Are You Pricing with Your Customer’s Profitability in Mind?

Are You Pricing with Your Customer’s Profitability in Mind?How do you determine your pricing?  It’s probably a rigorous process, but is it science or art?

Do you start with your profitability and go from there? Or do you start with the market price and let your profitability fall wherever it may?

Neither approach alone will help you win in the marketplace. Because neither approach puts your customer‘s profitability into the picture.

Use a pricing strategy that considers your customer’s profitability

Use a pricing strategy that considers your customer’s profitabilityDelivering a market price to your customer will certainly be geared toward improving your top line. Here the logic is that your customer will be looking closely at a few high volume, highly competitively priced products to evaluate your overall pricing proposal.

If you price those product “footballs” correctly, everyone seems to wins. You get the business and they get the pricing they need to be competitive in the marketplace.

But that strategy embodies the whole point of pricing – that your customer is competitive in the market. If they are making the money they need to be successful, you will stand out.

But are you making the money you need to stay in business?

Take a P&L approach to pricing

Take a P&L approach to pricing

It’s no surprise that there’s no one sure way to approach pricing. It really is part science and part art.

But do you approach the science part with a fact-based strategy? To do that, you need to be able to answer a few simple questions:

  • What is the product’s market price?
  • What is the customer’s margin % expectations
  • What can we make?

As one senior leader recently commented to us about pricing: “If you manage pricing from only your profitability – you’re going to be dead.”

Which is why pricing is art as much as science.

Inside of a company, pricing is really a continuum

How do you determine your pricing?  It’s probably a rigorous process, but is it science or art?The sales team is, understandably, all about making the sale. They want a price that will help them achieve that goal.

On the other hand, the product marketing team is looking to get credit for the innovation they are bringing to the marketplace. They want to get paid a premium.

Straddling both sides of the fence is channel marketing (also called trade or customer marketing depending on the company). Channel marketing sees both sides of the fence, is grounded in reality, and keeps perspective throughout the process.

Having a group like channel marketing manage your pricing is the secret sauce. They have perspective, collect all the facts, and keep the customer’s profitability balanced with your own profitability.

For other Channel Instincts posts on pricing, see What Does “Your Price Is Too High” Really Mean?, Is Pricing Making You Go Bananas? and Are You Pricing for Volume or Profit?

Good Selling!

 

Are Your Promotions Predictable?

Are your promotions predictable?Are you repeating the same promotions year after year? And, worse, feeling like you have no other choice?

The funny thing about promotions is that they become addicting – the buyer is counting on you to increase your year over year comps. That means you have to run a promo again at the same basic time as last year.

Worse, the retailer may put constraints on what you can and can’t do. For example, they may require that all promoted products be the same as those you have on the shelf.

That way if a promotion doesn’t sell through, they can just move it back on to the shelf.  Good for them but limiting for you.

Your competition is counting on you to maintain the same promos on the same predictable schedule

Your competition is counting on you to maintain the same promos on the same predictable scheduleWhile the retailer may benefit from the lift of your promotions, we’re betting that your promotional lift decreases every time you repeat the promotion.

Part of the problem is that the promo is getting stale in the minds of the shoppers. But another reason may be that your competition has gone to school on your unchanging marketing plans.

Which begs the question, have you checked up on how and when the competition is promoting their products? You may find that they are either piggy-backing or even preceding your promotions with one of their own. Or worse, undercutting your promo pricing and setting you up for a pricing war – a lose-lose situation.

Is your buyer asking you for promotional creativity?

Is your buyer asking you for promotional creativity?Try approaching your promotions with an open mind.  Think of these buckets as thought-starters.

  1. Off-the-shelf promos – these are general price off
  2. In-pack promotions – a small premium offered free with purchase
  3. On-pack promotions – a coupon on the outside of the box
  4. Rebates – a discount offered after purchase

By being creative in your approach to driving both sales and excitement in the category, your merchant will reward you for your thinking and efforts.

Good Selling!

Are You Great At Product Development and Lousy At Product Commercialization?

InventionHow often have you heard that innovation and new products are the life blood of a company? Too many times to count.

And who can disagree? Not us. But we also know that the product development process is often woefully inadequate when it comes to product commercialization.

The truth is that companies spend so much time on developing products that they forget that the sales force – and the customer – don’t know what the product is or why they need it. The customer mantra is “if it ain’t broke, don’t fix it.” No one wants to be a pioneer, take up valuable shelf space or add inventory.

What good are new products if your commercialization handicaps success?

Slow-SignProduct managers are often focused on the product development process and not the commercialization of their new products. This can leave the sales team out in the cold when it comes to knowing and understanding how to position the new product with customers.

A simple way to overcome this is to create a New Product Introduction—Field Communications Template. This tool will help you develop a robust communication to the field sales team. And not miss any critical details or facts in the process.

What’s In a New Product Introduction—Field Communications Template?

Driving sales New Product Introduction—Field Communications TemplateThis tool is a fact-builder. It is a reminder of what’s necessary to think through all the critical elements a sales person will need to help successfully commercialize your new product. It will help you build a story that will highlight how your new product fits into the marketplace and delivers solutions that your customer is looking for.

A note of caution: It is only part of the commercialization process and not the end of the work you need to do to launch a new product. For more on how to better communicate new products to the sales team, take a look our post “How to Get Knowledge Out of Your Product Manager’s Head and Into the Hands of the Sales Team”.

The template breaks into multiple sections.  Think through each one and put down all the information you can.  Ask yourself, what’s missing – what more do I need to find out to make this a flawless launch.

  1. Product name
    • Trademark
    • Generic name
  2. Product definition – what is the product and what problem does it solve better than anything else in the market today?
  3. Audiences
    • First buyer
    • Second buyer
    • End user
  4. Features/Benefits
    • Features – list the top 5
    • Benefits – list the top 5
  5. Differentiation – outline what sets this product apart in the market
  6. Positioning -=- how have you positioned the product in your offering and for the customer?
  7. Competitive environment – List the top competitors and what their strengths and weaknesses are in this product segment.
    • Competitor A
    • Competitor B
    • Competitor C
  8. Pricing / Value Proposition – Answer the question of “How are you the best economic value?” not just put in your pricing structure
  9. Market/marketing research – What third party insights help support your product
  10. Market size – Know not just the size but what drives the market, too
  11. Social/economic/business environment—market dynamics
  12. Marketing strategies
    • Strategy 1
    • Strategy 2
    • Strategy 3
  13. Packaging
  14. Technical support – 3rd party testing and documentation
  15. Brand identity
  16. Other factors specific to your product or market (regional issues, health & safety, etc.)
  17. Communications elements – pick the tools that drive your marketing strategies and fit you budget
    • Advertising
    • Co-op/Ad elements
    • Distributor/Channel programs
    • Incentives
    • Industry relations
    • Literature
    • Packaging
    • Point-of-sale/Merchandising
    • Presentations
    • Public relations
    • Sales support
    • Samples
    • Social media /website
    • Trade shows
    • Training – and don’t forget the customer service team
    • Trade advertising

CommentsWhat else would you add to make this template even more robust?  Share your thoughts in the comments area so we can all benefit from your perspective.

For more insights on successful product commercialization, see the Channel Instincts posts “Are You Using This Simple Product Commercialization Checklist?” and “8 Steps to Building a Customer-Focused Commercialization Strategy”.

Good Selling!