RTM pricing strategies: “cut and paste’ or data-led?
I have a funny feeling that all too often, promotion strategies or agreements between wholesalers and suppliers are a ‘cut and paste job’ from one year to the next.
IF this is the case, maybe the role of the buyer and the NAM will move to such an extent they won’t need to be filled by humans, but by robots. Automation and digitalisation will also deal with all of the paperwork too – quicker than humans, and with fewer errors. A win/win for (almost) everyone?
Clearly a scenario like this – involving AI – will creep into our sector one day, but until then, a ‘cut and paste’ job (or ‘we did it last year, let’s do it again’) is damaging for everyone.
The world is changing, never faster than this year, and now more than ever, data is required to not only see what happened in the past but to help forecast for the future and optimise performance.
Identifying the right price
Each commercial person working in the sector is employed to optimise the revenues and returns for the company that employs them. To achieve this, they need to understand the impact a product’s case price has on volume sales.
Here’s an example of how we at TWC help suppliers identify the right price to sell their cases for, to generate the highest volume sales.
As you can see, the optimum selling price is NOT the cheapest selling price
The problem we often find is that promotional strategies, price changes, and PMPs further cloud an already foggy situation. What is often required is forensic analysis of volume rates of sale and value/prices sold over a 52 week period to identify the optimum selling price.
In its simplest form, we are able to produce outputs like this chart above…to bring clarity to a confusing situation.
Are suppliers and wholesalers throwing money down the drain by not scrutinising data?
By analysing data, suppliers can identify an optimum selling price via price elasticity modelling. This can be done for single SKUs/brands, or for a whole portfolio of SKUs. It can be done at one wholesaler or across the entire market place.
Time after time, the analysis and interpretation leads to actions which either generates additional revenues, higher margins, or both. This scientific, data-led approach helps everyone get the best possible returns for the effort employed.
The most important metrics are:
- Rate of sale
Have these three measurements to hand and you’re more than half way to solving the problem.
‘On promotion’ vs ‘off promotion’ prices
We often get asked to help with suppliers’ wholesale pricing strategy. The starting point is to determine whether there actually is high and low pricing occurring, or whether the price is static through the year.
Secondly, we look at what happens to volume if there is a price move – does it move accordingly?
Finally, we look at the correlation between volume and price to find the “sweet spot” where volume is optimised without necessarily dropping to the lowest price point. Often, when a supplier hasn’t worked with us before, the first charts we produce don’t look like the one above. Instead the lines are flatter and volume dips appear when prices dip. Why? Because the customer has not spotted the promotion or bought into the deal.
There’s a lot of talk about Tesco moving to EDLP. Will this flow through to wholesale as well? There’s no doubt that, like Tesco, every wholesaler wants to be the cheapest. But every wholesaler knows impactful promotions drive footfall and every supplier knows the right product on at the right price will build brand exposure and sales uplift.
Surely, therefore, the win/win is understanding what works on promotion and focusing on that?