Projects: Pricing, Sales Promotion and Category Management

  • I group these together as there is a natural link between them when it comes to moving your product off the shelf and into the basket. The process is the same whether it’s goods or services.

 

  • Correct pricing is crucial, but too often it is used as the only marketing tool; a blunt instrument to shift product. And if you get it wrong, it’s hard to get back on track. Or maybe your sales force are opening new accounts rather than profitable business? Do you know how much your products REALLY cost? If not, you are not in control of your profit stream. And if you are selling along a convoluted route to market, how do you work to keep your fair share? I can help.

 

  • Sales promotion is directly connected to pricing. If you aren’t in control of the above, you are probably not in control of your promotions. Do you promote on percentage or cash margin? Does it matter? Do you check in advance whether you are going to actually financially gain from it? Surprisingly few people bother. Point-of-purchase promotions are a fascinating exercise in understanding consumer behaviour. Often, price has nothing to do with the promotion mechanism. And when you do promote, is the product actually on shelf to be bought? Discover how to avoid giving your products away.
  • Category management is a more specialised discipline but it introduces fresh challenges: obtaining and using market data, conducting commercial analysis of what it suits you to sell, and what it suits the consumer to buy. In retail nowadays, suppliers are often effectively renting shelf space off the retailers, in which case you don’t want to have goods on the shelf gathering dust!

 

Example One: Pricing

This company operated across three distinct distribution channels and also exported. The sales force was generally well resourced and managed, but the sales managers themselves were individually given a long leash in how they negotiated prices. I was concerned by the complexity of the price structures and whenever prices files changed, it was a very complex admin task – even with very comprehensive systems. Each customer’s pricing was effectively bespoke. It didn’t always take account of their size and when you tried to compare product prices across customers or channels, there was no consistency. I was working with an external consultant and we proposed developing a standard price list which managers could then apply an approved discount against where it was justified. The issues were getting senior level approval and sales manager buy-in, along with having to unravel and re-present some extremely complicated customer price lists. Fortunately the Commercial Director supported the plan and attempts to undermine the idea failed. This immediately provided an ‘anchor’ so that anyone could see where to start, and clear boundaries were also implemented to ensure that any major deviations were approved in advance. Even the sceptics came to realise that it just made life easier – including negotiations where the go/no-go line was much better defined. We walked away from unprofitable business rather than succumb to the temptation to point to the ‘success’ of opening another problem account.

Example Two: Sales Promotion

This company sold a highly seasonal product which was an essential Christmas purchase. It was asked to price promote the product in the run up to Christmas but it declined. It didn’t go down well with the retailer concerned but we explained our logic. If you are in a highly competitive category then there is some sense in incentivising people to put your brand in the basket. However, the company had already ensured that it had a high share of supply. It provided both branded and private label products to the retailer in question so provided the customer was in that store, they would probably be buying the product in some form. Retailers like promotions to enhance their price credentials, but it doesn’t always work for suppliers. Why cut your prices when people are buying anyway? Of course there are exceptions, but you sometimes need an experienced head to decide what suits you best. And sometimes, if you are unsure of a payback,  it’s best to do nothing.

The second example concerns international markets. It is tempting to think that globalised industries work the same the world over. But they don’t. I have worked on a number of launch projects in the US. Early on, we assumed that the supply chain worked the same as in the UK, such that we shipped the order, the US distributor would deliver it to a depot and voila! It would appear on shelf.  Some weeks later we went to visit some stores to see the products in all their glory. Except they were nowhere to be seen. Had they reached the store, we asked? Yes they had. Why hadn’t the store people taken the products from the warehouse to the shelf then? Because, in the US, store workers don’t do that. The suppliers do, via an army of contracted ‘merchandisers’ who roam the store network and put the product on the shelf. No-one told us! But then, we didn’t ask and the distributor thought we knew. Some parts of the world love British goods and brands. But don’t assume they distribute them the same way. There is plenty of help around, but it’s good to know the right questions to ask in the first place. I’ve learned the hard way!

Example Three: Category Management

This business was a major supplier to a particular food category and regularly had to present insight to the retailers’ commercial teams. The deal nowadays is that as a responsible and valued supplier, you provide a significant amount of the market insight to the retailer both to justify why your products should be on their shelves, but also to advise them on how to maximise the profitability of the whole fixture – not just your own portion of it. There is an established suite of market information that both retailers and suppliers use and it is robust and detailed, but expensive. Retailers sometimes nominate one supplier to be their ‘Category Captain’ and this is a mixed blessing: it brings you into regular and close contact with your retailer Buying team, but the cost of the insight you need in order to perform the role satisfactorily is beyond the reach of most.

We addressed this by being creative about the information we were presenting. We were fortunate in selling not only to retailers, but also to wholesalers and manufacturers. So we had a complete picture of the vertical market. We also used our social media activity to harvest insight that was both rich and unique. Only we had this information and within it was all manners of clues as to what customers were using, why, when… and what was still lacking. We didn’t have the grunt of the big boys, but we were nimble, imaginative and intelligent. For the price of managing a genuinely interactive social media programme, we kept a seat at the top table when it came to listing decisions AND we could innovate with purpose and confidence. If you don’t have unique insight, find it. If you have it, use it!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s