Using Data to Win at Home Depot and Lowe's

[Video Transcript Below]
So, the pandemic has caused a lot of change in retail. Right? Relationships still matter. But data matters even more because we gotta use it to makes sure we understand what's happening and respond to what's happening. So I'll give you an example - 35% of people have tried a new brand and plan to keep using that brand. That's never happened like that before. In a very short amount of time people's behaviors are changing.

From that, we also see 50% of people say they plan to keep shopping online just like they did during the pandemic. We also see about the same number of people saying "no, I'm going back to in-store" so again opportunities all around – online, in-store. It just keeps changing and we have to adapt to it. So if you have command of the numbers, you can be a great partner for that retailer.

As if all that change wasn't enough we have commodity prices rising. Cleveland Research has shared a number of pieces of data that help us understand where that's going.

So now we have to go to our retailers and not only talk about all this crazy demand that's happening, we have to talk about raising prices.

Nobody likes to talk about raising prices but it's something that's been going on forever. Take a look at these few examples. (See CRC examples).

We know based on what CRC has presented, inflation driven by long-term demand shifts in housing and home improvement will likely remain throughout 2021. It's happening broadly across many market segments and impacting many categories. Overall prices depressed by coven 19 may reflate and prices elevated by covid may ease as we move through 2021. And before we are fully back to normal we are likely going to see fluctuation of prices in different segments based on demand. If the PCE index returned to the previous trend, the year-over-year inflation would be 2.7 percent.

In home improvement, household appliances represent an example of compounding that demand shift with a supply-side cause of inflation. A hike in steel prices, like many other commodities across the home improvement landscape, continues to contribute to the price shift in the category. And appliances are just one of many categories impacted.

Another example that everyone is talking about lumber – crazy numbers here. A few others that have high percentages include zinc, polypro, and nickel.

So how do you handle this? The best way to handle it is with information. Data helps. Anecdote stories. Videotapes of people shopping. There's lots of ways you can do it. You can go on a job site and talk to people. At the end of the day – pricing, packaging, merchandising, and online content matters.

Inflation is nothing new. It's been going on our whole careers. Take this grill for example (see Sears image) $66 dollars at Sears. This is a photo from the sears catalog remember that? So if you take that price from $66 in 1986 and you scale it to today – it's about $170. How many grills do you think are sold at $170? Grills are more like $300, $400 now. How did that happen? Well, it happened the grills are way cooler. They're bigger. They're hotter. They're stainless. They're gorgeous.

So really, it's a result of good category management, good product development. The grill business has really figured out how to make the consumer happier and the consumers voting with their wallet and spending more money.

And this can happen in any category. So I'm going to hand it off to Matty, who's in store. Matty ...

I'm here at the Home Depot to talk about the reference price effect, and how studying and understanding that can help you and your brand take your retail price points up. The reference price effect is simply what the customer expects to pay for an item. In some categories, they may have a lot of recent purchases and know exactly what they'd expect to pay. In other cases, advertising and promotions help them to understand what a price point should be but in most cases especially in home improvement we find that there is no reference price to begin with until they get in the aisle and so they are setting that reference price right in front of the bay.

Price anchoring is a strategy that you can use to set the correct reference price points for your product and your brand in order for you to have success at retail. Let's go inside and look at the hammer bay and talk about how different consumers shop that and how price anchoring affects what they end up buying. The first thing that a DIYer might do as they approach the bay is to scan and check out all the price points to see where they might want to fall in the continuum.

They'll quickly notice that the entire bottom shelf has prices $10 and under. And then as they scan upwards they see middle price point units all the way up to the top left of the bay where they find a $50 DeWALT unit. A DIYer that just needs to get the job done today might be looking for a hammer that they'll use for an hour and then throw in the shed for use at a later date.

In that case, they'll gravitate towards the OPP items which they have a variety of on the bottom shelf. However, humans innately avoid extremes so they won't gravitate all the way to the bottom price. They'll use that as an anchor to say I want something a little bit better. So they'll step up to the second or third hammer above that. In another case, the consumer might be a serious DIYer or a PRO that's going to gravitate towards that high price point unit, first.

They're going to use that as their price anchor for determining how far they want to step down. Then they start to look at prices underneath that and start to make the trade-off analysis of what they can get at a better deal for that lower cost. There are lots of ways to collect data on how this phenomenon affects your products in your category. You can collect data through qualitative research just by observing consumers and talking to them. You can use POS data to get a frame of reference. You can get quantitative data on frequency and price expectation.

You and the retailer succeed when you move price anchors higher. When consumer reference price goes up, the relative value of that product and the ones around it go up.

