When a customer buys a product, their evaluation and selection criteria is influenced by a number of parameters, all of which can be summed up in marketing speak – Product, Price, Place, and Promotion. Tracking and keeping pace with a customer’s wants and needs can often be difficult. And, while the product itself is seen as an item that satisfies the consumer’s demand, the price plays a crucial role in the final decision.
The price, a quantifiable amount, must reflect customer’s perceived value of what they are getting for the price that the product is commanding. Hence, the price is obviously going to impact the viability, market share, and sales trajectory of the product.
In addition to the customer and their perception and criteria, there are additional cost inputs to consider when determining an effective pricing strategy such as marketing expenses, distribution costs, and other price fluctuations in the market. All of these costs, information about the customer, and market information must be considered when building pricing models that are in alignment with the almighty driver for a CPG company – profit. Therefore, it is no secret that determining the right pricing strategy is a critical success factor for improving sales, and, in turn, profitability.
Determining the optimal price
The question then becomes – How to determine this ‘optimal’ price? Good analytical pricing models are designed to help companies plan, manage and optimize pricing. And, in today’s world it is no longer viable to review pricing periodically. CPG companies need to be able to take action instantaneously given market conditions and cost variability. With pricing strategy and analytics for sales effectiveness, we aim to answer the following questions:
What is the pricing power of the product?
How does the price affect the sales trajectory of the product?
How does the price impact competitor performance?
What is the optimum price corridor that will most likely lead to a hold or gain in sales volume?
What is the optimal price for each product in a portfolio that will minimize cannibalization and maximize market share?
How will different pricing strategies impact the short-term and long-term sales of the company?
A Reliable Approach – The Optimal Pricing Corridor
If you work with pricing models or analytics, then you are familiar with the relationship between price and quantity demand. It has been the subject of extensive studies in order to understand price elasticity (pricing power) of a company’s product and how it varies across channels, store types, and geographic regions. And, competitive cross price elasticity information is an important factor for identifying close competitors that directly influence a product’s sales. By evaluating historical patterns, we can understand the product’s price elasticity and the competitor products’ cross price elasticity, thereby identifying the optimum price corridor for the product that will maintain or improve share.
It is only through rigorous scientific data-driven analytical pricing models that a company can arrive at this optimal pricing portfolio.
In today’s challenging CPG landscape where customers are making informed decisions and have many options, achieving consistent sales growth is of paramount importance to CPG companies. Implementing optimized pricing strategies is one of the key vehicles through which this can be achieved. By employing advanced analytics and running sophisticated pricing models, companies are enabled to manage the complexities of competitors across sales channels and respond to consumer price sensitivities, thus enhancing customer satisfaction and ensuring their continued growth and development.
To download Brillio’s case study on Pricing Analytics, click on the below.