25 Oct 2018

Known Value Items – Drivers of Price Image

A Shopper’s Store-switching Decision

A KVI is a known value item. It’s an item that disproportionally drives the price value perception. So, in a grocery store it would include eggs and an automotive store might include motor oil, and a convenience store it might include cigarettes.

The reason that KVIs are important is because they drive a shopper’s store switching decisions. If the retailer’s prices are out of alignment with the prices that shoppers remembered, then the shopper can reevaluate their decision to shop with that retailer.

A question you can ask a shopper is, what items do you stock up on? And at what price points do you stock up? And you’ll begin to understand what a KVI is with the answers you get to that question.

A Tiny Number of Items

Another element that’s really important with the known value items is that it’s a very tiny number of items that drive a retailer’s perception in the marketplace. Typically, about a third of the price perception comes from only two-and-a-half percent of the products. It’s a very concentrated number of items, and this holds true across grocery, drug, mass,convenience, pet, auto—virtually all retail sectors. So, getting it right is critical.

Dynamic KVIs

Traditionally, retailers will evaluate their KVIs once a year. Over time it’s gotten to a more periodic basis where they’re doing it more often, but the market’s changing faster today than it’s ever changed before. Things are getting localized, things are getting personalized, and with that the shopper’s price perceptions are being set more dynamically.

All of these things mean that calculating KVIs based at the enterprise level is the wrong way to do it. The analysis needs to come down to the store level, down to the shopper level, down to the daily level, and have items coming in and out of the KVI list at those lower levels.

Increased Complexity

The challenge is that all this results in a lot more complexity that needs to be managed. The comp shop programs that were easy for one person to manage before now explodes the amount of competitive data that’s needed and the amount of management time that’s required.

A Platform to Manage Margins and Price Image

The retail marketplace is only going to get more competitive, and retailers need a platform to support themselves in this new environment. At Engage3, we’re on a journey to build that platform to enable the retailer – the early adopters – to outpace their competition so they can outperform them in terms of Margin and Price Image.

20 Oct 2018
grocery

A History of the Grocery Cart

“The wonderful thing about food is that everyone uses it, and they only use it once.” – Sylvan Goldman

The grocery cart, now a retail standard, originally looked nothing like it does today. In 1936, Sylvan Goldman and a young mechanic by the name of Fred Young invented the first commercial grocery cart. It was humble at first, but the pair’s invention went on to change the retail world forever.


The First Cart

original grocery cart
The original design was two metal folding chairs stacked on top of one another with wheels at the base of the legs to roll the cart around a supermarket.

In 1934, Goldman bought the grocery chains Piggly Wiggly and Humpty-Dumpty, both based in Oklahoma City. Around this time shoppers were buying new, heavier kinds of products but still using hand baskets to carry them. The increase in canned goods and refrigerated items inspired Goldman to make shopping easier for his customers. He grabbed his handyman Fred Young and a few supplies, and the two spent a night coming up with a prototype of a rolling grocery basket.

At first, Goldman’s plan didn’t succeed. Women compared the cart to a baby stroller and refused to push around the cart while they shopped. “I’ve pushed my last baby buggy,” they told him. Men were offended at the idea that they could not carry all their groceries around the store, and worried that the carts made them seem weak. Still, Goldman persevered.

He hired young women to model the carts and push them around his supermarkets, demonstrating their utility. This strategy immediately converted a few people. He then recruited male and female actors of all ages to advertise his grocery carts, and suddenly his stores were filled with happy shoppers unburdened by their groceries. Goldman began selling his carts to competitors, and quickly turned his former folding chairs into a booming business.


Trouble on the Horizon

Watson's telescoping cart design
Watson’s telescoping cart design

The grocery industry, however, would soon be introduced to a landmark invention: telescoping carts. In Missouri, business owner and machinist Orla Watson came up with a design for a grocery cart that improved upon Goldman’s basket-carriers. The cart allowed for space-saving convenience in supermarkets and parking lots by nesting multiple carts together instead of disassembling them. Watson filed for a patent in 1946, but had his invention contested by Goldman. In the meantime, Goldman produced replicas of the nesting carts to compete against the new challenger. Goldman sold his new carts for three dollars less than Watson’s, using his manufacturing resources to effectively drive his competitor out of the market. Finally, after an extended legal battle, Watson was granted the patent in 1949. Goldman was required to pay him royalties for each nesting cart produced.

