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Who knows your pricing better, you or your customer? Can you confidently answer the following questions?
Do you have €M’s of risk?
Can you defend your pricing if pressed by customers?
Can you pre-empt resolution or manage the demand when it comes?
Cross-market pricing remains a hot topic
Time and again we see single products show significant price variation across borders. This can be due to any number of factors. FX rate fluctuations, fragmented pricing decisions internationally, and a general lack of visibility are some of many unintentional drivers of differences in price.
To add pressure to the situation, improving technology is enabling better visibility of prices across borders, and we are seeing an increasing customer-focus on the opportunities this provides. It is therefore more important than ever to take control of your cross-market pricing strategy and mitigate risk before you get the call from your buyer.
Recent examples of constantly evolving buying groups (e.g. Eurelec) and market consolidation (e.g. Tesco/Booker) have shown that the P&L risks pricing variations pose can reach figures in the 10s of millions. A recent project Acumen conducted with a leading international alcohol company, identified €5.2M pricing exposure exclusively on key SKUs across Western Europe.
So – what can you do before the phone rings?
Understand your current pricing
Quantify the risk at different levels
Define your strategy – proactive or defensive?
By doing the work upfront, the time available once the buyer has called can be re-purposed away from gathering facts towards preparing for the negotiation.
Understand your pricing:
The key is to ensure you identify the price of each of your products at all levels of your P&L – List price / Invoice price / Net price (3Net and/or 5Net). It’s pointless preparing for an invoice price discussion if your customer wants to talk triple net.
This sounds simple but is often more difficult to achieve than you would imagine, particularly if Excel is your tool of choice and you are having to combine data from several different spreadsheets.
Quantify the risk:
Being unaware of your pricing risk can leave you massively exposed without you even knowing about it. The diagram below shows an example of how a minor pricing variation in one market (even a relatively low volume market) can easily result in a multi-million Euro risk for a top selling SKU.
Define your strategy:
Once you are aware of the problem that needs fixing, there are several actions you can take to reduce the risk to your business, examples include:
Increase your price in the lowest priced market (via price or trade terms)
Actively delist low volume, low price SKUs.
Differentiate the product in “challenge” markets through repackaging, redesign etc.
These all contribute to making your pricing more defensible. The key is to ensure alignment from all market stakeholders to the solution and recognise that a market may feel disproportionate impact for a greater gain across the total business.
Sustain the approach:
Sustaining an approach is as much about mindset as it is about strategy. Do not be resistant to change.
Constantly reviewing your pricing and applying pricing models to every new pricing decision (NPD) will set you up for a more informed, less exposed conversation with your customers.