W. FRANK DELL II, CMC DELLMART & COMPANY THE GOLD MINE IN RETAIL PRICING

DELLMART & COMPANY2 AGENDA INTRODUCTION MINING OPPORTUNTIES PROMOTIONAL PRICING PRICING FOR PROFIT

DELLMART & COMPANY3 Objectives Identify pricing improvement opportunities Describe approach to achieve results Present new research

DELLMART & COMPANY4 Scope Retail Food –Excluding perishable commodities Mass Merchant - Basics –Excludes fashion & seasonal

DELLMART & COMPANY5 Observation Much of retail pricing seems to be follow the leader Not unlike a dog chasing its tail

DELLMART & COMPANY6 Theme Price for the consumer –Consider competition Price for Net Profit –Not Gross Margin

DELLMART & COMPANY7 AGENDA INTRODUCTION MINING OPPORTUNTIES PROMOTIONAL PRICING PRICING FOR PROFIT

DELLMART & COMPANY8 #1 Slow Seller Why is an item a slow seller? –Small consumer market –Inadequate retail space –Priced wrong

DELLMART & COMPANY9 25,000 SKU’s In Typical Store 1,000 sell more than 1 case/week 4,000 sell between.5 and 1 case/week 20,000 sell less than.5 case/week Slow Seller

DELLMART & COMPANY10 SKU Universe Estimate 4 to 5 million Average store stocks.0056% Many unique items and opportunities Slow Seller

DELLMART & COMPANY11 Slow Seller Approach

DELLMART & COMPANY12 Case Study - Grey Poupon Selling 4 units/week Prices $1.79 Increased price to $2.79 –Sold 4 units/week –Increased sales $4.00 per store –Increased profit $4.00 per store Slow Seller

DELLMART & COMPANY13 #2 Private Label If product quality is equal to National Brand Why is the price 25% plus lower?

DELLMART & COMPANY14 Low Retail Not The Answer Private Label

DELLMART & COMPANY15 Approach Private Label Note: Quality must be equal or superior

DELLMART & COMPANY16 Value Concept Private Label PRICE QUALITY VALUE =

DELLMART & COMPANY17 AGENDA INTRODUCTION MINING OPPORTUNTIES PROMOTIONAL PRICING PRICING FOR PROFIT

DELLMART & COMPANY18 Why Promote? Create merchandising excitement Attract customers Present savings Show value Reward loyal customers

DELLMART & COMPANY19 Promotions Are Difficult

DELLMART & COMPANY20 Promotion Factors

DELLMART & COMPANY21 Breakeven on 11% Deal

DELLMART & COMPANY22 Low Private Label Share

DELLMART & COMPANY23 Moderate Private Label Share

DELLMART & COMPANY24 Promotional Index

DELLMART & COMPANY25 Promotion Conclusion Low Private Label share Moderate Private Label share Private Label Natl. Brand

DELLMART & COMPANY26 AGENDA INTRODUCTION MINING OPPORTUNTIES PROMOTIONAL PRICING PRICING FOR PROFIT

DELLMART & COMPANY27 Activity Based Costing ABC is a cost allocation or assignment methodology Cost assigned based on the activities and drivers –Activities are tasks within a process –Drivers are factors creating costs

DELLMART & COMPANY28 GM Vs ABC 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 & COMPANY29 Primary Processes

DELLMART & COMPANY30 Costs Follow Product Flow

DELLMART & COMPANY31 Greatest Cost Is DSF

DELLMART & COMPANY32 Proposed Pricing Process

DELLMART & COMPANY33 Collect Competitive Data

DELLMART & COMPANY34 Trigger Pricing

DELLMART & COMPANY35 Pricing Candidates

DELLMART & COMPANY36 Determine Price

DELLMART & COMPANY37 Price Table Department Category Sub Category Sub Category Sub Category Sub Category Image Item

DELLMART & COMPANY38 VELOCITY PHILOSOPHY Faster sellers priced lower than slower sellers Reinforces low price image Basis for power curve

DELLMART & COMPANY39 SIZE PHILOSOPHY Larger sizes priced lower than smaller sizes Promotes selling larger sizes –Increase volume –Lower transaction cost Supported by vendor pricing –Lower bracket cost –Lower transaction cost

DELLMART & COMPANY40 FLAVOR/PATTERN PHILOSOPHY Create sub-group Price all items the same –Even if cost differs Consumers perceive all items as equal Cherry Raspberry Orange Grape

DELLMART & COMPANY41 Price Controls

DELLMART & COMPANY42 Iterative Process

DELLMART & COMPANY43 Implement Price

DELLMART & COMPANY44 Pricing Filters

DELLMART & COMPANY45 Unlock The Gold Understand your competition Price for net profit Consider all factors –Competition –Movement –Cost Justify implementation Test item sensitivity

DELLMART & COMPANY46

DELLMART & COMPANY47 W. Frank Dell II, CMC President DELLMART & Company 125 Hardesty Road Stamford, CT USA Tel: Fax: