Retailers have a problem: traditional pricing and promotions practices are not working, and it’s all happening at a time when customers have more access to price information—online and via their mobile devices—than ever before. It’s not for lack of trying, for the signs are everywhere. Seasonal sales. Coupons. Special offers. Television spots. Newspaper inserts. Direct mail. Online ads. Website deals. Social media campaigns. Email interactions. As a group, these efforts fail to produce. Globally, 59% of retail promotions do not break even, according to a Nielsen study. The results are worse in the United States: 71% of promotions do not pay off. When researchers at RSR asked retailers to rate the effectiveness of their pricing programs, 68% said the initiatives were “somewhat effective” or “not effective at all.” Even so, many retailers strive to beat competitors’ prices in a money-losing effort to win customers. The result is a race down a pricing vortex. And it’s all happening at a time when customers have more access to price information — online and via their mobile devices — than ever before.

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HOW PERSONALIZATION IS
CHANGING RETAIL PRICING
And what you can do about it
Howard Langer

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It’s not for lack of trying, for the signs are everywhere. Seasonal sales.
Coupons. Special offers. Television spots. Newspaper inserts. Direct mail.
Online ads. Website deals. Social media campaigns. Email interactions.
As a group, these efforts fail to produce. Globally, 59 percent of retail promotions do not
break even, according to a Nielsen study.1
The results are worse in the United States:
71 percent of promotions do not pay off. When researchers at RSR asked retailers to
rate the effectiveness of their pricing programs, 68 percent said the initiatives were
“somewhat effective” or “not effective at all.”2
Even so, many retailers strive to beat
competitors’ prices in a money-losing effort to win customers. The result is a race
down a pricing vortex. And it’s all happening at a time when customers have more
access to price information — online and via their mobile devices — than ever before.
With retailers’ margins thin, these failures waste valuable
corporate resources. Poor forecasting and poor analysis
capabilities lead merchants to make decisions based
on faulty information and missed opportunities. Many
retailers lack clear views into their operations and are still
relying on gut feelings to make decisions about pricing
and promotions. Their pricing and promotion managers
face pressures to follow traditional practices (“This is the
way we’ve always done it”). They take in trade promotion
funds from consumer package goods suppliers, following
these vendors’ suggested promotions without really
knowing how they will influence the rest of the business.
These conditions typically lead retailers to pursue
one of the two most-used pricing tactics:
WHERE PRODUCT-FIRST PRICING FAILS
Both tactics present problems. They remove the retailer
from a position of decision-maker, making them passive
imitators. They cause retailers to lose track of why they
should even have a pricing and promotions strategy.
Along the way, profit margins on certain products
disappear as retailers drop prices to keep pace with
rivals. And prices on goods that are not the subject of
promotions tend to rise so that retailers can maintain
gross sales margins on their entire product selection.
In short, these tactics are all about “Product-First
Pricing”. They reflect retailers’ traditional view that
the world revolves around product lines and SKUs
and that products “behave” in a certain way.
When a retailer lowers some prices and raises others
in a seemingly random fashion, customers notice.
And they are justifiably confused about what it means.
What the retailer stands for in the marketplace. The
value it offers to shoppers. Its brand identity.
Retailers have a problem: traditional pricing
and promotions practices are not working.
Follow the vendor. Retailers publish the price
a vendor sets, either in conjunction with trade
promotion funds or a formula that sets the price
at a fixed margin over the product’s cost.
Follow the competitor. Retailers blindly
match the competitors’ prices without a
data-driven strategy about where and when.
1
2
1
“Cracking the Trade Promotion Code,”
The Nielsen Company, updated November 6, 2014.
http://www.nielsen.com/us/en/insights/news/2014/cracking-the-
trade-promotion-code.html
2
RSR Pricing 2015: Learning to Live in a Dynamic,
Promotional World.

