The live interview with Radim Dudek, Product Director and Milan Havlíček, Sales Director of Yieldigo around pricing in retail and other industry specifics.
Led by Kveta Kubota, Marketing Manager of Yieldigo.
Welcome Radim, Radim Dudek is the Product Director from Yieldigo and one of the 3 founders of the company, and Milan, welcome, Milan Havlicek, who spent his career mostly in the shoes of retail pricing expert and head of pricing departments. Currently, the Sales Director of Yieldigo.
Historically, excel-based pricing tools were great support of any pricing manager, even in companies of Fortune 500 with billions of dollars in revenue. Even those companies rely on Excel-based pricing models.
Now, the market is tremendously quickly changing and so what is the impact that it can bring to Retail?
Milan: Thank you Kveta for introducing the discussion. I believe that in this session we will talk about pricing, potentially retail.
Let me start from a broader perspective. 15 years ago I joined one of the top FMCG companies in Czech Republic and at that moment the company was establishing a pricing team. One of the top consultants claimed that we are the second company in Czech, who is getting the resources and focusing purely on the pricing. I was surprised that one of the top roles is underestimated as a function in the company. It was in FMCG, 15 years ago. Because it was part of a global company, we had the luxury to talk to our colleagues from North America and surprisingly they told us that they had been in the game for the last 10-15 years already, and even though we were the first one in Czech Republic, we were far behind the trend.
When you look at Europe, pricing is usually a well funded function, all working, but not involved in the top management. In North America, plenty of companies already have someone in the top management, who is pricing focused and has pricing as a core activity.
Then I joined retail and honestly I was surprised that in retail that usually operates with substantial margins, the pricing has a rather connotation of being process driven activity rather than what really drives the business.
What else makes the customer decide what product to buy, where and how to perceive the chain than in pricing? Suddenly I realized that the best outcome of the pricing activity was a product that works 100%, with price tag on and 100% position in the store. And that was the expected outcome from the pricing.
It comes as evolution at a certain moment. First you do pricing as a random activity, which is scattered through the organization and there is no clear strategy. Then you assign the people to the organization, you put the strategy on the paper, you teach the organization how to follow it, bring the tools in place and you are qualified.
And that’s my view in general. Pricing in retail has plenty of opportunities to improve and that’s the beauty.
Thank you Milan for the great entry. Radim, would you like to add anything?
Radim:I would like to talk about the difference in the other industries as Milan just mentioned. It’s quite clear that even from the technological perspective some industries have jumped on improving the pricing and involving not only well defined strategy, but also involving some data analysis and tools for optimization of the prices. This has happened in the airline industry as a first one, then closely after with hospitality and hotels, and let’s say retail is at least special in North Amerika the next in this learning curve. To go from the tools that just execute to tools that have some additional value as well.
Thank you. We already touched the role of the pricing within the companies. Why is the pricing important for every retail company?
Milan: I can see two main points where the pricing is crucial. The first one, which is obvious when we talk to anyone in retail, is price perception. It is the image that the customer has in general about the chain. Do you remember the price, the compare, the benchmark and in some regions compare promotional, non-promotional and over-all prices. It creates the tendency of where to go shopping for goods. Good position, cheap, expensive or good value for money creates the shopping habits. That is one point and the price range is definitely the crucial point.
And the second one is about how much your sales impact your business. You start on the top, you know how much you sell as a revenue and you go to the profit, then to the ebitda etc. Again, through all industries I have been to, the pricing was, is and will have the largest impact on your business.
Is it a priority or at least among the top 3 priorities?
Milan: It’s not. The priority is about replenishment, bringing new assortment to the store and pricing is the bottom. From PNL perspective, from performance and customer perspective, it should be at the 4P priorities.
How to start and improve it? What should be the immediate next step?
Radim: First you need to have a dedicated person. As with any other responsibilities, it cannot be scattered throughout the company. Then when the strategy is up, understood broadly in the organization and executed, you are there. Sometimes we hear from the clients that they have a strategy, but they do not execute on it as they should.
First step is to rank it high in the organization, these activities need to be visible.
What are the current approaches in retail pricing?
Radim: Excel is really the king in retail. It is nothing to be ashamed of, it is a very powerful tool. However when you handle tens of thousands of items or hundreds of stores, different zones and for the complexity there are also different loyalty discounts, we get to endless possibilities. To handle this in Excel, we often see that it is difficult for people to manage the complexity, it becomes prompt to errors and misses any automation or making it easier for the operations.
By using Excel, it results to handle cost-plus with combining the pricing of competitors. It enables the users to run the simple pricing strategy, but what is the number one issue is that it lacks the holistic view and understanding of what the pricing is doing and bringing and also what impact it will bring once there are any changes made.
Assurance is missing, are we going the right way? What if we do it differently? These questions are the number one topic. What is going to be the impact of any action?
Ok, you are saying that this is not driving, but actually following.
Milan: Another thing is that the pricing managers who maintain their Excels with complicated formulas over the years might one day leave the company. It is a super complicated action for anyone new to understand the formulas that cover several lines.
What are the main challenges our customers want to solve?
Radim: It surely depends on the customer, handling process and the complexity, sometimes making sure to avoid errors, cover the competition data, it is too much time consuming or steering KPIs.
When we move from simple Excel-based pricing to anything that allows any kind of smart control, it allows us to think in new dimensions: “Are we aiming for higher margins or more revenue?”, “Are we continuing the same trend as till now?” or “Are we handling the process and the complexity well?” and “Are the impacts of the pricing strategy what we want to?”.
Once the customer starts considering it, they come up with ideas such as including the customer behaviour into the pricing, customer sensitivity for promotions and so on. Are the customers sensitive to another product, is it affecting different lines of products?
