It’s been a busy year for First Insight Inc. The predictive analytics firm has taken on a host of new clients, which include brands such as Vineyard Vines, Chico’s FAS, Desigual and Lilly Pulitzer, among others. Greg Petro, founder and chief executive officer, said he expects 2018 to be just as busy as companies respond to shifts in the retail market.
Here, Petro shares his insights into how his firm’s solution helps brands and retailers as well as the importance of pricing strategies and understanding consumer behavior.
WWD: In its simplest terms, retail is essentially about getting product and pricing right. How are you helping companies align their business with the right product at the right price while meeting other consumer expectations?
Greg Petro: I’ve been in retail now for 30-plus years believe it or not, and you’re correct, it does come down to product and price. And interestingly, product differentiation and uniqueness are more important now than ever for a retailer or brand to be successful.
We all know that the consumer today has access to every piece of information that was not available previously. They can see trends, and they can also source product for themselves. What’s different is the ways products are brought to market. These include GoFundMe campaigns and subscription models like Kidbox. So, retailers and brands must differentiate the product or fall into the sea of sameness.
WWD: Who is doing this well?
G.P.: A great example would be Dick’s Sporting Goods. They provide a broad assortment and offer a high level of availability in inventory that also includes their unique private label products. They also offer a distinctness in designs that are resonating with the consumer. It’s the great selection of private brand product along with the other great brands they carry that brings people back to Dick’s Sporting Goods.
The unique product offerings are what brings people to Dick’s Sporting Goods and makes them return again and again to companies like Lilly Pulitzer and Vineyard Vines. That’s where First Insight comes in — helping them mitigate the risk by identifying the right products.
WWD: So, retailers and brands use your analytics to tap what products resonate with consumers — and also the right price point?
G.P.: Yes. It is just as important to get the initial price right as it is to pick the right product. With one product, you can nudge up the price point without hurting volume, and you’ll get better margins. For another product, nudging up the price point would kill it. Having that data and knowing the difference is critical.
WWD: With the consumer, they’re at the center of this universe now and they’re clearly in charge. What are the friction points in this environment?
G.P.: I think companies need to have a clear understanding of how to compete on price as a strategy in their product sets. That’s not to say that they don’t want to mark down items or they don’t want to promote things. But, they need to know what to mark down. In the long term, it really relates to a concept that we have been discussing for some time, which is called “value quotients.”
WWD: Can you explain that?
G.P.: The concept is that every product has a value, every relationship has a value and you’re able to leverage that value for profitability and to build sales and margin. Whether it’s your favorite pizza that you’re willing to go out of your way for and pay more for, or it is a handbag. The concept is the same. There’s a relationship between the consumer, the product, and the value that the consumer perceives from that relationship.
To make it work, retailers and brands need to segment their customers and understand what their value quotients are for what the retailers and brands are offering. It’s important to understand that all consumers don’t behave the same just because they’re demographically alike. It’s based upon their behaviors. The first step is to collect data that relates to their behavior with products.
WWD: What about brands such as Warby Parker? Consumers go to their web site and click through a couple of pages as they shop, and don’t see a price until much later in the experience.
G.P.: Right. It’s about what resonates with the consumer in that case. The product has to be right. But price sensitivity plays a role even here, because the vast majority of consumers who participate in Warby Parker’s Home Try-On know exactly how much their eyewear costs. Remember what we said about availability of information.
To understand value quotients, let’s think about one simple example, a commodity item, water. Water should never vary in price. There’s no difference in water, right? Water is water, H2O. The reality, though, is that if you package it and place it a different way for different people, the price that they’re willing to pay and the demand for it are vastly different. If I were in New York, I would be willing to pay a dollar, maybe two, for a bottle of water. But if you lost your way in the Mojave Desert, I bet you’d be willing to pay a whole lot more. The value quotient for water changed dramatically in this case.
The key to survival is having a repeatable process and data to identify the products consumers want and the prices to set for them. That’s delivering value.