How can a retailer identify KVI items in stock?

To attract more customers and increase profits, retailers must constantly improve their pricing strategy. KVI positions (categories and products) are an important part of an optimal pricing strategy and help retailers attract price-sensitive buyers and increase margins.

Pricing Strategy

According to a recent PwC survey, 44% of respondents made weekly purchases at offline stores in 2018, i.e. 4% more than in 2015. In addition, only 21% of respondents said that they mostly buy online

Nevertheless, although offline retail still holds its position, buyers are increasingly using digital tools to find the best deal in terms of price, delivery time, and payment tools.

The online retail market is expected to continue to grow and reach 17.5% of global retail sales by 2021. As retail is more and more digitized, businesses can take advantage of emerging trends in the management of KVI positions:

  • buyers check and compare prices online before making an offline or online purchase (according to McKinsey research, the number of such buyers is 50-70%);
  • successful retailers use dynamic pricing and price optimization solutions to timely and correctly respond to the demands of an ever-changing market and offer the best prices;
  • shoppers rely on personalized offers based on their purchase history;
  • new digital tools constantly monitor and provide data on many behavioral parameters of customers and competitors, and help retailers set competitive prices.

How to determine KVI positions

Correct KVI positions, reinforced by other elements of balanced pricing, increase customer engagement and loyalty, and hence profit.

 

How do KVI positions help increase profits?

First of all, retailers should make a list of the most attractive categories and products of KVI for buyers and adapt them by price zone and geography. After that, they should set prices for selected products based on competitors’ prices and current business goals, including target market share and profit, as well as price elasticity.

KVI positions, in addition to differing prices, require a separate approach to placement on the shelf, as well as to marketing and promotional activities.

The buyer remembers the prices of such products and compares them when visiting various online stores. If the prices of these goods do not exceed the permissible level of psychological perception, then the buyer believes that the cost of other goods is optimal. Therefore, prices for KVI positions (indicator products) mean so much to store sales.

To maintain an optimal pricing strategy, retailers should update prices for KVI positions as often as possible.

 

How to manage KVI positions

How do retailers decide which products to include in the list of KVI positions? As a rule, the following factors are taken into account:

  • How many products were sold and at what price?
  • Which categories and specific products attract customers most?
  • Which products have the highest intensity of competition?

There are four types of KVI positions:

  • Perceived Value Drivers. Frequently used and long-popular products.
  • Assortment perception drivers. A pre-selected list of products that form purchase decisions in a specific category, as they show customers what they need to purchase.
  • Traffic drivers. Products in high demand.
  • Basket drivers. Products with low elasticity of demand, which encourage the purchase of other goods.
  • McKinsey offers several ways to transform the selection process of KVIs products and product groups:

 

McKinsey offers several ways to transform the selection process of KVIs products and product groups:

  • Use new data sources. Most retailers use a standard cart, sales, and customer data, although online channels provide much more information: customer reviews, site traffic funnel, abandoned carts, etc.
  • Segment goods. It is important to divide the product into small price groups (for example, key and non-key products). But price segmentation must be more flexible, more granular, so that the retailer can more effectively manage demand.
  • Update KVI more often. KVC and KVI require increased attention from the category manager. Therefore, prices for these positions need to be updated faster and more often than the cost of other categories and goods.

Flexible data-driven KVI position management allows retailers to quickly respond to market changes and meet customer needs ahead of the competition, which in turn significantly increases profits.

Conclusion

KVI positions are a very obvious element of an optimal pricing strategy, as they are the key products for which the retailer sets a price. Companies are increasingly using data collection and price optimization solutions, while customers are increasingly buying and collecting information about online purchases.

Therefore, retailers should use every opportunity that technology can provide to make their offers for KVI positions as flexible and personalized as possible.