3 Ways to Kickstart Pricing Discussions with Visualizations

Price cut tags on supermarket shelves

Of the four Ps of marketing, price has the most power to transform a company’s revenue and profit. The best way to kickstart a pricing discussion is to visually display price analytics.

Ultimately, these visual tools support portfolio and channel strategy development.  Importantly, they help take emotion out of pricing decisions and focus strategic discussions on the heart of the matter.

Among others, these are three powerful tools to visualize prices:

  • Price Waterfall
  • Candlesticks
  • Discount Curve

Each tool demonstrates a range of insights that can drive strategic thinking.

1. Price Waterfall

The price waterfall shows us where we might have problems with profit leakage.  Though the chart is simple, it can be shockingly difficult to calculate some of the costs, especially trade costs, and translate them to costs for an average unit.
Price Waterfall Example

Example of an interpretation: Above, much of the manufacturer’s profit is eaten up by discounts, shown as trade spending, which is used here largely to allow the retailer to discount from MSRP (manufacturer’s suggested retail price) to its ASP (average selling price).

The full amount of trade spending isn’t reflected in that discount amount, and we might suggest reducing the amount of trade spending or re-negotiating with the retailer to reflect more of the discount in the price it charges on-shelf.

2. Candlesticks

Candlesticks help us visualize the spread between the different types of prices seen in retail outlets — spanning from MSRP to the promoted price.

Price Candlestick Example

Example of an interpretation: You might imagine that the manufacturer wants to move its average price at its Mass channel customer closer to $3.50 but they refuse to do so.

Looking at the candlesticks, we might see some great reasons why: Their Grocery channel competitors are regularly undercutting this Mass retailer, selling as low as $2.39 on promotion and $2.75 on average.  Why would the Mass channel customer want to be undercut even more?  You could understand their point of view.

We can also see that there is poor price discipline.  This company has a suggested price that it rarely, if ever, earns from its consumers. This will lead to high rates of trade spending that might not be necessary.

3. Discount curve

How much do consumers pay on an equivalized basis?  Typically, we would look at price per pound, ounce, gallon, dozen, or some other volume measure, for all the items across a portfolio.

We ideally see that consumers receive a consistent value across sizes in the portfolio, with a discount as the volume in each package increases. We would want to see a smooth (or, at least, smooth-ish) line sloping from the high index to the low index.

Discount Curve Example

Example of an interpretation: We can view this two ways.  One, the Large package is too expensive on a per-ounce basis, and it should cost less.  Or, two, Small, Medium, and Club size packages should be priced to reflect the value that consumers see in the Family Size package.

There is no one right answer, but the goal is to remove kinks in the discount curve.  An optimal curve would be relatively smooth, without upward or downward kinks.

4. What else?

Additionally, at Simon-Kucher & Partners, we use a number of proprietary tools that help structure thinking about pricing and assortment. Our PriceMap tool visually displays a product portfolio and can highlight opportunities.  Our ResourceMap tool provides price and assortment summaries based on channels, retailers, customer segments, and other important classifications.

Visualizing prices is an important step as part of strategy work. But in most companies, prices sit on a list for price quotes and internal reference. It’s hard to get visibility into what’s happening in the real world.

Freeing pricing information from that piece of paper transforms it into living analysis that drives strategic decisions.

Do Holiday Shoppers Prefer Brick & Mortar Grocers?

The holiday season is upon us, and we can’t help but think of shopping — and shopping for food. The shopping stories are a combination of Black Friday craziness and the shift to buying from online retailers like Amazon. Here at Simon-Kucher, we were wondering about the intersection: Do holiday meals and online buying intersect? The question occurred to us after multiple clients asked us about product and pricing strategy for Amazon. We know that a growing number of traditional grocery dollars are shifting to online retailers, but how much of this happens during holiday season, when grocers have their biggest weeks of the year?

Do Holiday Shoppers Prefer Brick & Mortar Grocers?
Source: https://www.ars.usda.gov/is/graphics/photos/oct05/d260-1.htm

In my family, Thanksgiving meals usually feature the obligatory turkey, Grandma Sherry’s sweet and sour meatballs, Ritz cracker stuffing, and an array of other sides, desserts, and drinks. Thinking about meals like this, with the preponderance of perishable ingredients, we intuitively thought there would be little room for an online retailer. And we were mostly right.

