Analytics and the Evolution of Key Value Items

By Jared Wiesel — September 12, 2016

In order to manage an ever growing assortment of Stock Keeping Units (SKUs), retailers adopted the notion of Key Value Items (KVIs), which are the items believed to most drive brand perception. Historically, retailers have identified such items through varying combinations of financial performance and competitive analysis, then spent the majority of their time focused on the pricing for this small subset of items.
 
This basic method of identifying KVIs served its purpose, but in today’s age of price transparency and hyper-informed consumers it’s simply no longer good enough. Without the right approach to identifying and maintaining a list of KVIs, retailers risk focusing on the wrong items.
 
Advances in sophisticated analytics and a proliferation of fresh data sources create the perfect environment to reconsider how one identifies a KVI.
 
First, a number of additional variables must be considered in order to identify a more accurate set of KVIs. Price sensitivity must be measured and factored into the equation as a true measure of customer price perception. Variables extracted from online data, such as cart abandonments and customer sentiment, should also be considered. These data inputs will allow retailers to determine what drives a customer to purchase an item in the first place.
 
Often, purchasing one item leads consumers to purchase additional items. Implementing market basket analytics will help identify those key items that lead to add-on purchases. Additionally, as the availability of competitive data has increased, there is an opportunity for a deeper view into competitive intensity as another KVI decision variable.
 
Second, retailers can also improve their KVI analytics through segmentation. By leveraging big data with sophisticated analytics, companies can migrate from a one-size-fits-all list of KVIs to a segmented list that is tailored to specific customer buying behaviors. Through these analyses, retailers will find that KVIs are not consistent across market, channel, time and customer dimensions. By creating a segmented list of KVIs, they can become more precise in their pricing actions.
 
Finally, given how dynamic the retail environment is, a retailer’s KVI list cannot be static. Retailers must establish a systematic approach to reevaluate their KVIs on a set schedule. These evaluations will ensure that factors such as product assortment, seasonality, competitive landscape, and customer response are captured and continually assessed. These evaluations do not need to happen constantly, but a consistent schedule will ensure retailers always have a relevant list of KVIs to help focus their pricing attention.
 
The retail industry has been at the forefront of innovation across so many product, channel, and analytics dimensions, yet most retailers still identify a static list of KVIs using the same tactics they did years ago. If retailers are not hyper-focused on offering the right items, in the right place, and at the right time and price, they open themselves up to further competitive pressures and will miss out on opportunities to drive organic revenue growth. 

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