Pricing Strategy Simplified: How to Harness Pricing Data for Maximum Profitability
It’s very tempting to lower prices to stay competitive in a down market like ours, believing that’s what’s required to be competitive. But this should never be an intuitive, emotional decision.
The data will tell you whether you should get more aggressive with your pricing, stand pat, or even raise your prices.
The price-sensitive nature of the wine & spirits industry
The wine and spirits industry is very competitive—extremely competitive if we’re honest—due to the overwhelming number of SKUs on the market (experts estimate that there are more than 175,000 wine brands for sale in the US).
There are so many similar products at similar price points that this abundance of choice causes price sensitivity in buyers (both trade and consumers alike).
However, not all consumers base their decisions on price. Need proof? Sales of wines selling for $50+ are up 1%. That’s nearly a 14-point swing from the overall market. Domestic wines in the $50+ price range are up even higher at +3%.
You can see that it’s tempting to hit the lower-the-price lever without hard data. But don’t make any pricing decisions that are not rooted in data.
Pricing is more transparent than ever before
Given the plethora of e-commerce, online platforms, and purchasing apps, consumers and trade buyers (retailers and restaurants) can quickly and easily compare prices across brands.
This puts massive pressure on products to undercut or at least stay on par with competitors.
Many retailers now maintain extensive online stores that show every publicly available price. Consumers and trade buyers can shop leisurely without getting up from their desks (or couches).
Lowering prices or offering aggressive discounts to avoid losing market share may be necessary, but only sometimes.
For entry-level and mid-tier brands, price is a big differentiator in consumers’ minds. However, there are alternatives to lowering the price, such as differentiation via unique storytelling and strong brand recognition.
Strategies to mitigate the impact of price transparency
To avoid the pitfalls of price transparency, a brand must seriously consider these critical strategies:
- Brand differentiation: Developing a strong brand identity and special product attributes (like sustainability, limited production, or the highest-quality ingredients and production methods) can help prop up prices and reduce the sensitivity of price comparisons.
- Value-added services: Personalized customer service, custom packaging, or trade marketing support provide a platform of permission to build relationships beyond price.
- Scarcity: Emphasizing the rarity of offerings can mitigate price sensitivity for premium products and categories. Consumers will be willing to pay more for perceived value beyond the price on the shelf.
- Leverage data: Analytics can help producers better understand market trends, competitors’ pricing, and demand. With the right data, brands can adjust pricing more strategically, avoiding the danger of across-the-board price cuts.
Maintaining profitability and brand equity without giving in to the pressure to reduce prices is possible. Producers can thrive even amid high levels of competition and market transparency by focusing on brand value, meaningful differentiation, and strategic pricing.
The dangers of aggressive pricing
When all you have is a hammer, everything looks like a nail. But, danger lurks within aggressive pricing strategies. Dangers such as:
- Erosion of brand perception: Lowering prices too much risks putting your brand positioning at risk. Perceived value is critical, and—especially in this industry—lower pricing denotes lower quality.
- Price wars: Once price-cutting starts, competitors often follow suit, leading to a race to the bottom.
- Impact on profit margins: Lowering prices may temporarily boost sales but reduce profitability. Fewer funds are available for essential activities like marketing and innovation, which are critical for long-term growth.
- Discount dependency: Consumers and retailers begin to expect ongoing discounts, leading to an unsustainable reliance on price cuts and discounting to maintain sales volumes.
The complexity of distributor pricing data
It is a monumental challenge for producers to collect, aggregate, and interpret distributor pricing data.
Throw in the essential need to price differently across regions, trade channels, and accounts, and it becomes hard to imagine doing this right without data.
Many producers are utterly unaware that the tools already exist to share, communicate, and manage pricing data.
Managing all of this manually comes with a high price. This includes errors, time consumption, and a lack of real-time insights.
Brands that thrive today leave nothing to chance. They know how to simplify the three-tier pricing process using sophisticated software platforms like our Pricing Gateway.
By leveraging systems and software, brand owners can not only save many hours by eliminating the need for manual work.
Accurate pricing data ensures maximizing profitability
The industry is replete with examples of brands that “lost their way, ” allowing brand equity (pricing power) to dwindle.
Avoiding this dilemma requires continually monitoring and analyzing distributor and retailer pricing.
It is nearly impossible to spot opportunities for improved profitability without real-time data provided automatically by your distributor network.
Distributors are also under enormous pressure. Driven by the need to lower inventory costs, distributors will continue to pressure suppliers to become more aggressive with their pricing. Some do it without even consulting the supplier! This need not happen to your brand if you have a clear line of sight into what your distributors are doing with pricing.
Access to real-time data is key to avoiding this. It can help strike the right balance between staying competitive and maintaining your targeted pricing margins.
Turning data into dollars
In summary, automating and simplifying your pricing management systems is key.
Do you need a thorough investigation (audit) of your current systems?
Would you like to see examples of suppliers who have invested in modern pricing management systems and hear how those investments paid for themselves?
Would you like to see these data-driven pricing systems in action?
We invite you to contact us and let us show you how to do what so many others are already doing. Your brand’s equity, performance in the marketplace, and profitability depend upon it!