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It is important to note that customers are not always
looking for the best price on every item. They are looking
for the retailer they perceive offers them the most value
overall across the store. This makes a coherent price and
promotions strategy essential in a marketing landscape
where customers are very attuned to market conditions,
informed by their peers and influencing each other’s
views — and they can exert more control over their
shopping experience. Retailers can’t ignore the fact that
consumers have seen an explosion in their shopping
channel options, and in the power shoppers feel through
this range of options including online retailers like Amazon.
com and its no-charge deliveries for a membership fee.
By embracing a Customer-First price and promotion
strategy, a retailer can improve customers’ price
perception of its brand — and its business results.
Moving from a product-first approach to a customer-
first strategy means using insight about customers’
preferences to identify a retailer’s most important and
loyal customers and then catering to their needs.
Take the example of one model customer, whom we’ll
call Anne Parker. Anne is very busy. She looks after her
health, has a pet cat and typically shops on Saturday.
And while she does not pay attention to product prices,
she does look for promotions on items she cares about.
Anne Parker does not care about a retailer’s product
budgets, or other factors like product uplifts or sales
price elasticities. She shops in multiple channels —
in-store, online and via her smartphone. She is
PUT IMPORTANT CUSTOMERS FIRST
demanding — she wants service and offers that cater
to her. And she ignores coupons or emails that are
not offering something she needs or wants.
Indeed, understanding Anne Parker is the missing link in
retail pricing. A retailer needs to know if Anne is a loyal
shopper, or if she only buys products on sale. Which
products does she care most about getting value from? How
many categories does she shop? Anne Parker — and millions
like her, with their individual tastes and preferences — define
the future of retail price and promotions. Success for a
retailer is not about products. Success is about knowing what
Anne likes and making it straightforward for her to remain
loyal. Success is about knowing whether Anne is valuable to
the organisation and knowing whether to over-invest in her.
The lack of results from Product-First Pricing and Promotions
means it’s time to move away from a product-first approach
and adopt a Customer-First pricing and promotions
strategy. Working with retailers around the world, we see
seven drivers that can elevate customers’ price perception
of your brand and inspire loyalty. And we have seen that
placing customers at the center of price and promotion
strategies yields substantial returns for firms that execute.
Success for a retailer is not
about products. Success
is about knowing what
individual customers like and
making it straightforward
for them to remain loyal.

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A SHIFT FROM ‘ALL THE SAME’ TO ‘JUST FOR YOU’
To understand the importance of a shopper like Anne
Parker, consider three types of pricing and promotions
practices — mass, segmented and personalised — and
how each practice influences customer behavior.
Most retailers are working at the mass pricing level — one
price per product for everyone. This exemplifies product-
based pricing. The problem is that mass pricing does
nothing for a customer like Anne Parker if she does not like
the price on a product she needs. And mass promotions
may not bring in the customers a retailer wants. Rather,
it has the potential to lure one-time shoppers making
a special trip to buy goods at discounted prices.
Segmented pricing is a step forward from mass pricing.
Instead of one price for all, some retailers use segmented
pricing to offer a different price to a certain group of
customers. For example, a retailer gives a bulk discount for
customers who buy large quantities of diet cola, or lower
prices to seniors as a corporate social responsibility gesture.
The strength of the segmented approach is that a retailer
can offer promotions on products that loyal customers care
THE POWER OF PERSONALISED PRICING
Customers at the Monoprix supermarket can use
a loyalty card to receive benefits like discounts on
certain products. And in exchange, the retailer
collects data about shoppers’ buying habits.
By analysing this data, Monoprix can send out quarterly
mailings with vouchers tailored to individual customers.
The company calls these mailings “snowflakes”
because no two are the same. It’s like a matchmaking
service between customers and the available offers:
The offers match consumers to those items in a pool of
promotional offers that Monoprix is making that quarter.
For example, promotions for strawberries, soft drinks,
yogurt and natural soap may be on the voucher for
one customer. A different customer will see a different
assortment of offers based on their shopping history.
about. If Anne Parker is a repeat customer who cares about
cosmetics, a retailer can offer her low prices on cosmetics.
Understanding the most important segment of all,
customers who are most valuable to you, unlocks the
ability to price and promote directly to your most important
segment. Whilst the prices you set are available to all
your customers, the segment that counts most to you
will benefit directly from your understanding of them.
Personalised pricing takes segmented pricing a step further.
It offers prices and promotions to individual customers
on products they like, when they like to receive those
offers, and via their preferred communication channel.
This is the approach retailers can use to keep customers
like Anne Parker coming back to buy. Personalised
pricing treats customers as individuals and makes them
feel like retailers are paying attention to their needs.
The results show the value of this approach. Monoprix
sees a participation rate of 50 percent in the quarterly
mailing — that is, half of the retailer’s customers have
opted in to the company’s loyalty program. The company’s
coupons have a redemption rates two to seven times
better than typical direct mailings in most markets.
This shows that retail customers want offers targeted
to them as individuals, when the offer is right. They
respond to it. And the practice rewards retailers.
Customers want offers
targeted to them as
individuals, when the offer
is right. They respond to it.

