Traditionally, retailers will evaluate their KVIs once a year, but the market is changing faster today than it’s ever changed before, requiring more dynamic KVIs. In this episode, Tim explains why the analysis needs to come down to the store and shopper levels, with items coming in and out of the KVI lists.
Listen to “Known Value Items, Drivers of Price Image” on Spreaker.
The following is a transcript of the audio podcast:
A Shopper’s Store-switching Decision
A KVI is a known value item. It’s an item that disproportionately 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.
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.
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.
For more information on Price Image Optimization, you can request a demo here or learn more about the platform here. To learn more about the history of pricing strategy, watch Tim Ouimet discuss how a simple change revolutionized the retail industry here.