By Joseph Tarnowski
Price optimization tools helped Van's Markets survive – and thrive – in a tough market.
Van's Markets, a seven-store independent based in Helena, Mont., initially deployed price optimization in 2005 as a matter of self-defense.
"Walmart had opened about 10 supercenters in the state, and two of them were in markets that we serve," recounts Frank Cannon, Van's GM. "We were struggling with all of the pressures that a Walmart supercenter brings, plus there were several chains that entered our markets, but we didn't have a sophisticated pricing system that allowed us to maximize our grosses, which at that point in time was, quite honestly, critical to our survival."
That's when Cannon tapped Roseville, Calif.-based Revionics, in an effort to consistently be priced right on the items that were most important to its customers, while still being able to manage and maneuver gross profits and make enough money to pay the bills.
Price optimization was relatively new at the time, and Revionics was new among the price optimization vendors, most of which only serviced large chains. Not surprisingly, Van's was cautious. "When we first went into it, we were somewhat afraid of it," admits Cannon.
This is a common sentiment among retailers initially entering the price optimization arena, particularly early adapters such as Van's. The retailer saw the technology as a mysterious "black box" that it had to take a leap of faith to use. However, Revionics addresses this by making its science as transparent as possible without giving away its "special sauce," so to speak.
"When the system generates its results, it also shows the user all of the factors that went into its recommendations," explains Jeffrey Moore, VP of science and innovation for Revionics. "This may include various constraints such as price elasticity or any other number of items. We want our customers to feel comfortable about the results, and to trust the science behind them."
The other factor that builds trust among Revionics' customers is the financial results. "What's different between now and our initial run with Revionics is the fact that the results are there, and we're happy with them," says Cannon. "And every year, our comfort level with optimization has grown."
Not only that, but Van's was able to survive the onslaught of chains, many of which have since exited the market. "We survived, and we are doing pretty well right now," says Cannon. "Price optimization is not the only reason, but it certainly had a lot to do with us being able to survive till the market settled down. Now the players in the market are there and we are all trying to figure out our unique niches to go forward, but it gave us the opportunity to get to that point."
And this is where Revionics really delivers, according to Cannon, who recalls that prior to using the system, "We used to have 700 or 800 price changes a week. But once you start a pricing strategy off a targeted gross margin, depending on the sensitivity of the item, you might not have to change a lot of those items to maintain that target. So your price changes go down pretty dramatically using price optimization, which boosts gross margin, and that saves on labor."
Indeed, based on the success Van's has had with price optimization, Cannon is eager to explore the benefits of Revionics' promotion capabilities as well.
But for that he'll need what every executive at an independent grocery operation needs: a tool to optimize the hours in the day, with time to spare.
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