In the previous articles we examined the hidden benefits of Pricing and how to boost marketing budgets with Pricing. Now, suppose you want to start a Pricing project, but do not know how to begin… Pricing projects can take the form of Training, Capability Assessment, Analysis, Commercial Road Map Etc… Therefore, clarifying the needs of a Pricing Project helps to determine the deliverables and resources. This is achieved by examining 6 areas.
1. What have you done so far with Pricing? This is about understanding what has been done with pricing until today. For instance, what were the increases in the last years, how was this managed, with what result? And the same can be done with trade and consumer promotions. For instance, what are the promotions budgets, are they effective ? Etc…
2. How does Pricing impact your P&L? This steps identifies the actual impact of pricing changes in your P&L. With a bit of work with the finance team, you should understand the impact of price changes in your Net Sales (NSV) growth or impact on Trading Profit. It is also important to examine the Net Sales vs. Volume Gearing, i.e. the % NSV change over the % volume change, as this will show if value grows faster than volumes, or not…
Also, within promotion discounts & rebates, are you able to separate trade vs. consumer price discounts, or price from brand mix benefits? Can you track price increases per SKU? At a market level, can you see this information by brand, by SKU, by channel and by customer?
3. What are the Pricing issues at hand? Here, just list and rank what bothers you. For instance: You want/need to increase prices – but by how much? Are prices across your portfolio maximising profit? Competitors have dropped their prices – what will you do? How do we best deal with a tax and excise increase? The trade wants a promotion / discount – should you accept it? Which of your promotions work? How can you make the most of your value chains? How can you be better at annual negotiations? How do to achieve price consistency over your markets? How can we best express your pricing strategy? Etc…
4. What is the Pricing size of prize? After identifying the key issues, the same can be done about the “size of prize”, i.e. what ambition can you benefit from a Pricing driven approach. This often take the form of an NSV or profit increase and the simulation approach presented in the Pricing Amplifier effect is a great way to start and make your team hungry.
5. What is the Pricing Project scope? Here think at which level this Pricing Project ought to be carried out. Should it take place at a market, regional or global level? Are we talking about a single SKU, a brand family made out of several variants? Or several brands within a category? And, what is the competitive set your brand(s) or variant(s) are competing against? And in which channels?
6. What Pricing data do you have visibility of? To say that Pricing projects rely on data is an understatement. You will want to know what pricing information you have and what the gaps are, and if they can be filled easily as this it will determine the confidence level confidence of Pricing recommendations and the possible list of data to aquire.
Typical pricing data include sell-out expressed in volume and value, price points, but also brand equity measure as well as market share. At an internal level, does each market have a published list price and visible commercial terms which would include discount for volume, promotional activity, logistics, payment incentives etc…? And if you work through distributors, can you identify the pricing actions that have been taken by distributors? Etc…
Defining a Pricing Project requires a degree of internal review, but this time from a pure Pricing & Promotions perspective. Hopefully the questions above show that understanding your “Pricing Situation” is not complicated and meet concrete questions. And as they say, “A good question is 90% of a problem solved”.