tysonfoodscompeve( pricing(strategies( …...categorystructure|...

PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX

Tyson Foods Compe@@ve Pricing Strategies

Gurkan Munsuz


Tyson Foods Strategic Pricing | Today’s Objec7ves and Agenda

2

1.  Tyson is “walking the talk” on building leading edge capabili@es

2.  Explain Tyson Revenue Management’s approach to pricing

3.  Our vision on how we will remain ahead of the pack in this cri@cal space

Objec&ves

1)  Tyson Foods’ Overview and Strategic Pricing Evolu@on

2)  Tyson Pricing Framework

3)  Next steps on the journey

Agenda

1.   TYSON: OVERVIEW AND STRATEGIC PRICING EVOLUTION


Tyson Foods | Purpose and Vision

PURPOSE Making Great Food. Making a Difference.

VISION To be the global innova@ve leader of food experiences.

STRATEGIC INTENT To sell more branded protein-‐centric food profitably than any other company in the world.

4


Tyson & Hillshire Together | Complementary Strengths

$42 BILLION BEST-‐IN-‐CLASS FOOD COMPANY

•  Strong operational acumen

•  Low cost provider

•  One of the largest refrigerated trucking fleets in the U.S.

•  Excellence in commodity purchasing and processing

•  Iconic brands with leading share in important value-add protein categories

•  Expertise in new product development and innovation

•  Thought leadership in marketing and brand development

Combines the Protein Industry’s Best Marke7ng and Opera7ons Talent into One TEAM

5


Tyson Foods Brand PorWolio | Leadership across meal occasions

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Tyson Foods PorWolio | Leading Share Posi7on in Core Categories

Source:IRI, Total US Mul2-‐Outlet, 52 weeks ending 08.23.15 *Nielsen Perishables Group, Total U.S. Fresh, 52 weeks ending 07.25.15 7


Tyson Foods Model | Delivering Sustainable and Profitable Growth

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Strengthen the Core

Extend Brands into Adjacencies

Fuel Growth through Efficiency

Build Industry- Leading Capabilities

q  Strategic Pricing §  Reinforce Brand Strategy §  Brand Role §  Price/Pack Architecture

q  Trade Analy7cs §  Event ROI §  Annual JBP §  Execu@on

Rev Man impacts


Fully integrated, holis@c approach maximizing advanced analy@cs to bring winning ideas and shape our strategic direc@on…

MUST op@mize the ROI from the biggest investment being made…..trade

Organiza&onal Commitment 1

•  Structure, people, culture •  Data, tools, processes •  Senior leadership support


2

•  Proac@vely bridge short-‐term and long-‐term

•  Cross func@onal collabora@on •  Pragma@c solu@ons


3

•  Product/brand level elas@ci@es •  Price gap, price thresholds, cross

channel elas@ci@es •  Event ROI’s


4 •  Price/ Channel / Pack •  Regional pricing opportuni@es •  Category white space


5

•  Sell-‐in stories and facts -‐ ra@onale for pricing changes – drive category growth

•  Profit-‐based customer sell-‐in •  Consistent pricing communica@on


6

•  Measure outcomes •  Deep dive on market changes and

compe@@ve responses •  Develop pricing play book

Advanced Analy&cs

Price Commercializa&on

Bias for Ac&on

Price Architecture

Price Assessment

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Tyson Strategic Pricing Evolu7on …

q  Performs simple pricing analyses on request

q  Short term focused

q  Market sets price and Tyson reacts to pricing and/or leads solely to cover P&L

q  Elas@city by PPG and account

q  Support BU in making pricing trade-‐offs

q  Holis@c financial results for pricing decisions

q  Price/discount strategy in 4 P’s

q  Generate a pricing assessment of external market

q  Create long-‐term pricing vision by combining “art and science”

q  Generate pricing and discount architecture and guardrails by PPG

q  Become thought / influence leader to retailer partners on Tyson and category pricing

q  Inform innova@on pricing

q  Understand cross-‐channel impact(s)

q  Corporate pricing/discoun@ng philosophy and improvement opportuni@es

q  Key cons@tuent for innova@on and acquisi@ons as per BU and corporate strategy

q  Improved capabili@es with more use of granular data and insights (CoE realiza@on)

Inclusion of Science

Pricing Strategist

Long-‐term Value Crea7on

Transac7onal Pricing

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2. TYSON PRICING FRAMEWORK


Consumer 1

Customer/ Channel Compe7tor Category Cost /

Commodity

Brand Strategy and Business Unit Objec7ves

Corporate Strategy

•  Elas@city •  Thresholds •  Loyalty •  Percep@on

2 3 4 5

•  Economics •  Margin •  Price Curves

•  Subs@tutes •  Price Gap •  Game Theory

•  Role •  Merch level •  White Space

•  Gross Margin %

•  Commodity Forecast

Tyson Foods Strategic Pricing | Pricing Framework

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Category Price Pack Structure | Category A – Retailer B

0 5 10 15 20 25 30 35 40 45 50

14

13

8

7

6

5

4

3

2

1

Pack Size (oz)

Avg Price/Unit

Segment 2 Segment 1 88% of category dollar sales represented

Source: Tyson Revenue Management | IRI 4 we 9/27/2015

Underserved price point – OPP

Smaller size opportunity

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Category Structure | Good Beber Best Pricing – Retailer X

Key Points 1.  Each segment has a price

point at which dollar velocity is maximized; going beyond that price leads to velocity decline

