The art and science of pricing

Winn-Dixie VP Chris Vukich presenting at the NRF 2012 BIG Show

A standing room only crowd gathered at the NRF BIG Show on Monday afternoon in New York to hear Winn-Dixie VP Chris Vukich share how this $7 billion regional grocer has achieved a successful pricing strategy that allows them to:

  • See the impact of each price change.
  • Create what-if scenarios.
  • Model prices and pricing changes at a store level.
  • Automate the re-model process
  • Gain insight into cross-effects.  “As an example, we could see the impact of a promotional price on steak, and identify that as a basket builder. People could come in for the steak, but they could also buy the steak sauce, the charcoal, the lighter fluid, and we could price accordingly.

Winn-Dixie first started on the road towards optimized pricing in 2006 and, like many organizations, soon acknowledged that a tool was not the only answer. A number of key elements were missing and Chris was hired in 2007 to develop and implement a formal strategy.

As outlined by Chris, the path the company is on now is a three-step process:

  1. Build an organization capable of executing pricing (i.e. infrastructure).”You can’t just implement the tool,” says Chris. “You have to set up the processes and team to execute the strategy.”
  2. Execute optimized pricing, including preparation and modeling for optimization along with creating timelines and change management.
  3. Make pricing a component of a holistic business planning process.

To accomplish Step One, Chris shared the six core competencies that are required:

  • Pricing strategy – define the pricing framework that supports business objectives by understanding and capturing the value of an offering relative to competitive alternatives and customer demand. (Important tip from Chris: “You need CEO support for the strategy, and regular meetings with execs to go over the strategy, and to look at the results. At Winn-Dixie, we meet with senior. execs every four to six weeks.”
  • Advanced analytics and price setting – determine profit maximizing prices for products.
  • Pricing technology – design and deploy pricing analytics, optimization and execution tools to enable effective pricing decisions and consistency of pricing processes.
  • Organizational alignment and governance – effectively manage the people and cultural dimensions of an organization so that it can sustain pricing excellence.
  • Price execution – execute defined policies and processes that govern profitable decision making on a daily operational level.
  • Tax and regulatory effectiveness – proactively manage the tax, regulatory compliance and governance issues related to pricing decisions.

Lessons learned along the way
“We learned that pricing is a combination of science and art,” said Chris. “A lot of companies assume that pricing is a science and that they can let the system take over. That’s the worst thing you can do, because if you let the machine go on autopilot, it’s going to eventually drive you into a ditch”

“You need experienced pricing managers who can modify pricing rules as economic changes (like deflation) occur, take into account other promotional strategies – and who understand that every product category needs to be handled differently. There is no one-size-fits-all solution when it comes to pricing,” said Chris.

“Another key is that there needs to be a close partnership between pricing and merchandising so that the managers of these two groups are peers and work together as equals.”

What's next?
Winn-Dixie is in the early stages of the journey now and have big plans for the future. “In 5 years, we hope to have a holistic, integrated merchandising analytical system, where pricing, space assortment and customer decisions will all be made together rather than separately. That’s the vision,” Chris concluded.

Want to know more about how grocers are using analytics? Check out this Retail Touchpoints report: Empowering Grocers: Using Retail Analytics to Engage Customers.

tags: grocery, nrf, pricing, retail

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