1
THE LAST FRONTIER
RETAIL PRICING

• W. FRANK DELL II,CMC
• DELLMART Company

2
AGENDA

• INTRODUCTION
• TYPICAL PROCESS
• PHILOSOPHY STRATEGY
• PROPOSED PROCESS

3
OBJECTIVES

• Review current retail pricing process
• Explore consumer perception issues
• Develop proposed retail pricing
• Process
• Approach

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STAPLE / BASIC ITEM FOCUS

• STAPLE

• SEASONAL/FASHION

Normal
Normal
Normal
Mark Down
Promotion
Close Out
Promotion

• 425.1 Billion Retail Food Industry
• Over-stored
• Mature
• Consolidating

5
MANY NEW COMPETITORS
Membership Club
Drug/Chemist
Convenience
Fast Food
Home Shopping
Supercenter
6
MASTER PRICING STRATEGIES

• EDLP
• Advantages
• Low cost maintenance
• First market entry advantage
• Disadvantages
• Boring
• Requires discipline

• HI-LO
• Advantages
• Merchandising excitement
• Provides flexibility
• Disadvantages
• High cost maintenance
• Difficult execution

Fact - No retailer truly practices EDLP
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STORE SELECTION FACTORS
Source Progressive Grocer
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STORE SELECTION FACTORS
Source Progressive Grocer
9
RETAILER GOALS
High

• Gross Margin
• Quality Ratio

Low

• Price Image

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CONSUMERS

• Recall up to 200 item prices
• Frequently purchased items
• High consumables
• Translates to 500 - 1,000 items creating the
  price image

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PRICE COMPONENTS
12
AGENDA

• INTRODUCTION
• TYPICAL PROCESS
• PHILOSOPHY STRATEGY
• PROPOSED PROCESS

13
TYPICAL PRICING PROCESS
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COLLECT COMPETITIVE DATA
15
DETERMINE PRICE
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IMPLEMENT PRICE
Minimum cost is 1.00 per item per store
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PRICE CHECK
POS
Shelf
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RESULT
19
AGENDA

• INTRODUCTION
• TYPICAL PROCESS
• PHILOSOPHY STRATEGY
• PROPOSED PROCESS

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RETAIL STRATEGY
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ESTABLISH DEPT. STRATEGY
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UNDERSTAND COMPETITORS
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DEFINE CATEGORY ROLE

• Traffic Builder
• Transaction Builder
• Profit Contributor
• Cash Generator
• Excitement Creator
• Image Creator
• Turf Defender

• Destination
• Routine
• Occasional/Seasonal
• Convenience

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DEFINE IMAGE PRICE
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PRICE FOR PROFIT

• 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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VELOCITY PHILOSOPHY

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

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SIZE PHILOPSOHY

• Larger sizes priced lower than smaller sizes
• Promotes selling larger sizes
• Increase volume
• Lower transaction cost
• Supported by vendor pricing
• Lower package 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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MAGIC 9s PHILOSOPHY

• Food is a pennies business
• Price with a last digit of 9
• Consumer perceive lower cost

9
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AGENDA

• INTRODUCTION
• TYPICAL PROCESS
• PHILOSOPHY STRATEGY
• PROPOSED PROCESS

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PROPOSED PRICING PROCESS
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COLLECT COMPETITIVE DATA
33
TRIGGER PRICING
34
PRICING CANDIDATES
35
DETERMINE PRICE
36
PRICE TABLE
Department
Category
Category
Sub Category
Sub Category
Sub Category
Sub Category
Image Item
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PRICE CONTROLS
38
INTERATIVE PROCESS
1. Competition 2. GM Limit 3. Profit Objective
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IMPLEMENT PRICE
40
PRICING FILTERS
41
PRICE VERIFICATION
POS
Shelf
Pricing System
42
KEY TO SUCCESS

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