2.  Beqer segment has the highest diminishing returns and hence strongest effect

3.  Op@mal gap between segments is $1.65 between good and beqer and $3.00 between beqer and best

1

2

Each dot represents a month

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00

Good $3.34

Best $7.95

MM$/AC

V

Beber $4.99

Price/Unit

3

14

CPG companies are realizing the margin enhancing power of pricing and are implemen7ng price pack architecture (PPA) strategies

“… We have learned over the years that if we do have the right price/pack architecture that caters to different consumer needs and if we have the right marketplace execu@on, we call that winning at the point-‐of-‐sale …”

EVP and President, Coca-‐Cola Intl

“… We grew or held share in four of our top six gum markets, including the US, Japan, Brazil and China, driven by improved price pack architecture and a focus on freshness …” CEO, Mondelez Intl

“… We tested a new price-‐size architecture for Lay's for one full year… Customer margins are up, unit share and growth is accelera@ng, and we're geung excellent price mix and P&L flow-‐through; all green on our scorecard …”

CEO, Frito-‐Lay North America

“… We now have more tools in our kit to drive price realiza@on and higher margin through price/pack management. A case in point is our 12-‐ounce glass boqle, which sells at a more than 100% premium to a 12-‐ounce can …”

CEO, PepsiCo

Coca-‐Cola

Source: Food Business News, Seeking Alpha, Nasdaq, Company websites

Mondelez Interna7onal

Frito Lay Pepsi Co

PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX 15

These PPA projects are a “win-‐win” for food manufacturers and retailers as they help to achieve category expansion through sustainable price-‐pack and

break-‐through price-‐pack idea@on and tes@ng

Break-‐through price-‐pack Ideate new package / size / price configura7ons to posi7on products for new uses and new occasions

Sustainable price-‐pack Generate price-‐pack sustaining ideas to add value

to exis7ng offerings

1 2

Goal: Achieve sustainable, profitable growth through category expansion

Inelas7c Highly Elas7c

Highly Inelas7c Mildly Elas7c Elas7c

Value packs

Segment customers to de-‐commodi@ze certain brands and grow the category

through value enhancement

Premium packs

Heinz Ketchup

•  From iconic 24oz glass Red Rocket (.99/boOle promoted price) to FridgeFit 28/40oz.

•  Package improvement/upsize/higher price point and improved trade profitability

Consumers willingness to pay


ILLUSTRATIVE

Product development priori7za7on Pricing op7miza7on

Market simula@on helps to inform profitable growth enhancement levers to pull in order to op@mize price vs. consumer willingness to pay for key

aqributes

0

2

4

6

8

10

0 2 4 6 8 10

Everyday price

Perceived price vs. base price – by brand Dollars

Brand A Brand E

Brand D

Brand G

Brand F

Brand C

Brand B

Attribute Consumer willingness to pay ($)

Cost ($) Margins ($)

Attribute A $0.10 $0.30 ($0.20)

Attribute B $0.10 $0.25 ($0.15)

Abribute C $0.50 $0.05 $0.45

Perceived be

nefit

ILLUSTRATIVE

Priori2zed product innova2on


Segmented Pricing quan@fies impact of price and promo strategies accurately using longitudinal household-‐level purchase data

Products Segments

• Category • Sub-‐category • Manufacturer / Brand

• PPG • Custom aggrega@ons

• Socio Demographics: Urban, Millennials, Families, Income

• Purchase behavior: Loyalists vs. Non Loyals, Branded vs. PL focused

• Consump@on: HML • Geography: DMAs, Store types

• Custom segments

Price Promo behavior

• Base Price elas@ci@es • Promo Price elas@ci@es

• Quality Merchandising impacts • Stockpiling • Brand Switching • Basket Dynamics

Boomers Millennials

Families Low-‐income

18 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX

ILLUSTRATIVE

Color Price Sensi@vity

Strength of Price Threshold / Gap

Threshold

Inelas@c

Moderate Low

Elas@c Moderate

High High

Grocery 1.   Monitor price gap threshold 2.   Own price 3.   Price point threshold

-‐1.62 -‐1.20

-‐2.25 -‐3.00

-‐2.50

-‐2.00

-‐1.50

-‐1.00

-‐0.50

0.00

Base, No Comp. Follow Base, All Comp. Follow Promo Elast.

-‐1.31 -‐0.97

-‐3.00

-‐2.50

-‐2.00

-‐1.50

-‐1.00

-‐0.50

0.00

Avg., No Comp. Follow Avg., All Comp. Follow

$5.99 $4.98

+$0.50 vs. Competitor X -$0.25 vs. Competitor Y

Less frequent, deeper-depth displays Reduce Comac duration by 25%

100 126 148 185 256

No Promo $5.49 $4.99 $4.49 $3.99

TOP PRIORITIES

ELASTICITIES

SIMULATED LIFT BY PRICE POINT

PRICE POINT THRESHOLDS

PRICE GAP THRESHOLDS

QUALITY MERCH. RECOMMENDATIONS

Based on 2014 – 2015 IRI PTA Elas2city Modeling

Tyson Foods | Price Playbook


ILLUSTRATIVE

Mass 1.   Price point threshold 2.   Own price

3. NEXT STEPS ON THE JOURNEY


Tyson Foods Strategic Pricing | Best In Class Journey

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TYSON WILL CONTINUE TO UTILIZE ADVANCED ANALYTICS TO EVOLVE PRICING STRATEGY BASED ON LEADING RESEARCH

Employ abribute-‐based pricing dynamics in future strategy, including usage occasions

3

2

1

Refine understanding of cross-‐retailer price and promo7on interac7on to improve total market pricing strategy and achieve op7mal price curves

Con7nue to integrate our understanding of pricing mechanics among loyal consumers (including thresholds among loyal consumers)

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