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THE VALUE OF PERSONALISED OFFERS
AND PRICE PERCEPTION
The Monoprix example demonstrates
an essential principle of customer-
first price and promotion strategy: the
value of price perception. Historically,
retailers are accustomed to appealing
to everyone who walks in. Personalised
price and promotion is different: it
distinguishes between customers that
are more valuable and those that are
less. And it requires investing more
in these more valuable customers.
While this approach risks losing
uncommitted customers, our
experience shows that one loyal,
valuable customer is worth 12
uncommitted customers. Through the
analysis of data about a customer’s
purchases, a retailer can paint a
portrait of each one, with knowledge
of a shopper’s preferences in
different product categories.
At dunnhumby, we have worked with
retailers to analyze more than a dozen
of these categories to present a high-
resolution portrait of each customer.
Suppose that Anne Parker, our model
customer, has opted to participate in
our loyalty program. The data show
that she is more apt to buy fresh
produce. She is less likely to buy
products labeled as adventurous.
She is more likely to buy products
offered on a promotion. By analyzing
the data related to these and other
purchases, a retailer can communicate
offers based on these preferences
expressed through her buying behavior.
Such insights help retailers target
areas for growth by designing prices
and promotions that will attract loyal
customers to buy more based on
their preferences. (When customers
do not opt-in, a retailer can develop
pricing and promotions based on
an analysis of anonymised data and
targeting different product categories
based on general shopping trends.)
The analysis of customer loyalty
data enables a retailer to identify
trends about the brand’s valuable
customers — and to make decisions
about where to invest pricing and
promotions resources. For example,
if the most loyal customers are price
sensitive, it will pay for the retailer to be
competitive on prices for the products
these customers care most about.
Notably, this approach also enables
retailers to decide what not to invest
in. There is no need to invest in
products that are not subject to
loyal customers’ price sensitivity.

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LOYALTY IS ABOUT MORE THAN WHAT CUSTOMERS SPEND
If a consumer cares about a brand,
she will be more likely to pay
attention to media, marketing
messages related to that retail
brand in television and online digital
advertising. She will be more likely
to spend time considering email or
direct mail messages she receives.
Research about loyal customer
sentiments can inform retailers’
pricing and promotions decisions.
And analyzing the results of
those programs enable a retailer
to further refine its strategy.
We’ve studied pricing, promotional
and loyalty programs, including
personalised offers across customer
segments, and correlated the data on
which customers chose to buy which
items. The results identified which
price and promotions levers
produced the greatest benefits —
but not only in financial terms.
Emotional ties to the brand also
demonstrate value. The research found
that product promotions were most
important in terms of financial uplift,
followed by personalised offers, the
retailer’s pricing program and then fuel.
The surveys revealed that fuel provided
the most benefit in terms of customer
loyalty, followed by pricing programs.
These insights show that it would have
been a mistake for the retailer to end
its fuel program — it had emotional
resonance with loyal customers,
even if it did not pay off as well.
Customers have emotions. It pays
to research them and incorporate
findings into pricing and promotions
analysis. Acting on these insights can
deepen your relationship with your
most valuable customers, and keep
them coming back to your stores.
Customers have
emotions. It pays to
research them and
incorporate findings
into pricing and
promotions analysis.
We refer to this as the STEP model.
For more on STEP see our ebook “The
4 STEPs of Loyalty: The Evolution of
Loyalty Management in a Multichannel
Consumer World” on dunnhumby.com.