Beyond qualitative data that you can get in store, it's also important to get quantitative data. And one great technique you can use is called Van Westerndorp. You can google it but it's a great way to understand where the customer is thinking about a specific product. So they get exposed to the product. Then they're going to be able to tell you not only what they think they should pay for it, but they're going to tell you how much is too cheap that they start to question the quality. Then also how much is too expensive that they won't buy. But the most important part is they're going to give you the sweet spot – of where it's expensive but they'll still buy. You can cross-reference this data a number of different ways to find the accurate price points you should have through your entire lineup.

Now that you've gotten the optimal price – the price that's not too expensive, but not too cheap, and just right for the consumer. And you understand it inside your lineup. It's important to understand it inside the context of overall categories.

So you can develop a price elasticity index. We've done this before. And what you're trying to do is really give that merchant context. You know, what does it look like in appliances – versus what does it look like in hand tools? How elastic is a category? How much does a customer care if that price goes up? Being able to give that benchmarking in that context to the merchant will actually go a long way in helping you secure that pricing that you want. Because now they can see, "Oh I understand that appliances is way more price elastic than another category."

And so now you can put that in context for that merchant and really help them get comfortable that not only do you have the information that they need to be successful, but you can help them drive business and drive their average sale price up.

More categories than you think are price elastic. So it's really important that you understand what role it plays in your lineup. So as you are putting your price points up your line, make sure that you understand where/how far out you can put that highest end price point.

Sometimes you're going to want to have a high end price point at the end to help drive the midpoint up. It'll drive all the consumers up the line maybe one or two steps. but you can't do that if you don't understand what the customer's willing to pay.

In this section, we learned about price increases. Price increases happen and are normal. There are many ways to collect and understand data on your end users in order to effectively bring price points up without alienating and deterring pros and consumers.

The data you need to win at big box can be as simple as observing and talking to shoppers as they navigate your category to more complex methods – utilizing quantitative techniques like Van Westendorp and price elasticity indexing.

In the end, you and your merchant win when you're able to take price anchors up and the resulting productivity of the category goes up with it. All of these research and insights methods help to make for more informed strategic decision making and build a partnership with your merchant.

You know to make the point anytime you're looking at content whether it's on packaging or merchandising or online you really need to pay attention to what the end user cares about. For example, a friend of mine who's a builder helped me understand how people buy levels.

I asked him, "You know, how do you choose?" And he says, "Well, the first thing you got to know what job you're doing. So, in the case of building a deck, say, I always use a 48 inch i-beam level." So the size of the level matters, right?

Then you go to the heft of it. Is this a good level? I can tell if it's a good level if it weighs a lot, right? Not too much though, it's gotta weigh right, and people that use levels all day know what it should weigh.

So then I want to look at the edge. Is this a nice clean edge on both sides that's going to do the job for me?

Once I understand the size, the heft, the edge – I'm going to make sure the end caps are attached really well because I don't want them falling off while I'm doing my job.

And then last comes the vial. And this was fascinating to me. A person can look at a vial and they can tell that they have a surface, I don't have one here today, but if I had a surface I would look at this vial, and then I would flip the level over and I would check it again. And as long as the bubble is in the same position I would believe this is a good vial. And so people that know levels know how to tell the vial is even good.

So we kept seeing this over and over again – on the job site, in store, people were buying levels in this way and seeing if their level was the right level this way. We saw it so often we called it the SHEEV test. Which stood for size, heft, end cap, edge, vial.

It can help you order the importance of communications, whether it's online or on a package. But that's not all you have to think about other things when you're working on packaging and merchandising. So, we use observation and marketing research to determine what information should be in a package. But that's not all that matters in packaging. Oftentimes we also have to look at the structure of the package.

Here's a great example of a really nice looking package in the knife category. We chose this category because it's not one we're in, and it's very similar to a lot of things that you find in home improvement – like garden tools or hand tools or anything really that has a handle on it that interacts with the hand.

So, let's go to the field and let's see how this package does.

Today we're at target shopping for kitchen knives. Packaging and merchandising are often part of a consumer's final decision when choosing a product like this. Try me packaging is a great idea in theory, but because of safety reasons for this particular product, it can sometimes be difficult. In one instance you might have a knife where you're able to ergonomically try the handle, but not the blade.

And in other instances, particularly with the higher end types of knives, the entire package is sealed off.

As Ged and Meg mentioned, it's really important to understand what's happening in the real world with products that are in their packaging with the merchandising and how the customer is interacting. It also can really help guide you to know what you need to ask quantitatively. And there's a lot of different ways to get to quantitative results of what's important to the consumer.

For an example, we're going to use a burger joint. So just think about your favorite burger joint, and if someone was to come to you and say, "Tell me what's important to you, and I'm going to give you a list of things and I want you to rate those one to ten."

This is what happens a lot of times – Is the food quality important to you?

Yes, I'm gonna give that a 9.

Is service important to you?

Yes, 9.

