The Price is right. Is it really?

"ProCogia evaluated the pricing and promotion strategy for one of the leading online retailers in Canada." Ryan B. and Beau R.

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Scenario

A leading online retailer in Canada needed help in evaluating its strategy to maximize returns. It carried its own private label brands in addition to the brads of other leading competitors. The management had limited information about price responsiveness, extent of competitive interaction and level of merchandising efficiency for its products. Different price and promotion scenarios were generated and comparison was done between the client and its competition.

Key Objectives

  • ProCogia maximized returns from pricing and promotion strategy by answering the following key questions:
    1. What is the impact of base price changes on the private label brand?
    2. What is the promoted price and merchandising sensitivity for the private label brand?
    3. Are there any cross effects between it's own brand and competitors' brands?
    4. What is the promoted price and merchandising sensitivity for the private label brand?

Methodology

  • A combined approach using site level analysis and statistical models was used to provide a comprehensive assessment of pricing dynamics.
  • Site-level analysis price points:
    1. Weekly data for the selected brand and competitors brands were collected from the site from different sections of the website on the selected parameters.
    2. Potential price thresholds were identified by looking at percentage of All Commodity Value (ACV) at each price point between promoted and non-promoted products in different sections.
  • Price and promotion analysis:
    1. A site-level model was built that predicted sales as a function of Target Base Price, Target Promoted Price, Target Trade Promotions, Competitive Pricing and controls for Competitive Trade Promotions, Seasonality and other section to section differences.
    2. The model estimated precisely the effect of price changes.

Results

ProCogia analyzed the data and provided insights that prevented 6% volume loss in sales. The generated models provided information that not only challenged the conventional beliefs but also provided precise insights into impact on sales of private label brands from factors such as geography or competitors’ products, pricing and promotion. These insights were directly leveraged by the marketing organization to plan it’s pricing and promotion strategy to maximize for revenues.