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THE SEVEN DRIVERS OF PRICE PERCEPTION
We are only human. Perceptions guide our emotions. And when a flood of
marketing messages washes over consumers every day, every week, they
are unlikely to pay attention — unless a message is relevant and has some
emotional resonance. A person will recognise a brand sharing information that
is important and relevant to her. It’s a connection with emotional kickback.
A retail brand working to stand apart in that ocean of messages can analyse a
customer’s preferences and then augment that analysis with research about what
matters most to loyal customers. And this combination of insights can guide decisions
about price and promotion decisions that demonstrate a customer-first strategy.
This is an essential point, given that a typical retailer has tens of thousands of products
on offer — and the products don’t move themselves. Retailers have to find ways to
connect with customers and elevate their price perception in customers’ minds.
PROMOTIONS
BASE PRICES STORE FORMAT,
LAYOUT, SERVICE
LEVELS, RETURN
POLICIES
ASSORTMENT PRICE
PERCEPTION
PERSONALISED
OFFERS
PRIVATE BRANDS
MASS
COMMUNICATION
In working with retailers around the
world, dunnhumby has identified seven
drivers of price perception. These
are actions that retailers can take to
enhance how consumers see their
offerings. Done well, these actions
cement loyal customers’ positive
impressions for a brand’s identity.

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Retailers want to ensure that their base
prices are logical to build a sense of trust.
There are often hundreds of thousands of
products on a retailer’s shelves. In terms
of the prices charged, the presentation of
these products should make sense to a
consumer who visits the store regularly.
For example, with volume pricing, the price
per unit of a smaller-sized item is higher than a
larger item, to incentivize customers to purchase
the larger size. All of the prices of different
flavors of yogurt are the same. Private-label
products that the retailer makes a larger profit on
are more favorably priced than national brands.
When customers are faced with a pricing
logic issue, confusion can erode price
perception. Coherence builds it.
1
Logical, trustworthy base prices
2
Purposeful promotions
With the right analytics, retailers can
determine which promotions to offer on what
products. Stress the products that loyal, most
valuable customers buy. Avoid promotions
on items that are more likely to attract
consumers who will visit the store rarely.
Customers may visit a retail chain and use
the coupons to fill their pantries, or stock
up on an item. By analyzing the diversity of
goods in a loyal shopper’s basket, retailers
can identify whether customers are shopping
multiple categories. And they can tell whether
customers return frequently, or randomly.

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When retailers deliver offers tailored to the
individual needs of a loyal customer, the
response rate is naturally much higher than
a generic “one size fits all” promotion.
For example, dunnhumby worked with a Korean
retailer to create personalised presentations
to loyal customers. These customers receive
personalised emails. When shopping online or by
mobile phone, each customer sees personalised
landing pages on the retailer’s ecommerce
site, and on the retailer’s mobile app. The
retailer updates these offers dynamically,
depending on the customer’s shopping profile.
Products on offer include those on promotion
and those not being promoted — but all
are relevant to the individual customer.
3
Personalised offers
The assortment of products and their
presentation in-store or online influences
price perception. The more entry-level price
point and private-label product lines available,
research shows the better the overall price
perception, because customers perceive that
the retailer offers a value option. A strong
assortment gives a customer multiple choices,
at different price points, to make a purchase.
Many times we see that results vary by
store location depending on the affluence
of the customer demographic area.
Retailers can then revise their offerings
based on this type of data analysis.
By varying the assortment of these products in
different locations — including separate displays
of beer cans and bottles, and offering cider
selections according to different flavors — the
retailer saw an 11.2 percent sales increase
in this product category. The changes in
product assortment also correlated to a 5.6
increase in foot traffic through the stores.
The same principal applies when selecting which
products to shelve and which to discontinue
in dunnhumby’s experience. If loyal customers
regularly buy products that you would otherwise
de-list, consider keeping it to retain them.
4
Tailored product assortment

