KVI Pricing: How Retailers Can Identify Their Key Value Items

KVI Pricing:

How Retailers Can Identify Their Key Value Items

Pricing will always remain a key task for retailers. However, this new digital era has altered the environment which has caused retailers to rethink both their pricing strategy and their capabilities.

KVI Pricing

Pricing Strategy

A study by PwC shows that today, 60% of online shoppers buy the item with the optimal price. That is no longer difficult to figure out now that most information can be found online. As a result, it’s imperative to use various pricing strategies. A couple of examples are psychological, which is where you price an item at, for example, $6.99 instead of $7.00 because shoppers are mainly concerned with the first number. Another example is bundle-pricing, where you put together a few items and sell them at a lower price than you would individually in order to free up some inventory space (learn more about pricing strategies by taking our free course on pricing strategies).

Utilizing the right pricing strategy is highly beneficial because category strategies and items are closely linked to the strategic goals of the company.

KVC and KVI: relevance in the digital era

Key value categories (KVCs) and key value items (KVIs) are at the center of pricing strategies in today’s digital world. They are used to assist with managing item’s price decisions in contrast to reference rival price indexes. In fact, those lists are at the base of the efficient price index that retailers are aiming for. The decision can either be the exact same or a bit higher or lower. Pricing depends on the competitive and consumer dynamic in the area or even the price zone being questioned.

KVC Lists

Let’s take a look at how the category strategies of KVC impact strategic goals.

Category Strategies
Category Strategy Goals
Traffic building
Try to get the shopper to go to the store and buy from a specific category or purchase at least something from the store.
Transaction building
Raise the shopper’s average buy of the category.
Profit gathering
Raise the sales of high margin items. Those are the items that are above the average category margin.
Share protecting
Look after the acquired market share and turnover of sub-categories in contrast to your rivals.
Excitement creating
Reach buyer’s needs by having in trend and revolutionary items.
Image enhancing
Make an image based on your targeted audience in one of these domains: pricing, service, quality, or assortment.

KVI Lists

KVI pricing, in essence, is heterogeneous and formally divided into these four subgroups.

Value-perception drivers
Noteworthy products that tend to mold traffic over a long period of time such as bananas or socks.
Assortment-perception drivers
Products that feature the merchandise authority of a retailer. In other words, the unique item selection that gives shoppers an idea of what they should purchase. For instance, uniquely prepared meals and meal-replacement selections are crucial to the high-end organic grocery stores.
Traffic drivers
High-speed products that encourage accumulative shopping trips such as toilet paper.
Basket drivers
Low-speed products that encourage accumulative shopping trips such as pasta sauce since it pushes pasta, vegetables, and meat.

KVI Pricing

Monitoring the prices of the KVI-items

New way to choose KVCs and KVIs

According to McKinsey, retailers will need to change

  • Use new data sources. Notwithstanding the traditional information used (basket and transaction data, customer price perception, and merchant judgment), there is a wealth of new sources of data one of a kind to online channels. This incorporates organized data, for example, client reviews, navigation, search, and buy rates. It likewise incorporates unstructured data, for example, tweets or remarks on social websites. New marketing teams equipped with apparatuses can concentrate and clean these bits of information and enable organizations to control them.
  • Make a set of segments of items. Segmenting goods into small sets of pricing groups (for instance, KVIs and non-KVIs) is normally not enough online. Rather, to adjust to client demand, competitor prices, activities, and financial contemplations, retailers should make an adaptable and flexible number of price segments. The key is to make them sufficiently granular so that they can stand alone yet not so granular that it becomes unwieldy to manage the price segments.
  • Renew KVIs more often. KVCs and KVIs can be refreshed considerably more oftentimes on the web. At first, most retailers will need to refine the procedure by hand. Once the information sources, weightings, and calculations are set, they can be connected in real time through special services, moving item sets dynamically.

Additionally, the workflow and work, in general, has changed with the KVI analysis.

Traditional KVIs
KVIs in the digital era
Single and static lists with only 200-300 products
Dynamic lists with over 1,000 KVIs in a number of categories
KVIs are both identified and refreshed on an annual basis
KVIs shift across segments in a dynamic depends on several inputs such as velocity and reviews
Every KVI is relevant
KVI’s differ by users and channels
The KVI index is based on a fixed set of rivals
KVI indexes are determined by the number of rivals by channel and by category
The index is set once a year and it is only reset after a very impactful external or internal shock
Indexes are reset constantly, depending on a set of triggers such as share and inventory

A retailer may end up moving one, static KVI list with close to 2-3 hundred products to a dynamic list of over 1,000 KVIs that work in a number of segments, even managing for a number close to the products across channels. Not every KVI will be a key item across channels, and there are a number of aspects that will push products to shift across KVI segments dynamically.

Altogether, they all require a single solution that will let you both quickly and transparently manage the assortment intelligence process. Thus, you’ll promptly track the results and be able to make changes accordingly.

Turn your daily pricing routine into one that is an organized and manageable business process with Competera Pricing Platform