With research firm Instantly, we conducted a survey where we asked a panel of 1,052 shoppers how they planned to shop for Thanksgiving and winter holiday meals. Among other things, we asked about usage of Amazon in general, plus Amazon’s Prime and Prime Pantry programs.

You might have guessed it: Hardly anyone is planning on shopping for their holiday meals on Amazon. Shoppers plan to buy about four percent of their holiday meal items there, consistent for both Thanksgiving and a winter holiday meal. Comparatively, shoppers will buy 39 percent of their meal items at a traditional grocery store, 29 percent at Walmart, seven percent at a specialty food store, and 22 percent somewhere else, which includes warehouse club stores.

Narrowing down the group to those who say they will use Amazon, they will buy only 22 percent of their items there, leaving 78 percent for shopping in stores. For Thanksgiving, these Amazon shoppers are 87 percent more likely to shop at Target than the average shopper, 38 percent more likely to shop at a specialty store, 19 percent less likely to shop at Walmart, and a whopping 54 percent less likely to shop at a traditional grocery store.

So — they are more likely to shop where specialty items are available (Amazon, Target, Whole Foods) and less likely to shop in a conventional retailer.

They are also more likely to shop for electronics, shop via mobile phone, expect discounts, and be influenced by promotions. This suggests that Amazon will be used for items that can be easily compared across retailers, such as common dry goods, and perhaps expensive ones that are sold on a discount.

There’s not many of these Amazon shoppers looking for groceries, right? Yes, but…

Our study also covered the non-food side of holiday shopping — the gift-giving time of the year. This world is less interesting for this publication’s readers but we found important lessons that can apply to the future of grocery shopping, online and offline.

1.  More holiday shopping time is spent online, both on the web and on mobile. Some of this is actual shopping while some is pre-shopping. No doubt, this will grow, as more prices and product information becomes available online. It is important to have information on your products easily available online.

2.  In some categories, where shoppers may be looking for very specific items, like electronics and toys, more time is spent shopping on the web and mobile. Part of this is because consumers expect more discounts online than in-store, and retailers have trained consumers to expect this. Be careful not to train your consumers to expect discounts.

3.  Shoppers still prefer to shop for apparel, footwear, and healthy/beauty items in stores. In those categories, consumers want “receive product right away” and “feel and try the product before purchasing.” This lines up well with the grocery experience. Part of the experience is that of choosing fruits and vegetables up close, finding the right cut of meat, or grabbing a treat to eat on the way home. It’s hard to replace the experience of seeing, smelling, touching, and tasting in a store.

One area that will be hard for Amazon and other online retailers to match is shopping for perishables. Some shoppers are always going to want to select those items in person. But Amazon is piloting its Fresh program, where they deliver a full range of grocery items via refrigerated trucks, along the lines of Peapod and Fresh Direct — and with a hefty $299 per year fee. It’s a different direction from Amazon’s Prime and Prime Pantry programs and will give the industry more to think about.

P.S.  Belated happy Thanksgiving to you and your family.  There’s so much to be thankful for, including my wonderful colleagues, friends, and family.

(Reposted from Project NOSH.  Thanks to Jeff Klineman for his editing and for allowing re-use.)

The Numbers Behind the Mustard Wars

Ketchup wars! Mustard wars! It’s a Condiment Armageddon! And it’s also an analytical opportunity.

This spring, Heinz relaunched its mustard with a new, improved formulation to compete head-to-head with French’s, the category leader. Answering this shot across the bow, French’s launched a new ketchup, challenging Heinz’s leadership.  At least two publications have called this situation a “war” — presumably between a pair of rival condiment nations.

Over the last 12 months, Heinz’s mustard’s $10 million in sales represents a 300 percent year-over-year increase, while French’s new-to-the-market ketchup grabbed about $3 million. Looking at each brand’s mainstay product, Heinz’s ketchup is up three percent, while French’s mustard is down 3.9 percent. That might point to a clear winner and loser in the great condiment skirmish of 2015, but I think broader trends say they both may end up being losers.

