About three weeks ago, I wrote a wildly popular article about the “Race to the Bottom” in the sports nutrition CPG industry. I attributed this effect to a “perfect storm” of an increasingly competitive landscape, especially in the digital channel. This perfect storm was being caused by a massive amount of sports nutrition CPG brands entering the market and also more a massive number of sellers entering the market through the marketplaces channel (Amazon, Ebay, Jet, Alibaba, etc.). There is also a great deal of interesting macroeconomic factors that are at play with Millennials (your key demographic) but I will leave that stuff to the writers at Forbes.
The result? An epic race to the bottom!
I have honestly met with some brands that were so disgusted with the challenge of managing the digital channel that they were thinking of leaving it all together. As romantic and nostalgic as it sounds, the retail-only strategy is basically signing your business’s death certificate. So what do you do to clean up your digital channel price integrity? **Firstly and most importantly, I am going to assume you actually have invested in your brand’s value proposition (that isn’t about low prices) and it has been well articulated to your customer base consistently over time (this is probably 5-10% of the industry but this MASSIVE point is for another day). **
Step 1 – Do you actually have a pricing strategy and methodology? There are many different pricing models like cost-plus, value-based, and target return to name a few. Picking one of these models is “important” but applying that to a comprehensive market pricing strategy is more important. I was quoted earlier this year in a great pricing strategy article that helps explain some of the things you need to consider in your market pricing strategy.
Step 2 – Set a Minimum Advertised Price (MAP) that is tested to be accurate based on real sales history. What I mean by that is when you decide to set a price, make sure you have some data to validate this number. This could be brand equity data that shows you are indeed viewed as a “premium brand” or maybe even comparable sales data on a similar product to a similar list of competitors. That way you know to price your product in line with that set of competitors. Simply saying, “lets price it right in line with the top competitor” when you are a small player in the industry is basically saying we have no plan except we want to fight the biggest guy in the room because he is big.
Step 3 – Automate or Assign someone in company to monitor MAP like their job depends on it….because it does. Even a few bad apples can ruin the whole bunch on the digital channel. If you are having continuous MAP policy violations that are left unfixed it can start a snowball effect because most marketplace third party (3P) sellers have pricing software that is algorithmic in nature. They simply state “if then” triggers that will drop their prices based on other sellers without any human contact. There are automation options that are industry specific and ours is PricePlow **disclaimer they are a client of mine**.
Step 4 – Build. Measure. Learn. So despite all your best efforts to have an effective pricing strategy that is continuously measured, your product(s) are continuously getting sold under MAP. What do you do? Use it as a learning experience and adjust your methods. If your products are being viewed in the market as “cheap” then you have a brand strategy problem, among other possible things. This reverts back to the assumption I created in the beginning of the article and is for another time and day.
I will be the first to say that the digital channel is not the easiest sales channel. Truth is, its where the market trends have shown the buyers are going for the last decade and its not slowing anytime soon with our mobile-first mindset.