5 common ways FMCG/CPG Brands mess up Pricing and pay the Price 😥
1. Consumer price based on Product Cost only. Make a product for $1 and sell it for $1.50 (50% mark-up) based on some internal guideline. This is more common with less sophisticated organisations and they end up Pricing too Low resulting in lost profit, or Pricing too high which results in lower sales units. Either way, it is a lottery, though the only saving grace is that the product does not make a loss.
2. Issue Price Guidelines without limits on percentage of units sold on Promotional Prices. This is more common than many would like to believe. Sales and Marketing teams issue these types of guidelines in larger organisations. At times they do not place a limit on the percentage of units that can be sold at promotional prices, or simply do not communicate them clearly or install checks in the system. Sales teams tend to oversell at the lower promotional prices, which then erodes profitability.
3. Do not align Pricing with Brand Positioning. In some organisations Marketing finalizes the Brand Positioning and suggests Pricing at an overall level while Category Management or Trade Marketing own the detailed pricing strategies and tactics. This can be detrimental unless there is very close alignment between sales and marketing. Price is probably the most important Positioning tool in the marketers armory. Think about your quality and features perception of two cars without knowing anything else about them. One is for $20,000 and the other is for $120,000. Which one will most consumers believe to have better quality with many value added features etc.? Misaligned Pricing with Positioning results in diffused consumer perceptions and sub-optimal sales and market share.
4. Decide Pricing without understanding the Category and Competition pricing. Sometimes in smaller, less sophisticated organisations management does not spend the bare minimum money to buy category and competition data. A walk down to the supermarket and pricing is decided😨. They do not recognize how sophisticated brands use deep pricing at times to drive trial without adversely impacting brand equity over a large period of time. And occasionally in large global multi-nationals there are stark errors in the analysis, not because they don't have the data (in fact many such large organisations have been sold excessive and irrelevant data by their data/analytics/research providers 🤑) , but more due to internal tunnel visioning (biases) which tends to disregard critical metrics and sometimes even ends up looking at an irrelevant competitive set (market segment).
5. Do not have a working P&L to evaluate various Price Levels & Unit Sales mix. While this appears to be elementary, you will be surprised how many organisations run large and complex spreadsheet based models which only a specific analyst can drive to extract relevant metrics. Every Brand Manager and Sales Manager must have a simple spreadsheet to evaluate various pricing scenarios by simply changing a few of the variables. Such a spreadsheet does come free with the Pricing Strategy Course launched by FMCG Academy (see link and detail below)
Advertising Message: The 'Pricing Strategy for Consumer Products' course will help you Learn how to price FMCG/CPG products in 60 minutes with a practical example and downloadable templates. You will also understand how Brand Strategy and Positioning, Category Pricing and Product Substitutability influence a Pricing Strategy, as well as Internalise the Sensitivity of Pricing Metrics to the Product P&L. Click here to see the course curriculum, watch preview videos and register. Or see course ad below: