Actionable Insights From APT's Retail Practice
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Will An Apple a Day Grow Sales?

August 24th, 2011 | Posted by JMarek in Restaurants - (Comments Off on Will An Apple a Day Grow Sales?)

Recently, the Wall Street Journal and the Associated Press ran articles in which I was quoted regarding McDonald’s announcement that apple slices will replace some of the fries in its Happy Meal. McDonald’s move is both innovative and smart.

Here are five thoughts on why this move makes sense: (more…)

How to Maintain Debit Card Profitability

August 22nd, 2011 | Posted by Will Weidman in Financial Services | Uncategorized - (Comments Off on How to Maintain Debit Card Profitability)

In response to the passage of the Durbin Amendment, banks having been considering a variety of ways to offset lost interchange revenue.  CNN recently reported that some leading banks are now testing a monthly fee for debit card usage.

For example,  at the end of last year, JP Morgan Chase began a test “in which it charged customers in northern Wisconsin a $3 fee for using their debit cards.”  Now Wells Fargo is planning to test a $3 monthly debit card fee in select markets starting on October 14th.

JP Morgan Chase and Wells Fargo are taking the right approach by testing this new strategy to see how it works with a limited set of customers before rolling it out more broadly. (more…)

Pricing Strategy After the Fed’s Latest Announcement

August 15th, 2011 | Posted by Will Weidman in Uncategorized - (Comments Off on Pricing Strategy After the Fed’s Latest Announcement)

A recent article in American Banker discusses how banks are now scrambling in the wake of the Fed’s announcement that rates will remain unchanged for two years.  While there is much uncertainty, a few things are likely to occur.  For example, American Banker points out that “banks may be unable to expand net interest margin until 2014.”  It is also likely that already low interest rates will be pressured even lower.

Banks need to be thoughtful about how they adjust rates.  One particular area of opportunity is relationship-based pricing to cross sell to existing customers.  Banks often talk about taking a more customer-focused view, and this is a great opportunity to put that into practice.

Relationship-based pricing is a way to provide a more attractive rate to customers who meet certain criteria.  For example, a customer who has maintained at least $10,000 in a checking account, has been a customer for over a year, and has a certain income level may qualify for the offer.  The offer could be an extra 25bp above the typical rate for a money market account or 25bp below the best advertised home loan rate.

Providing select customers with this type of offer has two key potential benefits – 1) the customer brings more money to the bank, and 2) the customer would have left the bank but now stays.  Even in the worst of rate environments, it is important to keep in mind that pricing can be an effective tool to keep customers and deepen the relationship with customers.

On the other hand, there are risks with offering special pricing to customers.  (more…)

Make Effective Use of Outsourcing

August 4th, 2011 | Posted by Will Weidman in Uncategorized - (Comments Off on Make Effective Use of Outsourcing)

Firms have questioned recently whether they’ve taken outsourcing too far.  To quote the Economist, “Service companies, for example, contract out customer complaints to foreign call centres and then wonder why their customers hate them.”   

Sound familiar?  At APT, we’ve helped banks work through understanding this issue.  While the cost savings of outsourcing customer calls tend to be clear, whether there is a decline in cross sell revenue, customer satisfaction, or retention is less so. 

The magnitude of this impact varies by type of customer and type of call.  It is important to look back and assess the impact of outsourcing and develop an optimal strategy for each customer type and call type.  This can allow banks to effectively use outsourcing to maximize profits and minimize any impact to customer satisfaction.

Walmart, Target and The Rise of Mini-Me

August 3rd, 2011 | Posted by Jatin Atre in Retail | Uncategorized - (Comments Off on Walmart, Target and The Rise of Mini-Me)

As the development of new suburbs languishes, the city itself presents a market for organic growth of retail chains. Many major retailers are opening small format stores within city limits.  Walmart’s done it. Target’s done it. Other major retailers are considering it. However, as big retailers open small format stores, three major questions arise:

What to stock? Typical small format stores are about 10,000 to 15,000 sq ft. This makes them tiny compared to most supercenters. Retailers considering smaller formats need to consider (a) the type of products that draw consumers to their stores and (2) the depth of product offering that is essential to making their concept work. While no one would go to a Home Depot that carries only two types of paint, retailers need to carefully test which products drive visits, which products are add-ons, and what optimal category breadth vs. product depth can make the smaller format viable.

