Traditional approaches to Key Value Item pricing in retail need revisiting. Stores are still using limited data and pricing information to set Key Value Item pricing. Now, the approach needs to meet today's rapid market changes. Brands are often optimising their prices according to people's changing buying behaviour.
Hence, retailers must consider more pricing datasets. It's also crucial to break the KVI product groups into smaller segments. These give you more data to rely on and set accurate prices. Likewise, retailers must update their Key Value Item (KVI) pricing strategies more often.
This approach lets you match your prices to current shopping habits. It makes your offer more appealing and helps you stay competitive.
Key Value Item Pricing: A Data-Driven Approach
Key Value Items (KVIs) are the spotlight products that catch customers' attention due to their prices. These are items that consumers often buy and have a strong memory of the price. Retailers use this information by pricing those items low. But the intention is not to be the cheapest and trade profits for volume. You can combine KVI pricing with higher prices of other inelastic items. This way, retailers can maintain profit margins.
The KVI pricing in retail helps shape shoppers’ perception of the store's value.
Take IKEA, for example, which offers breakfasts for approximately only €2.29. This pricing of a necessary item attracts people into their stores. This also increases the likelihood of extra purchases at higher price points. While the breakfast might not yield high margins, IKEA compensates by gaining margins on other, more expensive items.
Selecting Key Value Items includes:
- Analysing transaction and basket analysis data,
- Understanding shopper price perceptions, and
- Incorporating merchant judgment.
- This multifaceted approach helps identify items that drive value perception, improve assortment perception, inspire shopping trips, and encourage larger basket sizes.
Also Read: Business Benefits of Order or Basket Analysis in B2B
Why is using Key Value Items (KVIs) Crucial in Your Pricing Process?
KVI pricing strategy can improve your customer satisfaction and overall profitability. Here’s why using them is crucial for your pricing:
1. Deciphering Customer Psychology: Understanding KVIs is like unlocking a secret code that reveals how customers perceive value, moving beyond intuition to data-driven insights.
2. Beyond Intuition: Relying solely on a sales manager's gut feeling for identifying KVIs is outdated. In today's data-driven era, this approach is as archaic as using a compass when GPS is available.
3. Data Analytics for Strategic Pricing: Employing data analytics to identify KVIs leads to smarter pricing decisions, combining human insight with robust data for optimal outcomes.
4. Resonating with Customers: Data-informed KVI identification ensures pricing strategies meet customer expectations and drive business growth.
5. Successful Promotions: By focusing on KVIs, businesses can attract customers with promotions that truly resonate, enhancing brand perception and loyalty.
6. Higher Overall Profit: Strategic pricing of KVIs can lead to increased profit margins by capitalizing on products that significantly influence customer purchasing decisions.
7. Competitive Advantage: Understanding and leveraging KVIs enhances customer perception relative to competitors, positioning your business as a value leader.
8. Margins on Less Sensitive Products: Identifying KVIs also allows for higher margins on products that aren’t as price-sensitive, balancing overall profitability.
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Key Value Item Pricing in Retail: A Modern Approach
In the competitive retail landscape, pricing strategies are crucial for attracting and retaining customers. One effective strategy is focusing on Key Value Items (KVIs), products that significantly influence shoppers' perception of a retailer's value. This blog discusses the intricacies of KVI pricing, its evolution in the digital age, and strategies for success.
How Retailers Set KVI and KVCs
Retailers leverage a strategic approach to define Key Value Items (KVI) and Key Value Categories (KVC), crucial for developing competitive pricing strategies. This concise overview explains how retailers identify which items and categories are essential for aligning pricing with customer value perception and market demands.
Data-Driven Selection
- Transaction and Basket Data: Analysis of sales volume, revenue, and customer basket composition helps rank items by performance, considering price elasticity and market share.
- Shopper Price-Perception: Insights from customer surveys and focus groups reveal which products are perceived as valuable, guiding pricing alignment with consumer expectations.
- Merchant Expertise: Experienced merchants identify competitive items where significant competitor activity is noted, leveraging their market understanding to inform KVI and KVC selections.
KVI Categories
Retailers categorize KVIs to support different strategic goals:
- Value-Perception Drivers: Staple items, such as groceries or basic apparel, that shape long-term value perception.
- Assortment-Perception Drivers: Unique selections highlighting the retailer's merchandise authority, like speciality electronics or exclusive foods.
- Traffic Drivers: High-demand items that draw customers more frequently.
- Basket Drivers: Products that encourage the purchase of additional items, enhancing basket size.
How the Digital Space Has Made KVI Pricing Smarter
The advent of digital retail has transformed shopping behaviours and, consequently, pricing strategies. Price intelligence for retailers using AI helps beat competition and stay way ahead in the market. Here are the key trends:
- Cross-channel customer decision journeys: Shoppers increasingly start their purchase process online, with a significant portion checking prices on mobile devices.
- Price transparency: Advanced price comparison tools provide immediate visibility of competitors’ prices, challenging retailers to maintain competitive pricing.
- Dynamic pricing: Online retailers frequently adjust prices based on competitor activity and demand, a practice becoming common among multichannel leaders.
- Personalization: Tailored deals based on shopping history enhance customer loyalty, a strategy extending beyond online retailers to brick-and-mortar stores.
- Big data: The explosion of data from online interactions offers unprecedented insights, enabling retailers to refine pricing strategies for improved margins.
Creating a Smart KVI Pricing Strategy
The shift towards digital retail necessitates a reevaluation of traditional KVI pricing strategies. Key considerations include:
- Leveraging new data sources: Incorporating insights from online interactions, such as user reviews and social media comments, enrich the selection process of KVIs.
- Segmenting items effectively: The online environment demands a more granular segmentation of items, allowing for a nuanced approach to pricing that balances customer demand, competition, and profitability.
- Refreshing KVIs dynamically: The rapid pace of the digital marketplace requires retailers to update their KVI lists more frequently, adapting to shifting consumer behaviours and competitive landscapes.
How SYMSON helps you with KVI Strategy in the 12-Step Program
Utilising SYMSON to identify your KVIs revolutionizes your pricing strategy into a precise, data-centric operation. By analyzing extensive transaction data, SYMSON pinpoints items that significantly impact customer price perception and overall sales volume. This goes beyond merely identifying the best-sellers, focusing on how these items influence customer perceptions of your market pricing.
The outcome is a comprehensive report that offers a nuanced understanding of the items driving your pricing strategy. This allows for more focused and effective pricing decisions.
How SYMSON enables you with a Smart KVI Strategy
SYMSON serves as an intelligent assistant in this strategic journey, providing a clear, analytical overview of your assortment's KVIs. This insight enables you to tailor your pricing strategies around these products, ensuring they're priced attractively for customers while benefiting your bottom line.
This approach allows retailers to align their pricing strategies with the intricate dynamics of customer price perception, ensuring KVIs are optimally priced to boost competitiveness and profitability.
The transition from intuition-based to data-driven decision-making is crucial for organizations aiming to optimize their pricing in a competitive landscape while maintaining healthy profit margins. SYMSON is the key to unlocking this potential, guiding businesses towards a more strategic, informed pricing process that capitalizes on the power of Key Value Item Pricing.
Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!
