One guiding principal is that your pricing should reflect thepositioning of your brand. Are you the category leader, or the number two or three brand? Are you striving for parity pricing with your key competitors, or premium pricing? Do you have superior features and benefits that command a premium price? And, as we have emphasized previously, is there enough margin in your pricing structure to sustain and grow your business?
When it comes to fine tuning your pricing, consider that many retailers follow traditional pricing schemes. They often follow popular beliefs about psychological price points: “Rule of $.99” ($.99, $1.99, $2.99, etc.) and “Rule of $.49” ($1.49, $2.49, $3.49, etc.). These are proven psychological barriers that should be explored when establishing both your regular and promotional pricing. For example, if you find that the retail price achieved based upon your current cost structure is $3.39, you probably would not adversely affect your sales by raising your wholesale price an additional 3% to achieve a $3.49 price point. This additional margin could go to help support your brand marketing efforts. Conversely, if your resulting retail comes to $2.09, it certainly makes sense to consider reducing your margins 4% to achieve the $1.99 price point.
Downsizing to hit your price point
One strategy used very effectively in the natural industry (and conventional of late) is to downsize package contents, which reduces costs and allows the company to achieve more aggressive price points. It is difficult in commodity items such as a half-gallon of milk or a pound of butter, but when you are putting chips in a bag, cereal in a box, or toothpaste in a tube, it is easier to vary from the standard conventional alternatives in terms of package size and weight.
In most examples of comparisons outlined above, the natural food product packages where downsized versus their conventional equivalent. Who is going to miss an ounce or two out of a box of cereal? Or four less cookies in a 16-ounce bag? Or one ounce less in the natural tube of tooth paste? It is far more critical that you hit a reasonable price point than that you match conventional product packaging standards.
When a leading yogurt brand decided to introduce an organic version of their top-selling natural yogurt, they were faced with a dilemma. The additional costs associated with organic ingredients resulted in the need to price the product over the $1.00 barrier price point for yogurt. A strategy that worked very well for the product was to keep it line-priced with their natural product (which was packaged in 8-ounce containers), but to reduce the size to 6 ounces. The product has been wildly successful and offers convincing proof of the value of downsizing. In this case, maintaining the price point was far more valuable than maintaining the standard yogurt-sized container. You’ll also find organic eggs packed in half-dozens, rather than the standard dozens. Similarly, organic milk comes in half-gallon sizes to limit the sticker shock of having to pay the equivalent of nearly $7.00 for a gallon of milk (versus $3.49 to $4.49 for conventional gallons of milk).
This content is excerpted from the Natural Products Field Manual, Sixth Edition, The Sales Manager’s Handbook, written by Bob Burke and Rich McKelvey. To learn more about or purchase the Natural Products Field Manual, visit the Natural Products Consulting Institute website.