What about the service level? The french fries? What about the different things ... uh 8, 9, 8, 9 ... by the time you're done, you can end up with a list of things that all rank from about 8.4 to 8.6. And that's not very useful to you when you're trying to make decisions on where to lean in to really attract customers to your product or to make good content.

Rather, we would recommend you something like "discrete choice." So, the way to use discrete choice modeling, is instead you're putting the customer to the test. You're asking them what's most important versus what's least important and you're making them make those decisions.

So for instance it could be food quality is most important, versus fries are least important. Or clean is more important than the fries.

So it makes the customer make clear choices on what's important and you can start to get separation between those things which will really allow you to make better decisions – on what you're going to lean into in your messaging, in your packaging, and in your signage.

And so keep that in mind as you're looking at data. If you're getting data that's too close together consider a technique like discrete choice to be able to pull those things out so that you can really know what to focus on.

Once you've figured out what's important to the customer, then it's important to put it to work. So now as you're developing your packaging you're merchandising your online content, there are also ways to use data to make sure that you're hitting the mark.

So there's things like eye tracking, where you can literally use technology to see where are people looking first where are they looking second or where are they looking last to make sure it's matching up with what's truly important to the customer on the package. Or, as they're in store and taking a look at things that you can see where are they looking. Even online this can be done as well. So this will give you a good feel for how people are taking in that content and making sure that it's hitting the mark.

Also important, you can show this to the merchant to show you've done your homework and make them feel confident that you have the right answer.

So now let's bring it all together and see how it works in store.

Hey guys! Today we're at Lowe's and we're going to talk about price perception of what really impacts the consumer's value that they'll place on a particular product or a particular category. So we're going to look inside at the staple guns. And some of the things you're going to see are actually the quality of the packaging itself. That's a key indicator of a premium product or quality product.

You're also going to see the ability in that package to actually squeeze the product and see the distance for that squeeze. I think it's important, obviously, the brands do, because it's one of the things that they called out – 25% less (squeeze) required.

We talk a lot about "Made in USA," that's something else I'm really excited to show you guys. We see in our research that the majority of consumers say they're willing to pay more for a U.S.-made product. It's a symbol of quality. It's something that can command a premium price point. And these retailers, these brands, obviously know that. You'll see that pointed out on their packaging as a way to really differentiate themselves from the non-U.S.-made products.

And then lastly what you're going to see is just the language that they use to talk about the product. One of the things that stood out to me was the choice for "Pros and Joes." And that was kind of funny, I thought it was entertaining. I really liked how they used that language. Because obviously, they know that DIYers aspire to be like a PRO. They trust that implied endorsement from a pro audience.

So all these things come together with a lot of other research and a lot of data and background to really help you understand what is the price you can command in any particular category with any particular one product?

Well, it's always great to be in store to see what's really happening, sometimes you can't get into the stores as much as you want to. And sometimes you need some extra tools that can actually put on quite a show for the merchant.

You can also do virtual reality, where you can actually be in store with the sounds and the sights and the feelings – and set up a bay so that you're able to look around and get your customer to look around tell us what you're seeing. We'll get a feel for what's important to them. They can actually pick up the products. We also have the ability to track where their eyes are going.

You can see where we can toggle in and out of data to show where they're looking at first, or whether they didn't look at it all.

How long did they spend holding on to a product? You even have the ability with the push of a button to change the whole planogram around or even change out packaging. And get their reaction in real time. So it's a really cool and innovative tool that can also make a big impression on a merchant.

Use the data where your end users are learning about, shopping for, and buying your product, to improve packaging merchandising and online content

Collect data on how pros and consumers interact with the product and packaging, and how they evaluate choices while shopping. Observing in aisle is good for understanding those product interactions. But also consider using more sophisticated techniques, like discrete choice, to understand a true trade-off analysis and where you can lean in to elevate your communications.

There are many other techniques for understanding shopping behavior – what works, and what doesn't. Heat mapping, eye tracking, and VR are all great ways to collect data to inform strategies on packaging merchandising and online content.

Again, utilizing these methods allows you to meet the wants and needs of your end users, become a better big box partner, and create better programs alongside your merchant.

We shared today a lot of complex ideas and a lot of easy ideas as well. So, we have things with fancy names like Van Westendorp, and we have virtual reality which are tougher things to do.

But really the easy thing to do is just pay attention to your end user and help them solve their problems. If you and the merchant team partner together and make the end user the goal, you're always going to win. So thanks a lot for your time today. We've had a lot of fun. And if you have any questions please reach out.

Today we learned how to flip the script on pricing discussions by showing what your end users are willing to pay for.

We learned the importance of demonstrating to the vendor your in-depth understanding of how the end user shops and buys a category. And how that helps you know what to do to improve productivity via packaging, merchandising, and online content.

And finally, we learned how to use different techniques for collecting and understanding data. So you can become the partner that your merchant needs to make more informed decisions and win.

Can You Comp the Comp?

Can You Comp the Comp?

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