A key-value item pricing strategy is a form of dynamic pricing that combines inexpensive price elastic products in combination with popular price-sensitive products. In other words, businesses have a key-value item pricing strategy when they sell one or a few popular product(s) for a very low or negative profit margin in combination with popular products that have a rather high-profit margin. The reasoning behind this kind of pricing strategy is that certain customers go to a specific store because they know that a product that they want is very cheap over there. By offering very low prices for certain key-value items, businesses are able to attract customers to their store, to whom they can upsell other products with higher margins.
The KVI pricing strategy is one of the most advanced strategies, however, it can bring the biggest benefits. Let us give you some examples of how you can use it to get your pricing to the next level.
At their stores, they sell breakfasts that are only €2,29. By offering breakfast for such a low price, they attract people to their stores. While the profit margin on their breakfast may be nonexistent or very low, they are still able to increase their profits by selling other products that do have a much higher profit margin.
A typical key-value item found in supermarkets is cheese. Cheese is a very often consumed product that is expensive in comparison to other products. When cheese is much cheaper at one of the supermarkets, more people will come to that specific supermarket because it offers cheaper cheese than the competitors. By selling other products for a higher margin, supermarkets are still able to increase their profit because people do not buy cheese only at the supermarket, but also other products.
These shops also have a key-value item strategy. Most of the time, people want to copy or print A4 papers. To copy or print these is most of the time very cheap because people are looking for this when searching for a reasonably good-priced copyshop. However, the other articles and paper formats are often much more expensive and do have a higher profit margin. This is to compensate for the cheaper A4 papers.
When you want to implement a key-value item strategy you will need to do research into your products and divide them into product groups which are popular and less popular and also look into their price elasticities. In an ideal situation, businesses will choose popular products that are price elastic as their KVI and less popular products as their “moneymakers”. After deciding on how to divide the products, new prices need to be set, to either be rather low for KVIs and rather high for other items.
When you want to implement a key-value item strategy you will need to do research into your products and divide them into product groups which are popular and less popular and also look into their price elasticities. This strategy can bring a lot of benefits and in order to implement it successfully we recommend following these steps:
SYMSON can help you with implementing a key-value item strategy by managing the pricing process. By importing the right data, SYMSON is able to analyse the products and calculate price elasticities. In order to set this up it is advisable to follow these steps: