According to recent shopper research from Nielsen, price is the #1 driver of store choice, and that 46% of the research respondents say that they shop at stores offering lower prices. But how do shoppers determine which stores offer the best value? Shoppers can’t possibly know the price of every item that they buy across all stores, but psychological research indicates that they derive their price image of a given retailer based on a handful of items.
One retailer recently invested in their Price Image drivers and saw a +6.4% increase in market share, +4.4% growth in topline sales, and +1.9% increase in store traffic — all while spending 66% less than their traditional investment approach that focused on KVIs.
To improve price perception, retailers have historically turned to traditional Known/Key Value Items (KVIs). Across most retailers, these KVIs are defined as items with high sales and shopper penetration. In essence, KVIs were the most frequently bought items as retailers surmised that shoppers would remember the prices of items they bought the most. This belief led to the creation of very similar KVI lists across retailers that were populated with items such as Milk, Eggs, Soda and other high-frequency items. Due to the similarity of KVI lists across retailers, these items are frequently prone to price wars and end up having low or even negative margins.
Differentiating with Price Image Drivers
While it is important to be competitively priced on KVIs, the low margins and frequent price wars or competitive-price-comping make it incredibly difficult to differentiate on these items to improve a retailer’s price perception. Price Image is your shoppers’ perception of your pricing and measures what a shopper expects to pay for a comparable basket of goods across retailers. It is possible to identify the Price Image Elasticity of every item, which combines the impact that a price change on that item has on the overall store’s Price Image and the marginal cost of the price change. Price Image drivers are the items that have a disproportionate impact on the specific shoppers’ perception of a retailer’s pricing and also have enough margin to allow for price investments.
By focusing price investments on identifiable Price Image Drivers, retailers can grow trips and increase loyalty while remaining competitive on KVIs.
One retailer recently invested in their Price perception drivers and saw a +6.4% increase in market share, +4.4% growth in topline sales, and +1.9% increase in store traffic — all while spending 66% less than their traditional investment approach that focused on KVIs.
To learn more about how Engage3 can help you identify your specific Price Image Drivers, click on the button below.