How collaboration can help retailers, manufacturers solve the pricing puzzle
This post is sponsored by Acosta.
Prices in the grocery sector are on the rise, and a joint effort between manufacturers and retailers is needed to ensure successful price increases, according to experts at Acosta.
“Increases in price have mainly been driven by a rise in raw good costs such as aluminum and paper pulp for products like paper towels, but also packaging and transportation costs,” said Kim Adoerre, research manager, Acosta Strategic Advisors. “The rising costs are having an impact on both retailers and manufacturers since they need to be absorbed somewhere, whether that means a higher price at the shelf or cost-cutting practices within production, logistics or human resources.”
Proposed price increases can cause friction between manufacturers and retailers. In fact, more than three out of four (76%) retailers pushed back on or were hesitant to accept manufacturer price hikes, according to Acosta’s report, The Pricing Conundrum. However, brands can work with retailers to implement price increases in a way that works for both parties. Here are five key tactics for manufacturers to keep in mind:
1. Develop a better understanding of price elasticity and price simulation. A deeper understanding of price elasticity allows manufacturers to simulate price increases, and their ability to simulate these potential increases is important to predicting how a price hike may affect profitability and sales.
2. Balance offsetting rising costs with maintaining or increasing profit margins. Failing to get a price increase just right can result in diminishing market share or sales velocity. Manufacturers should decide whether they want to take the lead with price increases or wait to follow competing brands.
“If you lead, then you need to formulate a detailed plan that includes potential impact to sales,” Adoerre said. “If you decide to follow, it may simply mean monitoring the market retail pricing.”
3. Be transparent. Manufacturers need to provide retailers with a breakdown the specific elements behind a price increase.
“It’s also helpful to demonstrate to retailers that actions are being taken to remove cost,” Stewart added. “Lack of transparency and short lead times on price increases will make the process more difficult.”
4. Give enough lead time. Manufacturers should build in 90 to 100 days of lead time when planning a price increase, Stewart said.
Consideration of timing is also key -- retailers are less likely to push back when manufacturers “avoid key seasons and include a revised promotion plan that will drive sales and profit for the category,” he said.
5. Commit to the partnership. Giving retailers a success story to look back on makes them more willing to accept future price increases and to remain loyal to a particular brand.
To show their commitment, manufacturers should “provide retailers with a comprehensive growth plan where pricing is only one component,” Stewart said. “Demonstrate that there are multiple factors, including innovation, to drive traffic to the category and increase sales.”
For more insights, download Solving the Pricing Puzzle. This free SmartFocus pairs a summary of key points from Acosta’s report The Pricing Conundrum with additional commentary from Acosta’s team of experts.
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