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Balancing Profits and Price Perception with Item Strategy

Offering the right prices on the right items every time

Today’s retail pricing environment is very competitive. Every retailer needs to protect their price perception by offering the right price on the items most important to their consumers. At the same time, very few retailers can be competitive on every single product without depleting their margin and losing out to bigger retailers in the long-run. To find the right balance, retailers need to define their pricing strategy. One integral part of this is Item Strategy.

What is Item Strategy?

Item Strategy helps retailers identify their Key Value Items (KVIs), or the products consumers care about most. It also defines which items don’t drive price perception in the market that are good candidates to drive margin. We call those items Background items.

With Item Strategy, products are segmented into actionable groups that provide guidance in determining the promotional and competitive pricing strategies, in addition to margin opportunities. These insights can be gathered at the enterprise level or by banner, channel, division, season and more.

Knowing the correct item classification, a retailer can price the most important items more aggressively to drive share while pricing background items less aggressively to drive the margin necessary to fund the investment in price perception.

For example, one Item Strategy Revionics delivered to a top convenience store brand in APAC drove over 150 basis points (bps) of margin improvement while actually benefiting their competitive price position against top competitors in the market.

Common Item Strategy Errors

There are a handful of common mistakes we see when retailers create an Item Strategy on their own. In some cases, retailers let individual merchants or sales volume dictate their KVIs. Although these are important insights, basing your KVIs solely on one of these factors is too shortsighted. Other retailers fail to differentiate promotional KVIs and every day KVIs, which could actually hurt their top and bottom line.

The truth is, without the best science and expertise, a retailer lacks some of the key elements required to fully evaluate and classify an item’s proper pricing role. Thus, they are likely to make errors in their pursuit of building a winning KVI strategy. (If you want to know more, I covered these common KVI mistakes and more in a previous article).

Another major mistake is not having an Item Strategy at all. Without knowing where to invest in competitive position and where to drive margin, retailers can end up shattering their price strategy and hurting their consumer price perception.

Classic examples of retailers who fail on this front are the ones who aim to have the lowest price on everything in the market, only to find out that their cost structure doesn’t allow them to compete with bigger players. Ultimately this leads to severe margin deterioration and the retailer can’t survive.

Building an Item Strategy with Revionics

Developing an Item Strategy is a fairly simple yet complex process. Using your consumer data, Revionics is able to leverage advanced analytics and our team of retail pricing experts to create a winning strategy.

To have an effective Item Strategy, you need a strong analytics solution that can account for the many nuances across retail verticals and individual retailers. Revionics combines business expertise with the best science and analytics available to create an Item Strategy that meets your specific needs and drives the intended results.

Additionally, our solution is able to discern the difference between promotional and base pricing characteristics to help you discern which items are more important to promote, and which items are most important from an Everyday Low Price (EDLP) perspective.

And, unlike others, our technology allows retailers to easily re-assess the item classification after a certain time period to confirm whether the intended strategy is still on track.

Get Started

Ultimately, an Item Strategy on its own can drive improvements in both profits and price perception, but it is most effective when successfully integrated into a comprehensive competitive and promotional strategy in an AI pricing platform that can drive dynamic, sustainable value overtime.

Our team would be happy to get you started with an item strategy or explore your next steps on the lifecycle price optimization journey. Reach out today

About the Author

Matthew specializes in Pricing & Retail Strategy, Corporate Strategy & Customer Focused Solutions. Matt is a leader in Pricing Strategy Development, Business Strategy Development & overall Corporate Strategy. Matt has a strong merchant background and experience with C-Level presentations. He has 20+ years of experience in Retail encompassing Consulting, Buying, Pricing, and Marketing across a variety of retail verticals, industries, and regions. Having lived and worked in France, Germany, Hungary and South Africa (with additional long-term engagements in other markets), Matt spent the last decade driving customer-focused success at Revionics.