Price is the only KPI of retail execution that creates revenue, while all of the others are costs.
FMCG companies need to be very clear about pricing objectives, methods and the factors that influence price setting. The pricing team needs to know if their brand is losing or gaining market share at the current price offered for the product. This requires data collection and its subsequent computation to gather actionable insights.
If you need to price a brand or a SKU in a new market, it makes all the difference in the world if you can understand consumers’ willingness-to-pay. As price affects the value that consumers perceive they get from buying a brand, it can be an important element in their purchase decision.
One of the biggest challenges faced by FMCG companies is setting a price or prices (depending on channels) that unifies all internal objectives:
- one that simultaneously boosts top-line growth,
- is aligned with the brand positioning,
- and increases penetration & growth
This is further complicated if the route to consumer is not direct i.e. the brand is sold through a supermarket, grocery store, wholesaler or an e-commerce aggregator. In this case, the company needs to set their recommended price for consumers and set their customer’s prices based on the margin they are likely to take. Usually, at this point, there is an element of negotiation with the customer.
An FMCG company may implement all the best practices of a perfect store and still not succeed if their product pricing is not competitive, and if pricing is not communicated on shelf or (for some countries) on pack. Similar to availability, it doesn’t matter how much shelf space has been secured in store and how effective the point of sale material is, if the consumer encounters an absent price tag. The risk of lost sales is very high. Pre-covid, we’d have said that an absent price tag equals a lost sale, especially for a new brand.
However, 2020 taught us that availability trumps price.
If you’d like to learn more about pricing for FMCG brands in the retail environment or more about retail execution, email me on email@example.com