The Importance of Defining Category Roles in Pricing

The Importance of Defining Category Roles in Pricing
June 1, 2010 Revionics

Price optimization works best when the retailer is confident in their pricing strategy for their business and the product categories they carry.  For this reason, we chose to blog about the importance of defining category role when approaching any pricing initiative – whether your initiative is around everyday price optimization, promotion planning, and markdown optimization.

The industry standard model for Category Management is an 8 step process. The 8 steps are:

  1. Define the Category (i.e. what products are included/excluded).
  2. Define the role of the category within the retailer.
  3. Assess the current performance.
  4. Set objectives and targets for the category.
  5. Devise an overall Strategy.
  6. Devise specific tactics.
  7. Implementation.
  8. The eighth step is one of review which takes us back to step 1.

First, we will focus on the importance of step 2 in building an optimal pricing strategy.  Defining the role of the category within the retailer is really done by defining what is important to your customers, and knowing what is important to your customers is critical in defining your pricing strategy.  There are ways to get to this information in your historical sales data by measuring key metrics to truly define what is important to your customers.

Once you’ve defined your category roles you can then set a pricing strategy for each role.  That way you are pricing all of the items that are most important to your customer according to desired outcome.  Your customers will be happy if the items important to them are priced correctly and reward you by coming back.  Some things to consider would be the competitive position of each of those roles, elasticity of the products in each role, and goals for each category role.

In addition to the Revionics Life Cycle Pricing Solutions, our Business Consultants are available to help our customers identify and shape the roles of their categories.  Category Role Definition is one of our more popular services, as retailers fight to keep share of wallet while protecting margins.  Category Role Definition includes determining the proper category role and subsequent strategy based on elasticity, demand forecasting, and promotional lift from your historical sales data.  Revionics can then directly implement those strategies within our Price Optimization solution by configuring the system to reflect the retailer’s strategy.  For more information please visit www.revionics.com or email us at info@revionics.com.