“ THE LAST FRONTIER ” W. FRANK DELL II,CMC DELLMART & Company RETAIL PRICING

DELLMART & Company AGENDA INTRODUCTION TYPICAL PROCESS PHILOSOPHY & STRATEGY PROPOSED PROCESS

DELLMART & Company OBJECTIVES Review current retail pricing process Explore consumer perception & issues Develop proposed retail pricing –Process –Approach

DELLMART & Company STAPLE / BASIC ITEM FOCUS STAPLESEASONAL/FASHION Normal Promotion Normal Promotion Mark Down Close Out $425.1 Billion Retail Food Industry Over-stored Mature Consolidating

DELLMART & Company MANY NEW COMPETITORS Membership Club Convenience Supercenter Drug/Chemist Fast Food Home Shopping

DELLMART & Company MASTER PRICING STRATEGIES EDLP Advantages Low cost maintenance First market entry advantage Disadvantages Boring Requires discipline HI-LO Advantages Merchandising excitement Provides flexibility Disadvantages High cost maintenance Difficult execution Fact - No retailer truly practices EDLP

DELLMART & Company STORE SELECTION FACTORS Source: Progressive Grocer

DELLMART & Company STORE SELECTION FACTORS Source: Progressive Grocer

DELLMART & Company RETAILER GOALS Low High Price Image Gross Margin Quality Ratio

DELLMART & Company CONSUMERS Recall up to 200 item prices Frequently purchased items High consumables Translates to ,000 items creating the price image

DELLMART & Company PRICE COMPONENTS

DELLMART & Company AGENDA INTRODUCTION TYPICAL PROCESS PHILOSOPHY & STRATEGY PROPOSED PROCESS

DELLMART & Company TYPICAL PRICING PROCESS

DELLMART & Company COLLECT COMPETITIVE DATA

DELLMART & Company DETERMINE PRICE

DELLMART & Company IMPLEMENT PRICE Minimum cost is $1.00 per item per store

DELLMART & Company PRICE CHECK Shelf POS

DELLMART & Company RESULT

AGENDA INTRODUCTION TYPICAL PROCESS PHILOSOPHY & STRATEGY PROPOSED PROCESS

DELLMART & Company RETAIL STRATEGY

DELLMART & Company ESTABLISH DEPT. STRATEGY

DELLMART & Company UNDERSTAND COMPETITORS

DELLMART & Company DEFINE CATEGORY ROLE Traffic Builder Transaction Builder Profit Contributor Cash Generator Excitement Creator Image Creator Turf Defender Destination Routine Occasional/Seasonal Convenience

DELLMART & Company DEFINE IMAGE PRICE

DELLMART & Company PRICE FOR PROFIT Gross Margin –Relationship between cost and selling price –Not a predictor of profit –Percentage ineffective during deflation times Profit Contribution Sales - Cost of Goods Sold = Gross Margin + Direct Revenue - Inbound Costs - Outbound Costs = Profit Contribution

DELLMART & Company VELOCITY PHILOSOPHY Faster sellers priced lower than slower sellers Reinforces low price image Basis for power curve

DELLMART & Company SIZE PHILOPSOHY Larger sizes priced lower than smaller sizes Promotes selling larger sizes –Increase volume –Lower transaction cost Supported by vendor pricing –Lower package cost –Lower transaction cost

DELLMART & Company FLAVOR/PATTERN PHILOSOPHY Create sub-group Price all items the same –Even if cost differs Consumers perceive all items as equal Cherry Orange Grape Raspberry

DELLMART & Company MAGIC 9’s PHILOSOPHY Food is a pennies business Price with a last digit of 9 Consumer perceive lower cost

DELLMART & Company AGENDA INTRODUCTION TYPICAL PROCESS PHILOSOPHY & STRATEGY PROPOSED PROCESS

DELLMART & Company PROPOSED PRICING PROCESS

DELLMART & Company COLLECT COMPETITIVE DATA

DELLMART & Company TRIGGER PRICING

DELLMART & Company PRICING CANDIDATES

DELLMART & Company DETERMINE PRICE

DELLMART & Company PRICE TABLE Department Category Sub Category Sub Category Sub Category Sub Category Image Item

DELLMART & Company PRICE CONTROLS

DELLMART & Company INTERATIVE PROCESS 1. Competition 2. GM Limit 3. Profit Objective

DELLMART & Company IMPLEMENT PRICE

DELLMART & Company PRICING FILTERS

DELLMART & Company PRICE VERIFICATION Shelf POS Pricing System

DELLMART & Company KEY TO SUCCESS Understand competition Price for profit Consider all factors –Competition –Movement –Cost Justify implementation Test item sensitivity