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Increasing costs, aggressive competition, a saturated market, and ambitious profit targets are just some of the external pressures placed on consumer goods companies. Faced with this, companies are aware that optimising the price and terms structure of their brands can deliver growth, but more than half do not have a well-defined strategy in place. So why should you structure your pricing now? Here, we outline the reasons why companies should look to implement structure to their pricing now and the short and long-term benefits.
Why now?
The covid pandemic has completely reshaped the consumer goods landscape. With e-commerce and omnichannel retailers dominating, whilst on-trade and food service channels have become virtually non-existent. Retailers with physical stores have increasing demands to compensate for higher operating costs. As we head into an economic recovery phase and shoppers become more sensitive to price, strategic pricing techniques become essential weapons for FMCGs looking to expand in a post-covid world.
As well as current trends, there are a number of prevailing pricing pressures that consumer product companies face. Many lack visibility of true relative pricing levels and have an inconsistent structure between customers. On top of this, trade spend increases year on year as a percentage of sales, and implementing price increases becomes more of a challenge as new retail alliances form.
These pressures in the covid context call for greater simplification, agility and defensibility in pricing and trade terms structures. Typically, a structured pricing project takes 6 months end to end, so manufacturers looking to make changes to their pricing and terms should aim to kick-off or start scoping out a project now (beginning of Q2), ahead of end of the year negotiations.
What benefits will you see?
Clear, consistent structured pricing and trade terms that are aligned to business objectives will deliver a multitude of benefits. Here, we outline the results you’ll see following a coherent structured pricing project:
A successful project will result in pricing and trade terms that are aligned to your business ambition, brand, and customer strategies
The structure should be mutually beneficial and allow you to create win-win plans with customers
You’ll be armed to tackle price increases, which are becoming increasingly challenging every year, in a structured way
You’ll have a defensible pricing structure in an industry where M&A activity is prevalent
A clear structure will enable re-assessment of channel investment and allow you to successfully adapt to external challenges (post-covid channel recovery)
Finally, you’ll empower your sales team by giving them a clear, consistent and optimised framework within which to operate, ultimately allowing them to deliver their KPIs with autonomy