How To Pinpoint The Right Price Point For Each CPG Retailer
Bedrock’s Key Takeaways
- Take some time to evaluate whether your CPG brand is truly ready for conventional retail. If it’s not, you’re unlikely to get a do-over.
- Adopt a pricing strategy that reflects both your expenses and the expectations of your chosen category.
- Determine any features your product offers that might warrant charging a premium price.
- Use Bedrock’s visualization tools to measure and calculate ideal price points that reflect your business goals.
Your CPG Growth Strategy Should Include a Pricing Strategy
Let’s say you’re a natural foods company looking to reach conventional CPG markets. Or perhaps you’re a direct-to-consumer brand hoping to introduce your products to store shelves. Whatever the motivation, it’s essential to keep one lesson in mind: Always have a unique pricing strategy for each retailer. Any CPG brand looking to expand its reach must assign a price point that accounts for retailers, customers, and the category landscape.
This may seem like a simple lesson, but it’s one of the most common obstacles we’ve seen CPGs face. Far too many emerging CPG startups overestimate their visibility after experiencing success within a single channel, and expect all customers, in every potential retail channel, to be aware of their prices.
In reality, each retailer requires its own marketing and promotional budget to encourage visibility. A failure to address these needs could potentially drive a net loss that most emerging brands cannot afford. Ensuring that pricing strategies are aligned with retail channel requirements are the easiest way to ensure that a product is affordable, visible, and able to generate a positive return on investment.
So what information do brands need when assessing pricing? You can start by answering the following questions…
Are You Truly Ready for Conventional Retail?
Before developing a price point for a new store, CPGs should ask themselves if they’re truly ready to tackle conventional retail. Startups often make the mistake of assuming that consumers will recognize their brand far too early. Such an assumption encourages them to chase placement at conventional retail channels, and often end up overextending their limited resources.
Instead of expanding into multiple retail locations at once, the ideal strategy is to target one or two key accounts in a highly-focused way. You don’t need to go national by pitching to Kroger when you can first build up your sales story at smaller retail channels. Once you’ve established yourself as a category leader in terms of growth, total dollars, or velocity, you’ll have a stronger foundation when the time is right to expand into a large chain.
This foundation is particularly crucial because conventional channels are far more competitive than natural or D2C channels. The second you go national, your products will be on the radar of large manufacturers with extensive resources. If the broader category is price sensitive or over-saturated, these established manufacturers will be in a better position to survive a price war.
If you’re still up to the challenge, there are two things your brand should secure before pitching to retailers:
- Syndicated data access. Having access to reliable CPG sales data helps brands measure the price sensitivity of products with a given retail category. Analysts can use these insights to calculate an ideal price point for a product, or gather insights from competitive analysis.
- A fully-funded financial plan. Manufacturers should allocate enough funds to cover an entire year of new expenses before pitching an account or launching an aggressive expansion plan. Doing so enables brands to maintain and grow existing accounts while leaving breathing room to address shifting priorities. This strategy also guarantees that manufacturers can launch a product immediately after a successful pitch with a bare minimum of downtime.
What’s the Best Pricing Model for This Retailer?
CPG manufacturers leverage different pricing tactics when working with various retailers. Most brands establish a baseline price point that fluctuates slightly in response to promotions and discounts. Some rely on a “high-low” pricing scenario, in which everyday prices are high, and sale prices are significantly discounted. Meanwhile, others offer low everyday prices with minimal sales discounts, which can enable them to move products at a consistent volume at all times.
There is no single pricing strategy that universally applies to all CPG channels. There are, however, correct strategic choices for each retailer you are reviewing. Retail storefronts have different expectations for prices, discounts, and promotions — aligning with these expectations is the surest way to move volume consistently.
Adjusting your strategy for each retailer is not always easy, but it’s essential to expansion success. Let’s say your competitors at Safeway have a promotional frequency of five discounts per year. If you aren’t prepared for reduced revenue five times per year, it will be effortless for competitors to price you out. Can your brand afford that? Is there a discount value that will maximize velocity to make up the difference? These essential considerations will vary by retailer and category alike, so make sure you’re aware of them before reaching the shelf.
How Much Will Retail Customers Spend, and Why?
When brands determine price points, they should also consider consumer attitudes, preferences, and expectations in that context. Put simply, manufacturers should assign prices based on what consumers are willing to pay. If your item costs more than the competition, it should have features that will continue to attract customers: product size, flavor, ingredients, health claims, and more. Sales teams must be able to understand precisely what customers are looking for on shelves and what they’re willing to pay for it.
If you’re incredibly lucky, your product will offer something no other competitor can match, making it a premium offering. Consider Rao’s Homemade Pasta Sauce, a product with such a unique taste and flavor that consumers will pay just about any price for it. Even when all the competitors offer a lower-priced product, customers always seek it out. Rao’s is an excellent example of a brand that’s unique, premium, and doesn’t need to waste trade dollars to increase its volume.
Unfortunately, most CPG brands don’t have the same hype as Rao’s. It’s singular and unique — and that’s exactly the point. If you have a premium-priced product, but lack a unique appeal, the competition will reduce their prices until customers forget about you. The better approach may be to offer additional promotions or discounts that keep attention on your brand. Whatever the scenario, orienting your pricing strategy to best support each retail market is the safest bet for most brands.
How Understanding Your Data can Help Your Pricing Strategy
With such a massive amount of sales data available through syndicated providers and retail portals, finding the right price point for every retail channel would be a nearly insurmountable task without a business intelligence tool to help extract meaningful insights.
The Bedrock platform’s visualization library is an immensely useful resource for understanding pricing, product value, and other elements of your product category. By surfacing the most critical insights when calculating optimal price points, Bedrock can help you build the sales stories you need to expand into the retail channels that make the most sense for your brand. Reach out to us today to schedule your demo, and let us show you how Bedrock Analytics can give your sales and analyst teams a competitive advantage to grow your business.