(more…)

Big Data — What Does it Mean for Retail Executives?

August 3rd, 2011 | Posted by Guru Raj in Uncategorized - (Comments Off on Big Data — What Does it Mean for Retail Executives?)

The clamor about “Big Data” continues to grow, and, at this point, it’s undeniable that we now live in an environment of “Big Data.”  In practice, this means that consumer-facing companies generate, track, and store more data than ever before.  Transaction log databases are common-place, whereas we may have previously focused only on aggregated metrics.  More impressively, consumer behavior (clicks, views, interactions, etc.) generates a stupendous amount of data.

But what does this mean for retail executives?  Does it change roles and responsibilities?  Does it change the approach used to tackle questions about cap-ex, marketing, merchandising, etc.?

We’d love to hear your thoughts.  Write back or add your comments here.

Commodity Price Increases — Playing This “Forced” Hand

August 3rd, 2011 | Posted by Guru Raj in Uncategorized - (Comments Off on Commodity Price Increases — Playing This “Forced” Hand)

Wide-spread commodity price increases are being reported with greater frequency.  Companies are now not just increasing prices, but doing so in a very public way (e.g. Clorox, Dunkin Donuts) in order to allay investor fears that their profits will be wiped by the squeeze between  commodity prices and consumer prices (e.g. Newell)

If we were economists, we could debate the root cause (e.g. monetary expansion) of this problem, but we have more practical and urgent problems to solve.  Let us also ignore the investment related tools (e.g. “buy forward”) for dealing with commodity prices for the moment and agree that ultimately, increases in commodity prices will force changes in consumer prices.

So, the question du jour is … What’s the optimal way to pass commodity prices onto consumers?  Are there tactics that will be more effective than others?

At first, it seems as though there are only a few ways that increased commodity prices can be passed through:

  • Price increases of goods being sold
  • Decreases in package size or unit count
  • Decreased trade-spend and promotional support
  • Changes to formula or materials

But thinking a little deeper,  it’s clear that there are actually a multitude of possible tactics:

  • Price increases of goods being sold
    • Increased differential pricing by product characteristics
    • Increased differential pricing by store or market characteristics
  • Decreases in package size or unit count
    • Increasing discounts for larger packaged goods, while simultaneously increasing the price of smaller packages
    • Increases in the price, units, and discount offered through bundles (encouraging customers to trade up)
  • Decreased trade-spend and promotional support
    • Re-deployment of marketing spend to most effective levers or those with clear ROI indications
  • Changes to formula or materials
    • Changes to packaing or presentation

In our work with leading retailers, we’ve come to appreciate that successful pricing actions have a few common characteristics

  1. Try something early: In general, the fears about raising prices are unfounded.  We’re not suggesting that you should lead your sector in price increases, but prudent retailers will test the waters early in order to accurately measure how consumers will really react.  Typically, you don’t have to publicize it, and you don’t need many stores or markets.  This information is critically important and more than a few times, early tests revealed that items were underpriced and increases could be passed on without detrimental effect.
  2. Iterative and staged application:  Rising commodity prices are nothing new and are never so urgent that they have to be dealt with immediately.  Smart retailers stage the way that their pricing initiatives roll out (some stores get it first and some stores are held out of the initial change) so that each increase can be accurately measured against doing nothing.  In this way, retailers rapidly build up a repository of which tactics are effective, with which products, in which parts of the year, etc.  This is a more complex than “raise prices everywhere by 3% all at once” and is the true silver bullet that allows the best retailers to navigate the murky, and hugely important, pricing decisions.
  3. A differentiated approach: We’ve often observed that no initiative is uniformly successful or unsuccessful.  This is particularly true for pricing related decisions.  Goods vary greatly in perception, need, interchangeability, etc.  Similar variance exists at the store and market level.  In the retail business, there’s a strong argument for KISS, but uniform pricing decisions are almost always sub-optimal.

As you may have guessed, our advice for pricing is nuanced, but, with a bit of planning, is not much  more complex than what most retailers are already planning.  You can read whitepapers about how to put these ideas into action on our website.