What is KVI Pricing? Identify Your Key Value Items

In one of our previous articles, we discussed decoy products that motivate customers to buy another particular item from the seller’s assortment. This isn’t the only strategy allowing you to encourage sales using some products as bait. KVI, or Key Value Items, also serve this purpose, but in a different way: buyers come to purchase a super-cheap product, but eventually put more popular, higher-priced products in their cart. This guide explains how to manage KVI pricing so as to motivate sales and not undermine your profit margin.

Key value item pricing is a dynamic pricing method that combines inexpensive price-elastic products with popular price-sensitive goods. In other words, businesses use a key value item pricing strategy when they combine one or more popular products with minimum profit or even at a loss to sell popular products with relatively high profit margins.

The reason for using such a pricing strategy is that some clients visit a particular store because they are aware that a product they want is very affordable there. Businesses are able to get customers to their store by giving very low pricing on a few essential value items, and then upsell additional products with larger margins.

First and foremost, merchants should identify KVCs (key value categories) and KVIs, or the goods within these categories that most strongly influence perceived value, and then adjust them by price zone or location. Then, depending on the pricing strategies used by rivals, as well as their present goals, such as target market share, profit targets and price elasticity, sellers determine optimum prices for the chosen items.

KVCs and KVIs are managed differently from other items in terms of space allocation, product setting layout, marketing, and promotional activities, not to mention their pricing, of course.
Retailers should regularly update their KVCs and KVIs to maintain the efficiency of their pricing strategy.

Instead of trying to improve metrics with low-volume items, it makes sense to prioritize best-selling products and devote more effort to promoting them. This typical practice is not always a bad strategy, but you can try a better approach. Advanced science and analytics are used by more sophisticated merchants to identify their important goods, which frequently leaves out certain top sellers while including low volume items.

Utilizing a "bottom-up" strategy and letting merchants dictate the rules of sales is another typical mistake made by companies implementing the KVI strategy. This isn’t efficient, so instead of using a compilation of several pricing approaches, try to introduce a set of coordinated strategies. Individual merchants cannot see the whole sales process as companies do, and sometimes your business will have to implement pricing that goes against resellers’ preferences.

The quantity of key products is also important. Having aggressive pricing on every single item is unprofitable: if every one of your goods is a KVI, none of them is of top value. Competition with other retailers is expensive, and only a small number of businesses can maintain sustained profit growth while being fiercely competitive on every single item. Instead, decide which goods will have the biggest effects on your sales by performing market and product analysis.

Even the most knowledgeable merchants sometimes fail to distinguish between ordinary key goods and promotional key goods. What’s the difference? Certain products work exceptionally well during promotions, but may not really be necessary for daily use. The opposite is also true. Some products should be priced optimally for the customer base, but they won't perform as well during promotions. Understanding this fundamental fact enables merchants to optimize promotional and competitive pricing potential, which may completely alter how consumers perceive prices.

A universal key value item strategy may be effective for some merchants, while additional key item lists could add needless complexity. However, it often makes sense to have various key products depending on the location, channel, or season. Retailers selling sporting goods, for instance, would undoubtedly profit from seasonal KVI lists because of the seasonal character of their items.

Geography may also be significant to some retailers because audiences in different places have different needs and purchasing power. Another sector where it could be advantageous to provide key value items is e-commerce. Remember that adding complexity to your KVI approach might reduce its efficacy and be a mistake in itself. Make sure that your business is focused on the right goods for the right channel.

How do businesses select key value items? Typically, the choice is based on the three aspects listed below:

• How many goods are sold, and at what price?
• What kind of goods and categories are most popular among consumers?
• Which items are in the most competitive categories?

There are four kinds of KVIs:

1. Perceived value drivers. These items have been popular among consumers for a long time.
2. Goods that form assortment perception. This is a pre-selected lineup of goods that influence customers’ purchasing decisions in a certain category by showing what they should buy.
3. Traffic generators. These are high-demand products that are sold in large volumes.
4. Basket drivers. These goods lead customers to buy additional items.

There’s one thing you should keep in mind when deciding on the cost of your KVIs. Customers should believe that the price charged for any given product or service is fair given the value of the product or service being offered in the current context. Otherwise, the customer may choose not to purchase from you, or buy from competitors the next time.

Maintaining optimal pricing is very important for key value items, which are more often benchmarked against rivals over other items. Your own distributors, who may occasionally be more critical of a proposed price than the customers themselves, should also think the price is reasonable. The perception of your KVI pricing strategy within your business can either support or undermine the efficiency of the pricing of the full product range.

A KVI pricing strategy is one of the most underestimated strategies. Some retailers view it as an unprofitable approach; however, when implemented correctly, it can drive more sales of regularly priced or expensive items. Staying flexible and offering a personalized pricing approach is crucial to make your KVI strategy efficient. This is where digital shelf analytics by Priceva come in handy: the software will monitor competitors’ shelves, helping you adjust your pricing and stock.

Finally, make sure to charge optimal prices for products to stay competitive. There’s no need to analyze the market manually: automate price tracking using the price optimization tool by Priceva, and update your prices as often as needed.

A key value item pricing strategy allows businesses to increase sales volume and promote the most popular, profit-generating goods. Low-priced products serve to attract customers, which makes it easier to sell them other items that bring more revenue.