Common KVI Mistakes Retailers Unknowingly Commit

Common KVI Mistakes Retailers Unknowingly Commit

Common KVI Mistakes Retailers Unknowingly Commit
July 29, 2020 Matthew Pavich - Managing Director, Global Strategic Consulting

Avoid these critical errors when establishing your Key Value Item lists 

When it comes to being a competitive player in the retail market, one thing you have to nail down is your Key Value Items. KVIs are one of a retailer’s most important weapons for influencing price perception, identifying their market position and driving competitive pricing moves. But in order to leverage your key items for the maximum benefit, you must accurately define which items are the most strategically important. Below are some of the most common mistakes retailers make when determining their KVI lists. 

Key value items based on sales volume alone 

It makes sense to prioritize top selling items and spend more time on their pricing than low volume items. This common practice is not inherently a bad approach, but it also is not a best practice. More sophisticated retailers leverage advanced science and analytics to determine their key items, which many times can exclude some top sellers while including low volume items.  

Merchant derived, bottom-up approach 

Another common KVI mistake is to use a ‘bottom-up’ approach and let merchants dictate the most important items. This is a fundamentally ineffective practice. Strategies need to be aligned and not an aggregate of separate tactics. Individual merchants do not have the broader company perspective and are incented to grow their businesses, even if it is detrimental to fellow merchants.  

Too many or too few KVIs 

Numerous retailers have the wrong number of key items. It simply is not profitable to be aggressively priced on every single item. When everything is a key item – nothing is a key item. It’s expensive to compete with other retailers and very few organizations can drive sustainable margin growth while being hyper-competitive on every single item. A balanced approach using proper analytics can identify what items will be most impactful on your sales and shaping price perception. 

No differentiation between base and promotional KVIs 

Even the savviest retailers often fail to discern the difference between regular key items and promotional key items. The below chart is an example of the difference a product can have between its base and promotional elasticities. Simply put, some items perform very well on promotion, but are not necessarily everyday key items. The same is true in reverse. While other items are extremely important to price competitively for base, they will not perform as well on promotions. Understanding this basic fact can be a price perception game changer as it allows retailers to maximize promotional and competitive pricing capabilities. 

Wrong place, wrong season, wrong channel 

For some retailers, a universal key value item approach can work best, as additional key item lists may add unwarranted complexity. In many cases, however, it makes sense to have different key items based on location, channel or season. Sporting goods retailers, for instance, would clearly benefit from seasonal KVI lists due to the inherent seasonal nature of their products. Regionality can be important to certain retailers as well – every national grocer knows that key items in Miami look a lot different than those in Minneapolis. E-commerce is another area where it may be beneficial to offer different key items. Keep in mind, having too many variations to your key item strategy can dilute its effectiveness and be a KVI mistake itself, so beware of added complexity. The goal is to ensure that your company is focused on the right products in the right place, right channel and right season for maximum impact. 

Today’s key value items are not yesterday’s key value items 

Although this statement is self-evident, it remains true that a lot of retailers do not have the processes, partnerships or AI solutions in place to update their key item classifications appropriately. A lot of key item lists are outdated and no longer reflect the most recent trends. This has been more clearly illustrated than ever by the events of 2020, but the underlying principal has always been true. Retailers who consistently refresh their key items and use AI pricing platforms to adjust pricing based on consumer demand have a decided advantage over those who are incapable of evolving. Don’t be like other retailers stuck in the past making this common KVI mistake. 

Avoid the errors with analytics 

If you are guilty of committing any of these common KVI mistakes, you certainly are not alone. Now is the perfect opportunity to adjust your KVI lists to become a stronger competitor and make more confident pricing decisions in the changing post-COVID market. Data analytics offers an unbiased, customer-driven approach to identifying key items with enterprise objectives in mind. Revionics can help you get started with KVI analysis, consulting services, Competitive Insights and more. 

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