Profitable Pricing, Promotions and Markdowns – A Lively Workshop in Sao Paulo

Profitable Pricing, Promotions and Markdowns – A Lively Workshop in Sao Paulo
September 12, 2017 Carlos Rodriguez - Vice President, LATAM Sales

We had great turnout by retailers from virtually every retail sector at our recent workshop in Brazil. Revionics and our partner Profit Mais welcomed participants along with Revionics experts and our guest presenter, Guilherme Castanheira, Drogaria Araujo’s Price Intelligence Coordinator, to a lively interactive day filled with great content and discussions.

As I noted in an earlier blog, the Brazilian economic and retail landscape is very challenging. In March 2017, Reuters founds that “retail sales in Brazil unexpectedly fell at the steepest monthly rate in 14 years.” So how can Brazilian companies structure to survive – even thrive – in this dynamic environment, where profitability in pricing has become a paramount concern?

As one of our attendees noted, they are seeing more rapid growth than ever in their online sales. This multinational found that online is growing more rapidly among its Latin American customers than in North America.  Given that trend, Brazilian retailers need a good strategy to rapidly adjust to their shoppers evolving behaviors.  Using the right price optimization and promotion optimization technology can provide your shoppers with customer-centric pricing on the items they care most about, in the channels they prefer. Even better, these ROI-focused optimization solutions generate free cash flow to help the retailer invest in additional technology to support omnichannel excellence.

Most retailers use one of two store-wide pricing strategies: Everyday Low Price (EDLP) or “HiLo.” However, retailers in Brazil were forced to reexamine these traditional pricing strategies to allow them to survive. In fact, the EDLP strategy does not quite work (by itself) in the Brazilian market. Retailers receive trade allowances from manufacturers for promotional pricing. Pressured by competition and by consumers who have come to expect frequent price discounts, retailers have fallen into a price-promotion trap. Although only about 20% of retail sales come from promotions, retailers devote about 60% of their week to managing them.

Our expert on promotion optimization, Global Science Services Director Aditya Rastogi, advised workshop participants to look at their promotion holistically. You should take into consideration the effect of a promotional offering not just on the item being promoted but also halo effects (other items that will sell better because of the promotional offer on that item) and cannibalization (other items whose sales will be reduced because of the item on offer).

Having clear, data-driven insights into the true effectiveness of your promotions is critical to retailers. Promotional leakage in Brazil has been estimated to be about BRL 11 billion Brazilian reales – a truly staggering number. In fact, if this promotional leakage were a Retail Company, it would be the fourth largest retailer in Brazil!

In Guilherme’s presentation, he described how Drogaria Araujo is focused on applying price optimization within the highly dynamic Brazilian market. He gave great insights that really helped retailers in the audience understand the power of science-based pricing tools and analytic services, including store zone cluster analysis and Key Value Item analysis in this unique Latin American economy.  The retailers had lots of lively and very specific questions and learned a lot from Guilherme’s very well-informed responses.

If you were unable to join us at the workshop but would like to learn more about the insights and best practices we shared, please contact info@revionics.com for additional details and we’ll be happy to provide them!