In part one of this blog series, Kristin Demel, retail strategy director at Callahan, discussed the basics of talking about price with retailers. In part two, she provides tips on when is the right time and what is the best approach to discuss pricing, and what hazards brands should avoid.
When is the right time to talk about price with your retailer?
The best time to talk about price with your retailer is when you are discussing assortment decisions, seasonal strategy, or having any business review conversation. Price is a critical component of how a brand communicates value to the consumer, which makes it an important part of those conversations. To make the conversations effective, include information on competitive pricing, including brand and other retail competition and customer insights to support your recommendation. This timing also allows the retailer to build the pricing decision into financial assumptions and create a solid financial plan.
The most common time price comes up between brands and retailers is when brands communicate cost increases, because retailers will naturally be thinking about how to manage the margin implications of a cost increase. While there is always negotiation that accompanies any cost increase, price will often get adjusted to mitigate margin risk for the retailer. While this is the most common time to discuss price with a retailer, discussing price as an offset to a cost increase can be the toughest time to have the conversation. Brands can come across as dismissive of the natural elasticity, the potential impact to customer demand and the risk retailers face of losing a customer to another store. Additionally, if customers are willing to pay more for the brand, retailers will be questioning why the price increase hadn’t been discussed previously.
What is the best approach to discussing price with retailers?
In my experience as a buyer, I’ve seen two approaches to the conversation. A common approach is recommending a price to a retailer based solely on what you know of their mark-up goals. A brand knows two things in this scenario; they know the cost of their product and the mark-up. While this can be a quick way to determine price and hit a margin target, there are critical decision points left out of this approach. This approach doesn’t include the ultimate decision maker, the consumer. Recommending a price solely based on mark-up requirements ignores what the consumer is willing to pay for the item, and what the consumer might pay at a different retailer for the same or similar item.
I recommend approaching the conversation about price with your retail partner by starting with the consumer, market value and competitive assessment. The result may or may not align with retailer margin requirements, but at least you’re having an honest, transparent conversation about what the opportunity is for the item, enabling effective decision making and starting a strategic relationship between the brand and the retailer. Keep in mind, a product that is priced in a way that is disconnected with the market may get shelf space in an initial pitch, but will likely not be able to maintain the sales velocity to keep shelf space past the initial launch.
What hazards should brands avoid in this conversation?
Don’t have blinders on in the conversation. Make sure that you aren’t recommending a price for your product that ignores what’s sitting on the shelf next to it or ignores other retailers/channels selling the product. Also, don’t ignore the fact that the retailer does have a margin target. Acknowledge where there are obstacles and have the conversation.
Last question. How common are MSRP or MAP policies in retail?
The prevalence of MSRP and MAP policies vary by industry, however; across the board, the presence of these policies are increasing. Let me start by acknowledging that as a former retailer, it is difficult for me to have an unbiased opinion about these policies. From my perspective, if a brand is investing in innovation, product development, marketing, consumer insights, etc., it would be a miss to not protect that brand equity and investment with a policy that protects the product from becoming an opening price point. Like I shared earlier, retailers look for ways to drive traffic to their store, whether that store is online or down the street. Price can be a great motivator for consumers to visit a store, but it could come at the expense of a brand’s investment. I will not pretend to ignore the fact that lower pricing almost always increases unit sales, which increases purchase orders. That can be good for a brand in the short term, however, whether that is good for a brand in the long term varies greatly. I will also not ignore the fact that as a retailer, MSRP and MAP policies can mitigate margin risk and level the playing field across competition. It can be a big decision for a brand, and there are potential risks and opportunities either way.