By Stew Bishop, President and CEO
As important as product and distribution are to retail, nothing gets more attention than price. It’s human nature to want the best deal. To what lengths should manufacturers and retailers (who would rather charge premium prices to maximize profits) go to offer the lowest prices to their consumers? Many talk about right pricing, or delivering the best value, and not necessarily the lowest price. But this highly competitive, transparent market creates a tremendous amount of low price pressure. Why and what can be done about it?
As discussed in my previous blog on distribution, it is my assertion that retailers have allowed their offerings to become far too complex, trading velocity for variety. Ecommerce, especially Amazon, continues to pound the market with low price offerings, on an exhaustive range of distribution, at convenient delivery terms that are impossible to resist for the consumer who often can now receive the exact same product at the same price they would pay at a traditional retailer the same day with no delivery fee. Traditional retailers are closing stores at an alarming rate. This trend is expected to continue due to the belief in ecommerce by market investors, and the similar belief, if not fear of not participating, by suppliers, that seems to have no upward bound.
Retailers can help alleviate the problem by building smaller stores with fewer items, especially focusing on items that can be sold profitably that consumers really want and need. But what can be done by center store CPG brands who are beginning to suffer as traditional retailers shutter their doors? How do you manage the downward trend of your legacy retail customers as you build with the new? Most trade fund management is still done at the account level, ecommerce opens the door to customization at the shopper level. Will you be prepared when that time comes?
The data exists to understand the P&L for a given business in any retail format, including ecommerce. This is not hard; what is hard is for manufacturers to create methods for doing this work routinely, while also developing the courage to make decisions about what they want to accomplish with their own businesses. Our founder Bob Dumas has often said, “business is an act of will as much as it is skill.” A business that does not understand WHAT it wants to do in the marketplace will never know IF they have achieved that.
As it relates to distribution and pricing at retail, manufacturers that do not have a comprehensive retail strategy, managing the curve of traditional store changes and the emergence of digital, will be left behind. Brands must entertain questions such as:
While all of these questions can be answered, many manufacturers are not asking them, as they fear the implications of the answers. They continue to plod along letting the environment affect them. As mentioned in my blog on escalating trade budgets, the tools exist to manage price by managing your trade budget. Ecommerce is here to stay, manufacturers must take the helm to make sure their businesses stay on course.
All retailers, regardless of format, need valuable products to sell to survive. Will it be yours? Do you have a meaningful strategy in place to not just survive but thrive with all?