Mustard Tins
Source: https://www.flickr.com/photos/mcbeth/1075913767

In recent months, Fortune (“The War on Big Food”) and The New York Times (“Small Food Brands, Big Successes”) have pointed to the proliferation of small brands.  Boston Consulting Group analyzed this shift, showing that large food companies lost 2.3 share points to smaller ones from 2009 to 2013 and another 0.7 points in 2014.

So how do we account for entrepreneurial brands in all of this? Well, hiding in the data, there’s the ascendancy of “all other.” And that’s a group that entrepreneurs know well. After analyzing the top brands in a category, there’s always dozens of others that make up the long tail of results — usually ranging from a few percent to maybe 20 percent of the category’s sales.  In my analysis, there’s never enough space to list them all out, so they get collapsed into an “all other” grouping. But that’s where the momentum and innovation often resides, waiting to break out.

In condiments, there’s share dominance by the big guys. The top three brands in ketchup make up 97 percent of sales, and the top six brands in mustard make up 83 percent.  Aside from those, no other brand represents more than two percent of sales in ketchup and mustard.

But Ketchup grew $21.1 million (+2.6 percent) this year.  We can attribute 74 percent of that growth to Heinz, 15 percent to French’s, 9 percent to private label, and 6 percent to all other brands. (This doesn’t add to 100 percent because of two medium-sized brands that declined.)

In mustard, it’s even more striking.  The category grew $2.0 million (up 0.5 percent).  Many brands declined, and others grew at rapid rates. Gainers picked up $10.8 million, and declining brands lost $8.9 million.  French’s was one of the notable decliners, dragging down the entire category.  Meanwhile, Heinz’s gain was 3.85 times of the category’s growth, and the “all other” segment added 1.37 times more than the category’s growth, drawing from brands like Inglehoffer, Maille, Boar’s Head, and Annie’s Naturals, one of those entrepreneurial brands that is starting to see significant scale.

Even more telling is that this data set also doesn’t account for the natural and specialty channel, which has an even greater assortment of small brands (such as Tessemae’s and Sir Kensington’s) — and I suspect, even for the graying condiment category, some trends are starting in that channel and migrating to conventional grocery outlets. My local Shaw’s and Star Market stores have been increasing assortment of specialty products, and Target has an initiative to do the same, both in terms of bringing on new brands and co-developing sets with emerging product partners. (Hey, I loved finding Intelligentsia Coffee at my local Target last week!)  In these cases, there is no doubt smaller brands are stealing shelf space — which is eventually going to translate into share.

I often hear from folks in the food industry who have an idea to make something better.  These have included colleagues who wanted to improve baby and toddler nutrition, make tasty yogurt with better health attributes, bring Asian snacks to an American audience, and more. Most of them are still in business and thriving.  And while they (mostly) aren’t becoming big businesses, they are providing livelihoods for their owners and employees. Some have broken out; more will.

Consumers — particularly Millennials — are reacting to this demonstration of authenticity and are enjoying the newfound availability of novel products on shelves where they shop.  And they pay premium prices for this benefit.  In some cases, the premium isn’t much in dollars and cents, and consumers are willing to make the trade.

In other cases, larger premiums simply mean that new-age products are treats or consumers set aside larger budgets for packaged food than older generations have.  But in all cases, it’s leading to category growth at the expense of entrenched brands.

Among the headlines of wars among the big players in the food business, be sure to look for the hidden story of what’s happening with smaller brands.  If recent history is any lesson, there are some great stories that are waiting to spread.

Reposted from Project NOSH.  Thanks to Jeff Klineman for his editing and for allowing re-use.

Continue reading The Numbers Behind the Mustard Wars

All the trends from the Summer Fancy Food Show

Just before the July 4th holiday, I walked the aisles of the Summer Fancy Food Show in New York, meeting colleagues and looking for trends.

The show is run by the Specialty Food Association at the Javits Center, with more than 2500 vendors.  It’s a lot of work to try to work through the entire show.  Exhibitors focus on what speciality and natural stores purchase, which can sometimes stray a bit from what one would call “fancy” but satisfies retailer buyers who are looking for new items to sell to their shoppers.