Milan: When we ask retailers how they do their pricing, the answer usually is that they follow their competitors. It is basically outsourcing of the pricing strategy. So, before we get the customer using Yieldigo tool, we need to make it clear that you don’t want to be the follower in pricing, but set up your own pricing strategy. Yes, we don’t live in a vacuum, but mindset has to be changed from following to respecting and making conscious decisions.
Majority of our attendees in our webinar are from retail and pharma, what are the specifics between the segments?
Radim: Pharma, OTC products are different from regulated products and these even differ from country to country. When we talk about supermarkets and groceries, the specifics are wide assortment, fresh food, all the way to seasonal products in non-food categories. Right now it could be for example grills and anything about picnics and grilling products.
Milan: Fashion is specific on its own. The use case is that four times a year you need to run clearance in your storage, completely. Although it is sometimes only about the different color and shape of T-shirt remains the same, all need to be sold out until a certain date, when the store gets a new collection. Four times a year with no compromise. That is a different approach than in the food business where the items can stay on the shelves for a longer time. Therefore, selling out for fashion is important.
I would mention pharma one more time. When you do your grocery shopping, you decide yourself, what you actually lay into your basket. Not in pharmacy. You come there with a backache and want to get advice from the person behind the cashier. And so pharmacies can use the next-best offer for example.
And how about differences between regions?
Radim: The differences are in the way of thinking. Western part of Europe is established, half way to execution in what they have set in their pricing strategy. It is more about automation, focusing on the process and managing it with efficiency. The talks are about simulations, what will be the impact of certain moves. Again, it is about conscious pricing decisioning.
From other countries we hear about improving KPIs, improving of margins and they are more typical for East Russia, we hear comments that those retailers would like to have their KPIS and margins under control.
Milan: We also see the difference between established and fast growing chains. The willingness to invest while acquiring new stores is higher. It is simpler to draw new processes and hire new tool at the same time, while established retail chains are carefully evaluating the changes that it might bring. We are aware of it and can work with any of the alternatives.
As I understand, Yieldigo tool is very standardized. How can it be used in such a diverse way?
Radim: The diversity is huge. What remains the same is the customer making decisions of what to buy in the store or e-shop, looking at products, brands or promotions and making decisions of what to place in his or her basket. As long as the store operates in this mode, we can bring the insights into the process.
How do we make sure that it works for different retailers? We do a lot of customizations and configurations for online or offline shoppings, different pricing zones or store formats, a lot of flexibility can be taken around the assortments or the split if the customer sets up basket A or core basket. All of this can be customized in the tool. Another option is to work with the competitors, aggregations of competitors etc.
One more example of how the tool is customizable relates to the languages. Currently, we have 5 languages in which the tool can be used. It is very simple to add another one, typically it only takes 2 weeks to set up a new version. The pricing managers then can focus on their work in their mother language.
So it does not generate the same prices for everyone, right?
Radim: Of course not. It all depends on all inputs and customer behaviour. It mirrors the strategy of the customer and the shopping behaviour that is happening.
Milan: I have never seen the same retailer, with identical amount of stores, assortment and whatever it takes to be identical to create the same prices.
What exactly does the customer get when starting cooperation with Yieldigo? The tool or anything else on the top of it?
Milan: The tool itself is the basics. On top of it, we work from the customer from the beginning, we invite the team of pricing experts from our end and what is important, the team stays consistent throughout the whole implementation process and so we keep the knowledge.
Looking back to the client side, who is the typical user?
Milan: In an ideal scenario, it is the head of pricing who has the responsibility to drive the decisions and process. And it is not only about setting the priority to pricing, also the category managers usually are involved in the process and anyone who needs the information about prices, how it is set up and why it is changing. We often see that the tool becomes the central point of knowledge to find information about prices of competition, behaviour of the products as such, because it allows its users to have a quick access within their roles, whether the role requires simulations or viewing only, it all can be set up.
What else do they get out of the tool?
Radim: Easy and quick information for people who do not have pricing as the main agenda is one thing, and for those who have it as the top priority, it is the great decision support. It brings visibility, what if simulations and why to set up any changes. You have the possibility to simulate several scenarios and decide upon that, what is the ideal case for you.
Milan: If you decide to implement a new pricing tool, we are not here to tell you what your strategy is, you are the one who will stay in the driver’s seat. The tool makes your life easier though.
We are now opening the discussion to the audience. The first question is about the demo, what does the product look like, how do the forecasting functions look, managing techniques, what about use of historical data etc?
If you are this fan in your pricing thinking, let’s have a separate discussion over the demo and we’ll show you the tool in detail, go over the functions that you are looking for and show you how it works.
What is the advantage of using Yieldigo over other pricing tools?
Milan: The strength is flexibility, in the past 4 years we haven’t had any request that we would not be able to accommodate within days. Also, the tool is possible to get in quick manner, rather weeks than months.
Results that we see, improvements of sales and profits and last is the change management process. We know about it and we are ready to spend necessary time with it.
Radim: We see optimization tools focus on optimization only a it can become a black box, while we aim for high transparency. The pricing has to be clear within the company, it should not be an invisible Yeti.
How do you support the beginning of onboarding of the tool?
Milan: Before we make the commitment, we try to understand our customer through several sessions with our business analytic. We prepare the training and onboarding sessions according to the needs of the customer, they can also train their staff on training demo, while we are always there for any questions and explanations.
Thank you for all your questions and inspiring feedback. It was a pleasure to have you here today with us and I’m looking forward to having another possibility for such a virtual session, maybe sometime in the future.