The design of the grocery cart would remain the same for decades, but minor additions helped to shape the cart into what it is today. Most notably, carts were outfitted with seats for children beginning in the mid-1950s. These seats cemented the grocery cart as a supermarket necessity.

The shopping cart can be found today in any website with a product to sell, but its history is rooted in a late-night idea and some tinkering in an Oklahoma supermarket. In the next installment of this history of the shopping cart, we’ll be looking at some of the modern additions to grocery cart design, ranging from security devices to complete redesigns and the jump to online shopping. We’ll also look at where cart-less retailers stand in the market today. Click here to subscribe to our newsletter, and stay up-to-date on future videos and publications.

18 Oct 2018
ken ouimet lunchtime talk 10-26-18 FINAL

Ken Ouimet at UC Davis

Ken Ouimet, CEO of Engage3 and distinguished College of Engineering alumnus, is giving a talk at Kemper Hall on the UC Davis campus. Join us on October 26th from noon to 1PM. Register at bit.ly/kenouimet

16 Oct 2018
ken Ouimet honored at the mondavi center in Davis

Ken Ouimet Receives High Honor from UC Davis

The University of California, Davis presented the 2018 Distinguished Alumni medal to Ken Ouimet, CEO and Founder of AI retail price innovator, Engage3. Ken received the award alongside JoeBen Bevirt and Cynthia Murphy-Ortega at a special alumni celebration at the Mondavi Center on October 26, 2018. The award is given to alumni who have achieved an overall high distinction in their field and have contributed a distinguished service to the college, profession or the community. 

Ken joins the ranks of other notable and decorated alumni of the College of Engineering, including Mars Lander Team Lead Adam Steltzner, Astronaut Steve Robinson, and Hyundai Motors Vice Chairman of R&D Woong-chul YangWatch the Mars Lander video “7 Minutes of Terror: The Challenges of Getting to Mars” here.

The College of Engineering has had over 22,500 graduates since its inception in 1962. Among the alumni are company executives, doctors, technological innovators, and an astronaut-turned-professor. Beginning in 1989, UC Davis began awarding the honor of Distinguished Engineering Alumni annually. To date, only 64 awards have been given out.

 

22 Sep 2018
Screenshot 2018-09-25 15.43.22

Engage3 at the CGA Strategic Conference

September 23-25, 2018 | Palm Springs, California
Engage3 is a sponsor at the CGA Strategic Conference this week, where hundreds of professionals from the California grocery industry convene to collaborate, network, and learn about the latest trends. Engage3 is showcasing its Competitive Intelligence Platform and Competitive Price Response products at the event. To attend, you can register here.

13 Sep 2018

Price Optimization 2.0: The Efficient Frontier in Strategic Pricing

When managing a financial portfolio, you’ll need to determine how much to invest in each asset. If you have a thousand assets, it becomes a very complicated decision on how much to invest into each one. Harry Markowitz’s Nobel Prize Winning portfolio management theory, called the Efficient Frontier,  allows investors to boil this problem down into a strategic decision of how much risk to take for a given return.

In retail, you’re managing a portfolio of products. Instead of an investment decision, however, it is a pricing decision of how much you will be investing into each product to lower the price. The Efficient Frontier allows us to boil that pricing decision down into 2 dimensions – Price Image and Profit Goals. We use this tradeoff in retail pricing – where you have to manage thousands of pricing decisions to achieve your desired return. The question is: How do you roll that up into a strategic decision?

Because changes in retail pricing are becoming faster, more localized, and being split across different channels, we knew that we needed a tool to pull all that together and manage a consistent strategy across different price types. It turns out that the Efficient Frontier theory is the most powerful tool to solve this complex problem.

If we apply the Efficient Frontier theory to retail product pricing, then the dimensions we’re considering are the Price Image along the X-axis and the Profit Goals along the Y-axis. The highest point of the curve is where you make the most profits. Those are short-term profits. We then get the point-of-sale data that’s recording short-term decisions from customers, and that’s what the demand models are modeling.

