Revenue Management and the cost of living crisis
Consumers across the world face increasing energy and food bills and will be making hard choices in the months ahead. As a brand owner, your best defense is to understand and target opportunities through monthly tracking of shoppers' price sensitivity, response to promotions and acceptance of assortment changes.
How are revenues build up, and how the recession is changing this
How does the cost of living crisis affects shopper behavior? How much of sales and profits are generated by loyal shoppers, shoppers who buy promotions but are part of the base, shoppers who switch between retailers - perhaps the discounters, shoppers who switch between brands, shoppers who are infrequent buyers or new to the category, etc.
Accuris dissects the way sales revenue is generated and how each marketing campaign is helping to expand the category, or rather steal sales from competing segments and competing brands - or actually causes cannibalisation or retail switching.
Visualisation of Accuris Source of Business(R) - Figures are illustrative
Analyse revenue sources in your category and find activations that encourage shoppers to trade up and maintain their spending in the category. Track how each promotion campaign makes shoppers upgrade or downgrade and adjust your plans accordingly.
Avoid blanket price increases
The cost of living crisis is affecting all shoppers but there are still opportunities for differentiated pricing. Smaller portions may show lower price elasticity; premium offerings may command higher margins. However, markets change and in this environment tracking price elasticity at a granular product / channel level is a must.
Visualisation of Accuris standard and promotional price elasticity matrix - Figures are illustrative
Continuously monitor standard and promotional elasticity. Inform the trade on why and how your pricing strategy will improve their ability to stay competitive and grow the category. Share pricing opportunities and prove the positive profit pool impact. Reserve lowest prices for brands and packs with a high retail switching profile only. Grow the category with premium offerings aimed at less price sensitive shoppers.
One size fits all
In spite of the reality of higher costs, some retailers are still on a quest for the lowest possible price for many products. Not all categories, brands or products lend themselves well to this approach. Any price/promo strategy should reflect the specific characteristics of a category or a brand. With the absence of classic (multibuy) promotions, there is a risk that some shoppers will see a promotional offer as more generic, less exciting, and take their shopping baskets elsewhere. And suppliers, too, may find that developing category value can be done more effectively at other retailers. While for many products a high low strategy may be beneficial, for others it may actually be counter-productive. Retail is detail. One size rarely fits all.
Price elasticity varies widely across categories
Price and promotional strategies need to be set at category/segment/brand pack level. A blanket approach simply destroys value and leaves growth opportunities untouched.
Track how shoppers respond to price changes and the elimination of classic promotions. Report to your trade partners how their revenue sources are changing. Show how low prices are good for certain segments and bad for others. Be prepared to move away from one size fits all.
Read why "one size fits all" is a bad strategy and dangers for revenue growth
About Tesco's new "Great Prices Every Day" strategy
Tesco will emphasize everyday low prices and loyalty. It is asking suppliers to:
- offer better terms and lowest prices
- reduce promotions, eliminate multibuys
- focus on offers for Clubcard holders
- rationalise assortments
Further reading from BBC News, Retail Gazette, The Grocer (login required).
Tesco already underperformed with promotions
Tesco has not been reaching its fair share in category expansion and in retail switching - the two key Sources of Business® for a retailer. With the elimination of multibuys and the need for shoppers to have a Clubcard, this weakness is likely to worsen.
The example below shows retail switching with promotions for one product category: Tesco is losing more to its competitors than it is winning.
Also, Tesco's share of category expansion generated with promotions is below its general share, in beverages, food and personal care.
Source: Accuris Benchmark Study
Based on a total of 44 categories, All UK Grocery Multiples. Equivalised volume (L/Kg/units) weighted based on turnover.
Help Tesco, help yourself ...
For certain categories the Great Prices Every Day strategy will be effective, however for many others it risks to be counter-productive. Promotions that generate traffic to Tesco stores, upgrade shopper spend and grow the category are good for Tesco and good for your brands. Similarly, there are pricing opportunities on the back of strong consumer demand that should be addressed. Lastly, range optimisation is an opportunity to create clarity for shoppers, as long as it is demand driven, not negotiation driven.