What Retailers Need to Know about CPG Manufacturer’s Pricing Strategies
As a retailer, you hold all the cards when it comes to price setting for the products that appear on your shelves. You get to decide whether you want to price an item as a loss leader, a profit center, a cart filler, or another type. But smart retailers know that just because you don’t have to listen to your partner on the manufacturing side, it doesn’t mean you shouldn’t.
After all, the more a retailer and CPG manufacturer and even the wholesaler can all make their interests align, the better their chances of finding the perfect mix of price, volume, and ultimately, profitability.
All too often, retailers focus too narrowly on their own profit margins, neglecting the needs of their manufacturing or wholesaling partners and failing to see how their needs are often symbiotic with their own. Giant manufacturers may be able to sustain a short-term loss in order to gain a foothold in a certain market or with a certain retailer, but emerging CPGs aren’t in the same financial position. Even though these companies might ultimately bring more value to a retailer, they are often marginalized by one-sided pricing strategies that fail to account for their interests.
Forecasting is critical for CPG companies
In order to offer the best price to their customers, retailers need to work with their CPG partners to develop an accurate forecasting model that lets the manufacturer predict their wholesale and production costs more precisely. With more accurate volume projections, the CPG manufacturer can operate more efficiently and purchase materials at the most optimal prices, which translates into better prices for consumers and better margins for all parties involved.
But achieving this objective requires cooperation up and down the supply chain. A retailer shouldn’t just bring a new product into a cluster of stores as a loss leader or traffic builder if the combination of volume and tight margins ends up squeezing the manufacturer out of business. With the right amount of planning and the proper forecasting, however, the manufacturer might be able to get the prices down to “loss leader” level in a way that more naturally supports the sustainability of its business — and hence the health of the entire ecosystem.
4 tips for retailers to work with CPG manufacturers
What are some of the ways that retailers can collaborate with their CPG partners to arrive at the most optimal pricing strategy for both parties? Here are a few tips:
Bedrock Analytics’ Pricing Storylines can help CPG companies find their competitive advantage and grow their profitability. To learn more about the platform and how it can help build an effective pricing strategy, contact us for a personal demo and consultation.