W' FRANK DELL II, CMC

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THE GOLD MINE IN RETAIL PRICING

• W. FRANK DELL II, CMC
• DELLMART COMPANY

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AGENDA

• INTRODUCTION
• MINING OPPORTUNTIES
• PROMOTIONAL PRICING
• PRICING FOR PROFIT

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Objectives

• Identify pricing improvement opportunities
• Describe approach to achieve results
• Present new research

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Scope

• Retail Food
• Excluding perishable commodities
• Mass Merchant - Basics
• Excludes fashion seasonal

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Observation

• Much of retail pricing seems to be follow the
  leader
• Not unlike a dog chasing its tail

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Theme

• Price for the consumer
• Consider competition
• Price for Net Profit
• Not Gross Margin

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AGENDA

• INTRODUCTION
• MINING OPPORTUNTIES
• PROMOTIONAL PRICING
• PRICING FOR PROFIT

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1 Slow Seller

• Why is an item a slow seller?
• Small consumer market
• Inadequate retail space
• Priced wrong

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25,000 SKUs In Typical Store
Slow Seller

• 1,000 sell more than 1 case/week
• 4,000 sell between .5 and 1 case/week
• 20,000 sell less than .5 case/week

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SKU Universe
Slow Seller

• Estimate 4 to 5 million
• Average store stocks
• .0056
• Many unique items and opportunities

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Approach
Slow Seller
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Case Study - Grey Poupon
Slow Seller

• Selling 4 units/week
• Prices 1.79
• Increased price to 2.79
• Sold 4 units/week
• Increased sales 4.00 per store
• Increased profit 4.00 per store

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2 Private Label

• If product quality is equal to National Brand
• Why is the price 25 plus lower?

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Low Retail Not The Answer
Private Label
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Approach
Private Label
Note Quality must be equal or superior
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Value Concept
Private Label
PRICE
VALUE
QUALITY
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AGENDA

• INTRODUCTION
• MINING OPPORTUNTIES
• PROMOTIONAL PRICING
• PRICING FOR PROFIT

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Why Promote?

• Create merchandising excitement
• Attract customers
• Present savings
• Show value
• Reward loyal customers

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Promotions Are Difficult
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Promotion Factors
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Breakeven on 11 Deal
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Low Private Label Share
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Moderate Private Label Share
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Promotional Index
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Promotion Conclusion

• Low Private Label share
• Moderate Private Label share

Private Label
Natl. Brand
Private Label
Natl. Brand
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AGENDA

• INTRODUCTION
• MINING OPPORTUNTIES
• PROMOTIONAL PRICING
• PRICING FOR PROFIT

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Activity Based Costing

• ABC is a cost allocation or assignment
  methodology
• Cost assigned based on the activities and drivers
• Activities are tasks within a process
• Drivers are factors creating costs

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GM Vs ABC

• Gross Margin
• Relationship between cost and selling price
• Not a predictor of profit
• Percentage ineffective during deflation times

• Profit Contribution
• Sales
• - Cost of Goods Sold
• Gross Margin
• Direct Revenue
• - Inbound Costs
• - Outbound Costs
• Profit Contribution

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Primary Processes
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Costs Follow Product Flow
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Greatest Cost Is DSF
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Proposed Pricing Process
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Collect Competitive Data
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Trigger Pricing
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Pricing Candidates
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Determine Price
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Price Table
Department
Category
Category
Sub Category
Sub Category
Sub Category
Sub Category
Image Item
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VELOCITY PHILOSOPHY

• Faster sellers priced lower than slower sellers
• Reinforces low price image
• Basis for power curve

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SIZE PHILOSOPHY

• Larger sizes priced lower than smaller sizes
• Promotes selling larger sizes
• Increase volume
• Lower transaction cost
• Supported by vendor pricing
• Lower bracket cost
• Lower transaction cost

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FLAVOR/PATTERN PHILOSOPHY

• Create sub-group
• Price all items the same
• Even if cost differs
• Consumers perceive all items as equal

Cherry
Raspberry
Orange
Grape
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Price Controls
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Iterative Process
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Implement Price
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Pricing Filters
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Unlock The Gold

• Understand your competition
• Price for net profit
• Consider all factors
• Competition
• Movement
• Cost
• Justify implementation
• Test item sensitivity

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Thank You
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W. Frank Dell II, CMC President DELLMART
Company 125 Hardesty Road Stamford, CT 06903
USA Tel [phone] Fax [phone] e-mail
Wfdell2_at_msn.com