Pricing and Trade Terms
Pricing is key lever to both: revenue and profit
Winning the consumers’ choice is only possible when the price is:
- In line with the perceived value of the product
- Is aligned to the different product variants, pack sizes (Price Pack Architecture)
- Well positioned versus the competition
- In promotion, attractive for shoppers
- Is appropriate to cover manufacturing-, marketing-, distribution costs and profit
Consumer price positioning
Consumer price positioning is about two aspects: Internal price positioning and External (or competitive) price positioning. Internal price positioning is the setting of an individual product’s price versus other, own brand, sub-brand or product group, etc. How different pack sizes of the same products are priced is part of the internal price positioning too and called: price pack architecture.
External price positioning is about the relative pricing versus the competitor products, which could be considered by the shopper to choose. External price positioning is also about what is the product’s perceived value, the shoppers’ willingness to pay and ex-pocket price level. we can help you to solve single, or multi product price positioning questions, using qualitative and quantitative research and benchmarking.
New product pricing
The success or failure of the newly launched product might depend on the right price setting. Both situations should be avoided:
- If the price asked for the new product is “too high” and shoppers do not buy it, or
- If the price is “too low” and the profit generated is less than potentially possible.
We can help you to find the right price level for your new product, that generates revenue and profit, through using qualitative and quantitative research, benchmarking, expert interviews, testing etc.
Net Price management
Net price is the price which remains after all deductions (discounts and rebates) from the List price. Net price level is directly influencing profitability, therefore proper Net Price management is key for safeguarding profitability. Net Price is influenced by deductions according to Trade Terms and also by promotional reductions. All people who make decision on Trade Terms and / or promotional price reductions must be aware how their activities influence Net Prices. With a specialized simulator tool we can help your people to experience and learn how List Price, Trade Terms, Promotion decisions influence Revenue and Profit.
Price risk management
Net Price differences between channels, customers or countries might lead to tensions in the customer relationship, loosing revenue and profit. With our knowledge and experience we can help you establishing internal price transparency, clear pricing policy, which with rigorous execution might help to avoid these situations.
Negotiation strategy for Net Price differences
In case a customer already compared prices between countries / channels / domestic regions or there has been a take over among customers and the clear demand for compensation of net price difference is raised, the only way is to negotiate about price differences. To negotiate net price differences successfully needs internal price transparency, collection of defendable, value based rebates and many more factors, which influence net prices. We can help you preparing to negotiate such cases.
Price increase preparation and negotiation
Price increases are always complex tasks. There has to be an alignment among multiple departments internally (marketing, finance, sales), while coping with the market reality (competitive situation, shoppers willingness to pay etc) and the traders / retailers expectations in the same time. Our structured approach helps to collect the necessary data and information to make the decision. When the new pricelist is ready we can help developing the right sell in strategy and train sales to execute it.
Trade Terms Strategy should be
- The framework of co-operation between the Manufacturer and the Customer / Trader (Trader: offline and online distributor, wholesaler, retailer, etc.)
- Ensuring fair treatment of customers, externally defendable in- and across countries
- An internal „price list“ / menu for trade investments
- Comparing the ‘value’ of customers in a fair way
- Pragmatic guidance to Sales department, where and how to invest
- Based on real and estimated Return On Investment calculations
Trade Terms strategy development
Trade Terms strategy development is about setting the frame of a successful co-operation between a supplier and customer (trader). Identifying the right efficiency and business drivers, calibrating them to meet value and investment balance (ROI), setting fair evaluation for customers, identify and unlock customer development potential and preparing robust sell in story are the main milestones, we could navigate with you to set and implement your new Trade Terms strategy.
Trade Terms re-engineering
Even through years of successful operation of a company, changes might be necessary in Trade Terms, as the external environment, the trade partners, the company strategy evolves. For example certain conditions, which fulfilled their objective earlier, might not work the new environment. Trade terms re-engineering is about making Trade Terms working again for both supplier and trader. Re-establishing Pay for Performance principal, evaluating and rewarding customers, traders on fair way, steering trade investment based on ROI are key elements of this activity. We can help reviewing and resetting Trade Terms policy, all along from strategy development until developing sales people capabilities to successfully negotiate the changes.
Trade Terms volume management (Folding)
Trade Terms volume might grow year on year and might reach a level, when it appears to be “too high”. The more Trade Term volume is, the less effective are the List Price increases, which influences Net Prices and profitability negatively. If List Price increases are not “unlimited”, then Trade Terms volume might reach a level, when it needs to be reduced. We have wide experience in preparing and executing successful Trade Terms volume reduction (Folding) and could help you to get your Trade Terms volume under control.
If you have any question, or you need more information, please contact us