price and channel convergence with rsr, 360pi and ibm

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


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.!


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


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” …


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


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


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


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


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


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


19%

21%

21%

20%

8%

20%

3%

23%

33%

13%

25%

11%


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


Promotions planning, forecasting, and management


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


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


Opportunities:

Dynamic, Responsive, Goal-Oriented Pricing

Winners Always Focus on “How”


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


21

Cross-Channel Coordination

Is a Strategic Differentiator


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"


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%


End-to-end price lifecycle management

Inventory management - availability as a price driver

Rules-based pricing engine


Customer data warehouse

Markdown optimization

Product movement data warehouse

Markdown planning, forecasting and management


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


Jenn Markey


Tom Croke

General Manager


26

© 2014, 360pi Corporation.

All Rights Reserved.

Retail is Changing

52% of in-store sales are

influenced online.

- Forrester, March 2014



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



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



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



Benchmark at a Point in Time

32



Benchmark Over Time

33



Benchmark by Zone

34



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


Jenn Markey


Tom Croke

General Manager


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?


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


IBM ExperienceOne

Price and Channel Convergence


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


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


IBM ExperienceOne

Will sales in one channel be cannibalized by price changes I

make in another channel? How does it vary by category?


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?


…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


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


price and channel convergence with rsr, 360pi and ibm

Retail

ibm experienceone rsr

focused source

objectives of pricing

company pricing strategy

price optimization

price intelligence

pricing strategies

seasonaldrivenour strategy