2-min read
Are your products priced correctly in the marketplace? Have you been surprised at the price difference from one retailer to another, or has Amazon threatened to deactivate your items for not having the cheapest price with them?
Pricing architecture is an overall approach to pricing that considers all the various potential places your products may sell in the future. In its design is the competitive nature of those marketplaces.
Why does price architecture matter when I’m just selling for the first time?
Because your first price sets the stage for all other pricing, and changing prices later is difficult. In order to avoid having to re-price, you want to work out your full pricing architecture across all channels before you start selling.
There is a hierarchy to who gets the lowest and highest price: the mass channel will have the cheapest price, national and regional grocers will have a higher price, and independent retailers the highest. Your price online should not be less than mass.
To summarize, these are the main channels you want to consider:
· Mass (ex: Walmart)
· Grocery (ex: Safeway)
· D2C e-commerce (ex: Amazon)
· B2B e-commerce (ex : Thrive Market)
There’s value in doing this ahead of launching, to avoid out of whack scenarios such as ending up more expensive at Walmart than Market Basket, or being flagged on Amazon for being cheaper at Walmart.
Let’s say for example, you make these Dewey Cookies (I don’t know this brand, but they look delicious) and your unpromoted price on shelf as you can see is $4.99 at a regional grocer like Wegmans, $4.49 at a national grocer like Safeway, and then (let’s pretend) $3.99 everyday at Walmart (I’m making this up, I don’t know if they sell at Walmart). As you can see here, you occasionally run promos at Safeway that matches, but does not go below, your Walmart price. This is proper pricing architecture.
To set proper pricing, you have to understand the two main variables that go into selling:
1. route to market – this is the physical path your products take to get to the consumer
2. the associated costs (margins, mark-ups or fees) taken at each step
Then, build a spreadsheet. If you don’t want to build this yourself, I highly recommend using a template like this. But even with templates, you have to know the numbers that go into them.
Next week I’ll do a deeper dive into the numbers, as well as demystify competitive pricing interactions.
All my best,
Jennifer