A press release from the Specialty Food Association spells out what the organizers felt were the official trends:

  • Gazpacho to go
  • Can’t beat beets
  • Flower power
  • Cocktail culture
  • The maize craze

It’s hard to argue with the official announcement of trends from the show, so I have to agree with what they saw.  A few others things caught my eye, too:

  • Ginger: Ginger beer and craft ginger ale
  • Jerky and meat snacks: Seeing creative protein offerings increase
  • Matcha tea: Formats from bottled to powder
  • Cold brew coffee: Bottled, concentrates, kits for making your own at home
  • Yogurt: Fancy vanilla flavoring, savory flavors, whole milk, non-cow milk
  • Bone broth: Seems similar to traditional broth/stock but described differently – but I may be wrong
  • Honey: Additive in a number of products I saw

These are trends only because there were a number of offerings that had these attributes.  A trend doesn’t always equate to success; it’s always possible a number of brands are jumping on a trend without demand.  We’ll see them first in specialty shops and Whole Foods, then migrate to larger grocery chains.  Let me know if you see any interesting products on your supermarket shelves.

Everything’s on sale!

For all of 2014, New England grocery chain Market Basket is discounting every item, every day by 4%.

“The additional 4% off promotion is a reward for its loyal customers and an investment toward a long-term growth strategy to attract new customers, increase sales, and continue to strengthen and build Market Basket’s brand identity,” said a press release from the company.

I can’t think of any past examples where such a discount has been offered for such an extended period of time.

Of course, there is an interesting back story about the feuding Demoulas family, with two factions, each led by a cousin named Arthur Demoulas (Arthur T. and Arthur S.).  This is probably relevant.  It’s also probably relevant that supermarket competition in the Boston area is about to increase, with a new Wegmans opening this month and more planned.

But I’m more curious to see if this year-long discount is going to be an effective sales technique.

In some early (and generalized results), sales are up modestly and outpacing the overall market.  And in the competitive supermarket industry, a modest increase is a good increase.

Interestingly, prices are also up modestly.  It seems that Market Basket raised its average prices in advance of this discount offer (or is selling more expensive items, on average, but more likely that average prices increased).  Even with this increase, there is still a healthy discount being offered across the board, but it’s interesting to see the dynamic.

I’ll be continuing to watch this bold strategy throughout the rest of the year.  Will it result in sustained sales and share gains?

Why do I need data?

In the long time since I’ve last written here, one of the most common questions I get from colleagues with smaller food and CPG questions is about syndicated data from Nielsen, IRI, and other providers.  Why would I want it?  

What many people outside the industry don’t realize is that most supermarket, drug store, and mass merchant (Walmart/Target) transactions are recorded by those retailers, purchased by Nielsen and IRI, then resold to hundreds if not thousands of CPG manufacturers.  Those manufacturers can’t see who is buying products but they can see what’s moving through the cash registers — at the most basic level, the dollars and units selling in a chain.  What you’ll usually get is week-by-week sales data at the UPC level, broken down by retailer.  

For smaller manufacturers, cost is a big hurdle, since costs can start in the tens of thousands — and rising to several million per year.  At the low end, you may end up receiving a series of static reports once a year.  At the high end, Nielsen or IRI will have dedicated staff at your site.  Variables that affect cost will include:

  • which product categories, retailers, and measures you subscribe to
  • how often you receive updated data
  • the level of customization you require compared to IRI/Nielsen’s standard databases
  • extra services added on top of simple data access

If your business is large enough to be over the cost hurdle, then you need to understand why to buy this data.  The most basic reason is that it will help you understand the reality of what’s happening at your customers — at retail shelves.

  • What prices are your products really selling at?
  • Are your items selling throughout an entire chain where your items are authorized? (Though be careful: syndicated data sometimes provides a false reading.  A bigger topic that I can address if there’s demand.)
  • When your items are on sale, how do they perform?  Are retailers claiming rebates properly?

What these questions address is the gap between what you can see from shipments leaving your warehouse and what retailers see when items come off their shelves.

Oh, but there’s one more biggie: All the questions above can be answered about your competitors too!  Your retailer customers review your performance versus your competitors, and you can follow along in real time to see where you’re having success and where you’re not.

CPG Data Tip Sheet has some great tactical questions to consider, too.

Two notable asides, by the way: In the months since I last wrote on this blog, I joined a great data analytics company, Pivotstream, and look forward to writing about my work with them.  And more importantly, my wife and i welcomed Maya Jayne to our family on January 16, 2014 — a happy, healthy, delightful baby girl.

