details.
What Is Needed to Make this Work ?What Is Needed to Make this Work ?
Retail Optimization CouncilRetail Optimization Council
If interested, visit the web site at
www.retailoptimizationcouncil.org
Summary & ThanksSummary & Thanks
With clear planning and commitment, your enterprise can
unlock hidden revenue and profit by applying science to
your pricing strategies while maintaining price image in the marketplace.
Retail Revenue Management-Ready Enterprise
www.khimetrics.com
1.480.609.2833