Over the last decade, discount retailers grew faster than any major retail format, increasing penetration across most consumer segments and gaining share in a number of categories. This discount phenomenon has both contributed to–and been driven by–a fundamental shift in consumers' expectations of value.

McKinsey's Retail Practice has recently conducted consumer research in five European countries and the U.S. to understand what drives consumers' perceptions of value. The results provide striking insight into what really matters to different types of customers, and underscores the extent to which many traditional retailers are focusing on the wrong things.

To win in this new world, traditional retailers must do a better job of getting credit for the value they deliver to customers. Our proprietary approach helps retailers accomplish this through smarter pricing and promotions, more structured and compelling assortments, more effective use of customer data, and consistent communications.

Value Levers
We help retailers develop an overall pricing strategy and make decisions around the key levers affecting customer value perceptions: reference price, promotions, range architecture, private label, and in some cases the loyalty card.

The relative importance of the different value levers varies across markets. In some markets including the United States, reference price is the single largest driver of value perceptions. Retailers should concentrate their investments in the categories and items that drive consumer perceptions disproportionately. Similarly, promotions are not about the most items on promotion or the biggest discounts, but about being smart about what is promoted and how the promotions are executed.

In some European markets such as France, range or assortment architecture is one of the most important drivers of value perceptions. In defining assortments, retailers need to hit the price points that matter–for example, low opening price points communicate value, while a few higher price points deliver margin. A more judicious and aggressive use of private label is a key part of the solution.

Finally, retailers should leverage their proprietary consumer insight, whether from loyalty programs or local store manager knowledge, to design profitable offers appealing to target customers. Moreover, all communications should reinforce the price position of the store while maximizing the return on investment (ROI) on marketing communications.

Pulling it All Together
Our Getting Credit for Value approach is grounded in deep consumer insights, rigorous economic modeling, and significant experience serving retailers and manufacturers. We help retailers design an integrated program and put in place the processes, capabilities, and performance mindsets to consistently deliver, both in the short- and long-term.