Price Zones are used by many grocery retailers as a way to group stores together, typically to react to a common competitor. This then allows the retailer to apply common pricing across these store groups (price zones), versus using the same pricing across all stores. Price zones provide the capability for a retailer to be precise with the delivery of their pricing strategy, and compete effectively at a local level.
When sourcing and analyzing competitor price data, it’s easy to assume that the competitor location you are analyzing has pricing that represents the total market. But our research consistently shows that those assumptions would be incorrect, and will often lead to incomplete pricing decisions. Understanding how your competitors’ price within their price zone structure, is critical to executing pricing decisions that put you in a position of strength within your markets. Engage3 uses proprietary analytic methodologies for data collection, product matching and price pattern analysis, to reverse engineer a competitor’s price strategy, including price zone structures and item price variations. This can then be done for all relevant competitors in a market, allowing you and your merchant teams to fully understand who is leading the market, who is reacting to who, and how they react.
Engage3 was working with a mid-sized grocery retailer in the Southern U.S., who was challenged with flat sales growth. They were working to improve their competitive price position, and preparing to make moderate price investments across all their stores. After identifying key objectives, Engage3 conducted a detailed competitor market analysis, starting with the collection of pricing data across all relevant competitor locations within the market. Product links were then created with a focus on competitor Private Label items and perishables.
With these foundational data elements in place, Engage3 then ran a price variation analysis by competitor location, to determine pricing patterns by item, within categories and departments, across all stores. The objective was to identify not only the items used by each competitor as KVIs, but also the level of price similarities and variations across each competitor store location. This allowed us to understand which groups of stores are pricing similarly, and identify stores within the same price zone.
With this knowledge in hand, a retailer can then develop laser focused pricing strategies and tactics against a competitor’s stores, within each of their price zones. This allows competitive data to be collected within each price zone, in order to calculate precise, local price indexes. With proper execution, customers will notice more relevant pricing within their local store consideration set.