Over the past two years, consumer goods manufacturers have struggled with pricing, particularly within the fast-moving consumer goods industry. Typically, these products are sold quickly and at a relatively low price. As such, CPG companies have found it challenging to carry out price increases.
At Wise Athena, our goal is to help CPG companies execute price increases amid rising costs and a challenging retail environment by finding the right price and the right timing to minimize volume loss and reach revenue targets. We understand why CPG companies have struggled to raise prices and can help provide insightful data to support conversations with retailers. You can also use our A.I./Machine Learning powered software to optimize trade promotion strategies and ensure they align with your supply chain reality.
CPG Companies Struggle to Put Price Increases Into Effect
The pandemic and inflation have caused CPG companies to face challenges from a pricing perspective. There are several reasons that CPG companies struggle to put price increases into effect, mainly an increase in competition in the retail space and growing private labels and niche competitors.
With increased competition in the retail space, some CPG retailers have pressured suppliers to keep prices low. Others have adopted a zero-tolerance policy for price increases. Additionally, private labels have improved their quality and are enticing value shoppers. Niche competitors, too, are on the rise and are attracting new customers, particularly those in the millennial generation.
CPG manufacturers are getting pressured from all sides—from intense retail price wars to rising commodity costs, to increased competition for shoppers. Here at Wise Athena, we have effective price increase strategies to help your CPG company succeed despite these challenges.
Effective Price Increase Strategies
When it comes to efficiently implementing price increase strategies, the questions on everyone’s minds are “How much should I raise my prices?” and “When to raise prices to be most effective?” Wise Athena understands that there is a delicate balance regarding the timing and extent of price increases, and we’re here to help you make the best decisions for your business with award-winning elasticity modeling.
4 Ways to Raise Prices Successfully
Here are four net revenue management tactics to help your CPG company raise prices successfully.
Not every category needs the same level of attention when it comes to price increases. For products that drive growth, you should minimize increases to hold or gain share. If products are slower to generate profit, you can price them above inflation to maximize contributions.
Prioritize Increases in Shelf Price
Shelf price increases have more traction today than any other time in recent years. Market conditions support shelf price increases, so CPG companies can increase promotional activity or offer coupons to drive share and reset marketplace dynamics.
Re-Evaluate List Prices
Set new list prices above the so-called “magic” price points to encourage competitors and retailers to move categories into higher price bands. Re-evaluating your list prices improves price realization and provides opportunities for long-term growth.
Gain Control of Commodities
If you have categories with heavy commodities exposure, you could build mechanisms for passing along input costs in the pricing arrangements with retailers.
4 Ways to Enable a Successful Price Increase
Wise Athena recommends focusing on execution and retail interactions to ensure that price moves are attractive and successful.
Focus on Category-Level Economics
Input costs disproportionately affect CPG companies, which results in a decrease in total profits. Suppliers must prove that they aren’t trying to take more than their fair share of the profits.
Create Fact-Based Sell Stories that Focus on Win-Win Situations
Create a fact-based narrative that educates readers on the shifts in top cost drivers. Explain why adjusting prices is the best option. Additionally, show how price increases will create room for category growth over time.
Announce Increases Across the Market
Explain to all retailers that price increases will occur throughout the market. Start with category leaders that have the most credibility. Secondary players can wait and see if they can absorb a margin hit.
Plan for a Response from the Competition
Anticipate share changes. Consider margin tradeoffs. Be aware of heightened promotional intensity. Create a cost projection and a supply picture to determine if you can safely steal a few points of share from the competition.
CPG companies can look at their portfolios and determine strategic goals, target prices, and tactics. From there, they can craft an execution approach that generates buy-in from retailers. Take advantage of this pricing opportunity! Wise Athena can help CPG companies make the most of price increase strategies.
How Much Should I Raise My Prices?
Every CPG company facing rising costs and a challenging retail environment wants to know, “How much should I raise my prices?” The answer depends on your categories. You have to be surgical in your approach. Don’t raise prices across the board. Customers have a hard time accepting this, and this approach is rarely justified from the consumer’s point of view. Instead, successful price increases focus on both customer acceptance and shelf performance. Focus on the areas where you have pricing power.
When to Raise Prices
Timing is essential to alleviate adverse consumer reactions when it comes to raising prices. Understanding elasticities can provide a timeline road map. Evaluate any current initiatives and determine where you can increase prices to maximize success. Some examples of good leverage and tie-ins to a price increase include product refreshes, innovations, ramping up media and consumer support, and customer supply chain enhancements.
More Tips for Executing a Successful CPG Price Increase
Take creative measures to facilitate a near-term price increase. Look into low-cost, low-effort product or packaging changes that you can use to mask the price increase.
Converse With Your Customers
Have a strong customer story that justifies the price increase and shows how you will continue investing in the category. Make sure your customer knows the category impact of the proposed price increase. Use data to reassure customers that the increase will not hurt the category.
Hold Your Beliefs
Any time you raise prices, you’re going to get some pushback. Make sure your sales team understands and accepts the price increase so that they can convince the customer to do so as well. Send a clear message to the organization and customers that a price increase is a right move.
Wise Athena Is an All-in-One Pricing Solution
Wise Athena’s pricing and promotion optimization software for CPGs will help you streamline your promotions. Plan, simulate and improve the efficiency of price strategies in just one place. Request a demo of our software today.