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Private-label products can sometimes signal
to consumers that they can get a good value,
even if they ultimately choose a national brand.
One-third of consumers consciously seek out
private-label products to save money, and 70
percent of consumers say store brands are
a good option when their preferred brand is
not on sale and they don’t have a coupon,
according to IRI. Yet even though retailers
often realize greater margins from their private-
label lines, they often haven’t given these
products the same pricing and promotional
attention. At minimum, consumers expect
prices on store brands to be lower — but
retailers don’t consistently enforce pricing
rules, leading to issues with logic on the shelf.
From an assortment perspective, retailers
should use the analysis and research into
loyal customers to determine which private
brands to retain, which to promote and
which to de-list. For example, many grocers
are offering private-label organic products
based on customer demand for what they
perceive as healthier options. A retailer also
might be able to better see what products
fit into a “good-better-best” product tier for
their private label lines. The analysis of loyal
customer data highlights the outcomes most
likely to drive sales to the best customers.
Targeted circulars or digital communications
are more effective than mass appeals
because they are the result of analysis: which
personalised offers are likely to be most
effective to a certain loyal customer. Retailers
can measure the results of these offers to
refine a subsequent targeted communication.
How goods appear on the shelves, the design
of the store’s interior, how a retailer organises
the aisles—all of these factors can influence
price perception. Analysis of loyal customer
shopping data, as well as surveys, can inform
the choices that boost price perception.
For example, a dunnhumby client recently
remodeled a store. The result was positive in
some areas, but negative in others. Research
showed that price-sensitive customers noticed
the hardwood floors and perceived that the
goods were more expensive. Even though
prices were the same, these customers
believed they were paying for the new floors.
5
The value of private brands
6
Targeted Communications
7
The Right Store Format
and Layout

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PUT CUSTOMERS AT
THE CENTER OF PRICE
AND PROMOTIONS
3
Phil Barden, “Decoded: The Science Behind Why We Buy,”
Wiley, 2013.
As customers, we think we are in control of our desires.
Research has shown that our behavior is subject to external
influences. Consumers make 40 to 70 percent of their
purchase decisions at the point of sale, with little pre-
planning, the behavioral economist Phil Barden has found.3
Such findings make it crucial for retailers to understand
the impact of changes in pricing and promotions, and
to know what drives their most loyal customers to make
decisions. These are the most valuable customers to a
retailer. Catering to them brings impressive returns.
Customers make
40 to 70
percent
of their purchase
decisions at the
point of sale

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THE DUNNHUMBY DIFFERENCE
dunnhumby is the world’s leading customer science company. We
analyse data and apply insights from nearly one billion shoppers
across the globe to create personalised customer experiences in
digital, mobile, and retail environments. Our strategic process,
proprietary insights, and multichannel media capabilities build
loyalty with customers to drive competitive advantage and sustained
growth for clients. dunnhumby employs over 2,000 experts in
offices throughout Europe, Asia, Africa, and the Americas and works
with a prestigious group of companies including Tesco, Monoprix,
Raley’s, Macy's, Coca-Cola, Procter & Gamble, and PepsiCo.
About Howard Langer
As head of the Price and Promotion global capability
at dunnhumby, Howard oversees strategic and
product direction, leveraging experience working with
some of the largest retailers in Europe, Asia and
the Americas. A former retailer, Howard has spent
much of his career delivering price and promotions programs from
senior merchandising and marketing roles in the UK, while at
the Kingfisher Group, one of the largest retail groups in Europe.
Howard is the founder and chair of the Retail Pricing Forum, a
UK-based group dedicated to helping retailers improve their price
and promotions capabilities. He is a visiting lecturer at both the
University of Southampton and Warwick Business School in the UK.
LEARN MORE
dunnhumby.com/priceandpromotion