Product Pricing

Solutions by Industry

Retail Product Pricing: A Case Study

A major 800+ store retailer increased prices in a subset of stores and wanted to understand the impact on revenue.

The company's internal finance team concluded that raising prices caused major decreases in store traffic, even when competitors followed suit.
APT's Test & Learn solution revealed that prior analysis suffered from a control group mismatch and that the price increases were actually driving significant bottom line benefit.
The retailer moved quickly to take price network-wide with a strategy targeted by product line and market type. The impact was significant, increasing overall revenues by almost 2% and annual margins by over $40 million.

The Company:

A major 800+ store retailer

The Challenge:

The retailer had struggled with pricing issues for years. The company’s finance group had analyzed prior price increases and concluded that raising prices caused major decreases in store traffic, even when competitors followed suit. Now several direct competitors were raising prices again, but the company was reluctant to take even a modest price increase. As margins continued to come under pressure due to increasing input costs, senior management decided to see whether the Test & Learn™ approach could shed more light on the problem.

The Solution:

The retailer instituted a set of price increases in a subset of stores. APT's Test & Learn™ solution selected a scientifically matched control group for each individual test store based on sales trends, region, and store characteristics. By looking at the difference between test and control performance, management was able to isolate the true incremental impact of the price increases. The retailer quickly discovered that the price increase program was driving significant bottom line benefit.

The team revisited the prior internal analysis of the program which had concluded that the price increases systematically drove a decrease in overall profit. The finance team had used a simple market-to-market based control strategy. APT uncovered that the stores in the control group were actually outperforming the test stores even before the price changes were made. This led to an overstatement of the store traffic decline by more than 120 basis points and, therefore, a decision that meant foregoing significant revenue opportunities.

In addition, Test & Learn™ analysis revealed additional profit improvement opportunities through tailoring and targeting of the program. Results showed the price increases were more effective where the retailer had a stronger brand presence. Furthermore, detailed analysis revealed that in certain higher price-point lines, increasing prices past specific threshold price points drove consumers to trade down to lower-priced (and lower-margin) substitutes. By identifying interactions between product lines and price-point thresholds, the retailer was able to set prices in the higher-end line just below relevant thresholds and raise prices more on the lower-end substitute products.

The Results:

The retailer quickly moved to take the price network-wide with a targeted program that implemented larger increases in high brand strength markets and more modest increases at stores with lower brand presence. The impact of the pricing program for this retailer was significant, increasing overall revenues by almost 2% and annual margins by over $40 million. Most importantly, transaction count declined only slightly.