As consumer confidence slowly rises from the ashes of the Great Recession, retailers have the opportunity to re-evaluate their market position in the context of the new economy. Doing so requires retailers to examine their Brand Price Perception, and not only just evaluate marketing or price perception.
It doesn’t take a lot of retail experience to know that across the entire breadth of products sold (i.e., the “product assortment”), only a handful of products significantly contribute to a retailer’s Brand Price Perception. These products are known as Key Value Items (KVIs). The perennial question, however, is “WHICH items are considered Key Value Items?”
At first, you might be tempted to say that Key Value Items are simply the best selling items in the assortment in your store, but what about items that customers wanted but you lost the sale because the price strategy for these items were too high? Don’t those influence Brand Price Perception? Or, maybe you are thinking that the Key Value Items are items in the assortment that drive basket size. And, while basket-driving products are a key component of Key Value Items identification, it shouldn’t be your primary way to measure Brand Price Perception.
The best way to identify the items in your assortment that truly drive Brand Price Perception is to use customer price sensitivity as the benchmark. Doing so allows you to tease out the products that customers respond most strongly to price changes (both price increases and price decreases) and this will ultimately help you to create and implement a price strategy for these products.
Ideally, customer price sensitivity measurements include the relative difference between your price and your competitor’s price. But, even if competitive price information is not available—or is not reliable—you can still measure price sensitivity using your own price data.
Incorporating customer price sensitivity into your Key Value Items identification algorithm is the ideal way to capture a true, objective measure of customer value when managing Brand Price Perception. It might even give you a jump on the competition and, ultimately, wallet share.