For the vast majority of brick-and-mortar retailers, customer demographics shift gradually: the neighborhood gentrifies or goes downscale, or a competitor's closure drives more people to a particular location.
For the 150 different retail stores located within 15 MGM Resorts International hotel casino properties, however, the customer base can change radically from week to week or even day to day. That's one of the factors that makes pricing both a challenge and a major opportunity for these retailers.
Value Hotel And High-End Retail Don't Mix
Some pricing decisions are dictated by the stores' environment: "If I'm trying to sell $800 shoes in a hotel where they're charging $28 a night for their rooms, they just won't sell," Schnur said in an interview with Retail TouchPoints.
MGM Resorts' price optimization efforts aren't limited to high-end items with variable demand like luxury apparel, jewelry or watches. In fact, Schnur and his team focus a lot of effort on general merchandise, using a Revionics Price Optimization solution implemented in spring 2015.
"Sometimes the question is about what price a bottle of aspirin should be," said Schnur. "Do we lower the price of Advil so it's competitive with the chain drugstore located 100 yards from the hotel? Or do we carry something different, such as a generic brand, a smaller bottle or a four-pill card? It's not just about matching the pricing strategy to the customer; it's matching the customer to what we want them to buy."
The Revionics solution examines optimal prices for virtually every general merchandise product, and all their size and style variations. "The solution does the 'what-if' analysis for me, and it quantifies the differences that will occur if, for example, I raise the price but sell fewer items," said Schnur.
Invisible Price Hikes Preferred
"The ultimate price optimization change is one that no one notices," he added. "We raised the price of the little bags of chips from $2.19 to $2.25, and no one cared. It was the perfect price optimization because no one knew it happened. I call it 'finding nickels.'"
Those nickels add up. Schnur estimates that the Las Vegas MGM properties attract one-third of the 41 million visitors who come to the city every year. "We sold a little over a million packs of cigarettes last year," he noted.
What Happens In Vegas…
The next phase for MGM Resorts is markdown optimization, which will be aided by the Revionics module for this function. As in other areas, the regular "rules" of retail will need to be adjusted.
"Take women's swimwear. In traditional retail outlets, it would be marked down after Labor Day," said Schnur. "But it's still very hot here at that time, and the reasons you buy a swimsuit here are different than they are at home. You buy one because something caught your eye and you have to have it; you forgot to pack your own; or suits aren't on the shelf at your home store. So we will probably be doing our markdowns on a different schedule."
Schnur is an unabashed fan of price optimization solutions for all types of retailers. "I don't understand why any retailer isn't using price optimization," he said. "I was on a panel recently and was asked 'What's the low-hanging fruit in analytics?' Price optimization isn't even low-hanging fruit any, more; it's on the ground, and all we're doing is raking it up."