There is a risk associated with pricing at the top of the curve because while that is where you make the most short-term profits, it’s also where you’re burning your Price Image. At this price point,the customers aren’t going to come back. The strategic decision to make, therefore, is how far you have to go down and how much you have to invest into having a lower Price Image. The decision is unique to each retailer and each strategy. It’s even unique to each category, fulfillment type, or each channel that you’re pricing.

There is a lot of information and power that goes into creating one of these Efficient Frontier curves. To illustrate: imagine that you have just two products, and each product has ten possible price points. If you look at all the possible ways to price those two products, you’re going to make a grid of prices, and it’s going to be a 10×10 grid. That’s a hundred different price points you’ll need to evaluate for just two products. If we add a third product and it has another ten price points, it’s now a cube and there are a thousand elements in that cube. The growth is exponential–you add a fourth product and there are ten thousand elements. What happens when you have a category of a thousand items? You will now have just one store, one category, with a thousand items. The number of pricing scenarios that need to be evaluated is now ten to the thousandth power. That’s more atoms than there are in the universe!

These are huge computational problems, and this is where algorithms become important—algorithm scalability is extremely important in these optimizations. To manage a hundred million prices in a dynamic market is a really complex undertaking. How do you boil that down to something you understand and make a strategy around? The Efficient Frontier is a tool that can collapse all those decisions into strategic decisions where someone, like an executive, can get their head around. It enables that executive to integrate the strategy all the way to the tactical execution, while automating those decisions.

This is what is exciting about price optimization problems. The same models that were created for investment portfolios are applicable to retail situations, and they allow you to make pricing decisions confidently–even in the face of 10 to the thousandth power price scenarios.

29 Aug 2018
Engage3 Climbs Up the Inc. 5000 List

Engage3 Climbs Up the Inc. 5000 List

Engage3, which helps retailers and brands enhance their pricing performance through data science and analytics, today announced that they have been included, for the second year in a row, in the prestigious Inc. 5000 List of Fastest-Growing Private Companies in the U.S.

Ranked at #1,458 last year, they climbed up 327 spots to their new ranking of #1,151. No company in the 2018 list has grown by less than 50 percent over the last three years. Companies who make this list are considered as true job creators, as only about 12 percent of American companies achieve one-year revenue growth of 25 percent or more.

Engage3has a 97%+ customer retention rate and has grown the number of its retail customers across the US and Canada by 56% between 2017-2018. The company has successfully expanded its platform to support sporting goods, electronics, apparel, and pure play e-commerce retailers over this same period.

Ken Ouimet, Engage3’s CEO and Founder, said, “We are thrilled to make it to the Inc. 5000’s fastest growing companies two years in a row. It is great validation of the strategy and value that we are providing to our customers, “ he added.

The companies on the list amassed more than $206B in revenue in 2017, up 158 percent from $79.8B in 2014.

“While these last three years of growth have been tremendous, this is only the beginning for us and we look forward to continuing the growth at an accelerated rate,” said Edris Bemanian, Engage3’s Chief Operating Officer. “We’re well on the path to revolutionizing retail pricing by improving retailers’ price image and profitability. This award is a testament to our amazing team’s unique ability to execute against that vision.”

About Engage3

Engage3 has assembled a team of price optimization pioneers to develop the next generation of price optimization.  The company was founded by the creators of SAP (KhiMetrics), who are credited with creating the retail price optimization space. Engage3’s leadership team is composed of former SAP (KhiMetrics), dunnhumby, KSS Retail, and IBM/DemandTec executives.

Engage3’s focus is on data quality and management which are the foundation of successful price optimization implementations. Engage3 Competitive Intelligence Platform (CIP) is an integrated end-to-end solution that uses data science to ensure data quality.  CIP 1) enables retailers to automate the management and optimize the design of their competitive shop program, 2) uses demand-side product attributes to link “Like” competitor products, and 3) reverse-engineers and monitors competitors’ pricing strategies. Engage3 Competitive Price Response (CPR) optimizes pricing, and manages a consistent price image across different channels, markets, and categories while providing control over your company’s quarterly sales and profits.