Getting started with CPG data

If you’ve been interested to learn more about the basics of consumer packaged goods data from sources like Nielsen and SymphonyIRI, you need to check out the new CPG Data Insights blog, written by Sally Martin and Robin Simon.  They’re just getting started but have some great info on some of the basics.  One post that might be of interest — and helpful if you’re just starting with syndicated CPG data — is The 4 Key Dimensions in Every Nielsen/IRI Database.

 

Do we shop in data deserts?

Mark Hurst, founder of customer experience consulting firm Creative Good and the amazing Gel Conference, wrote about his experience shopping at Williams-Sonoma recently.  Judging by this photo he posted, there’s a real shortage of information — what he called a data desert.  (And I’d say Mark has nice taste in cookware!)

What’s missing is data. Look closely and you’ll see that several of the pots have no label below them. Others have no price. And, this being a retail store, there were no customer reviews. I also had no way to compare Le Creuset to other brands, and no way to understand which product type – copper? cast iron? steel? anodized? – would work best for me.

And I was standing alone. No one at any time approached to offer help, even though I was circling the cookware section. (This might have just been a momentary lapse, as I’ve seen helpful staff on other visits.) Overall the store lacked information on its products – call it a “data desert” – which led me to pull out my iPhone and open the Amazon app.

Within two minutes I had read a half-dozen customer reviews and compared prices. The skillet was a good choice, and as it turned out, Amazon was $10 cheaper and offered free shipping. A couple of taps later I had ordered the skillet from Amazon – and avoided standing in a checkout line. As I walked out, I couldn’t shake the thought that within a few years there might not be a Williams-Sonoma store across from Central Park.

This is maybe less of an issue in grocery retail … for now.  For the higher-priced items that supermarkets love to sell in order to increase basket sizes, there’s no doubt shoppers will shop around.  And it’s really easy to do that today, more than ever. 

Can supermarkets add something that online stores can’t?  Advice from an in-store chef or nutritionist, an iPad with beauty product tips, or — Amazon-style reviews on the shelf like what Mark suggests?  Maybe? 

It’s catching up with retailers like Best Buy and Williams-Sonoma who sell big ticket items, and I’m sure that with the advent of grocery delivery services like Peapod, FreshDirect, and others, it’s coming to grocery too.  There’s a big opportunity to create a data oasis for shoppers.

You’ve got questions, I’ve possibly got some answers

While I’ve been away from Shelf Talk for a few weeks now, I did answer some questions on Quora, a really cool community where people ask questions and others provide answers.

I stumbled upon a few that are related to the consumer packaged goods industry and took a stab at them:

If you’ve read some of my posts here on this blog, you might recognize bits and pieces of the answers already.

And, here’s where you can see my profile and follow me: http://www.quora.com/Scott-Sanders

How to succeed in environmentalism without really trying

Organic food, LEED-certified buildings, and hybrid cars have very minimal real impacts on carbon emissions.  Even more negligible is the impact of compact fluorescent light bulbs, reusable shopping bags, and “perfect” recycling compliance.

I was lucky to see Graham Hill, founder of the environmental blog Treehugger, talk about “how to easily cut your carbon in half while saving time and money” at the Gel Conference a few years ago.

While not directly related to the retail business, supermarkets are a major factor in our country’s environmental impact and many, if not most, have undertaken ways to reduce their footprints.  I found it very enlightening to hear some concrete numbers around what changes we can make to truly have an impact on our carbon emissions.

In short, the average American emits 20 tons of carbon per year.  Here’s how you can get the quickest savings:

  1. Become a weekday vegetarian.  Savings: 1 ton of carbon and $365 per year, plus 6 hours of time and improved health.
  2. Be a conscious flyer: avoid cross-country and intercontinental flights.  Savings: 1 to 10 tons of carbon per flight, plus $700+ and hours and hours of travel time and stress.
  3. The easiest! Buy green power: sign up for renewable energy sources from your power company. Savings: 4+ tons of carbon, depending on where you live, but it will increase the price of your power bill.

It’s an easy 20 minute video to watch, with the first 8 minutes as background on the problem followed by more on the three solutions above.

Just a few steps can cut 50% of your carbon impact.

More details and a fantastic talk at Gel 2009’s video page.