Engage3 was named in the top 1,500 firms for two years in a row in the Inc. 5000 Fastest Growing Private Companies in the U.S. It also recently raised its Series B financing from retail technology-focused venture capitalists.

More information is available at http://www.engage3.com.

25 Jul 2018

Ken Ouimet’s 5 Big Predictions for the Retail Industry

Engage3 is working to create the ultimate platform for retailers to monitor and develop pricing strategies. Even when focused on products at the store and item level, changes in the market influence these strategies significantly. I met with our CEO, Ken Ouimet, in front of the beautiful Mondavi Center in Davis, California. With big changes at Amazon and Walmart this past year, I asked him to describe the future that he sees for the retail industry.

Gartner identified Ken as one of the pioneers in the retail pricing optimization space. In this video, he shares his insights and enthusiasm for what’s ahead. You can also watch the video here.

 

 

13 Jul 2018

Comprehensive Visibility

One of the largest opportunities for retailers today is to improve their visibility and figure out how their competitors are pricing within a given market. The challenge is how they can do that using their existing budget.

Some large U. S. retailers are making their price adjustments based on a single competitor location in a region. Take a market like Atlanta, for example, which is an area of 8,300 square miles with more than 6.8 million people. Many retailers will take that market and price check one competitor location there, and then base their pricing for the whole Atlanta market, using this very limited information.

“This is not a very good way to get your pricing right for your customers,” Lyle Walker, VP of Strategic Enablement at Engage3, says.

The real opportunity is for retailers to improve their visibility and really understand how their competitors are pricing their products across the market. Engage3 solves this problem by utilizing online data, in-store data collection, and machine learning to QA collection processes. This leads to data that is accurate. We then deliver this back within hours so a retailer can really understand what their competitors are doing across their markets and locations, and even understand what their competitors’ KVIs are, etc.

“Without adding to existing competitive shop budgets, we can give you a window into your competitors’ reaction to new prices. We can track this over time and measure it, and then report against it,” Walker said. “You can make refined decisions that are localized to your markets and to your customers who shop at those sites,” he added.

Watch Lyle talk about what it takes to have comprehensive competitive pricing in your market.

05 Jul 2018
Engage3 Private label Q1 Pricing Report

Q1 2018 Pricing Report: Private Label, National Brands, and Fresh Items

In a study of prices across more than 2,000 items and more than 225,000 pricing records collected during the first three months of 2018, Engage3 reports on who led in the private label, national brands, and fresh areas across 46 different banners.

Aldi Leads in Private Label

Engage3-Grocery Private Label Price Index for Q1 2018
Engage3-Grocery Private Label Price Index for Q1 2018

Aldi led in lower prices on average at -32% less for its private label, beating Target, H-E-B and Trader Joe’s, who came in at -12%, -9% and -9% lower prices respectively, in this study. At the other end of the spectrum, Vons trailed everyone else with the highest pricing for private label at a price index of +10%, followed closely by Safeway at +9%.

Aldi and Trader Joe’s Shine in National Brands

Engage3 Pricing Strategy-Grocery National Brands Price Index for Q1 2018
Engage3-Grocery National Brands Price Index for Q1 2018

Aldi and Trader Joe’s, who carry a very small number of national brands in their stores, still managed to lead at -43% and -30% lower, respectively, in average pricing for the items in this study. Kroger and H-E-B followed with national brand pricing of -16% and -15%, respectively, while Sprouts surprisingly lagged at +5% for national brands.

Aldi, Trader Joe’s, and H-E-B Lead the Way in Fresh Pricing

Engage3 Pricing Strategy-Grocery Fresh Items Price Index for Q1 2018
Engage3-Grocery Fresh Items Price Index for Q1 2018

Aldi took home the top spot in lower pricing for Fresh items at -31% for Q1 2018, followed by Trader Joe’s and H-E-B on par at -13%.  Publix Super Markets and Safeway charged the most in the first quarter of 2018, on average for the items in this study, with a +7% index. Albertsons followed those two at +4% higher average pricing for Fresh items.

To receive a full detailed report or get more information about the full data, REGISTER HERE.