Top Ways to Avoid Common Pricing Pitfalls

June 11, 2024 |

Creating an effective pricing model is crucial for emerging CPG brands but determining the correct price for your product can be a bit tricky. Too high and you risk losing market share, too low and you can lose money on every sale. Many factors go into setting pricing: Internal Costs, Consumer Demand, Perceived Value, Competition, Promotions, Retailer and Distributor margins – it’s enough to make an entrepreneur’s head spin! While you’re figuring it out, our Market Ready Team created a list of some common mistakes that emerging brands often make when setting pricing. 

Not Considering All Costs

Brands often overlook certain internal costs such as labor, ingredients, packaging, and manufacturing overhead, which are essential components of the Cost of Goods Sold (COGS). Failing to account for all these costs can lead to pricing that does not cover the full production expenses, resulting in financial losses. 

Ignoring the Competition

Understanding what your competition is doing is vital to many aspects of your business, from pricing to promotions to marketing efforts. Setting prices without considering the competition can result in prices that are too high or too low, affecting market share and profitability. Make sure you’re researching your competition to gain insights and deeper knowledge of your category.

Misunderstanding Consumer Demand

Understanding your target consumer is one of the most important aspects for your success. Who loves your product? Where are they shopping and what other brands are they buying in your category? Misjudging consumer demand can lead to pricing that doesn’t align with what customers are willing to pay. 

Neglecting Market Strategy 

Make sure you understand the costs associated with your overall channel strategy. All retailers are not created alike and have different costs of entry, margins and promo expectations. You will also need to consider costs of distribution for the channels you are pursuing and adjust your pricing to accommodate those costs. Disregarding these factors can lead to a disjointed approach that fails to maximize revenue. 

Inflexibility

Markets are dynamic, and consumer behaviors shift. We’re still recovering from pandemic supply chain issues and dramatic increases in ingredients and supplies. Brands need to be agile and willing to adjust their pricing strategy in response to market changes, new data, and consumer feedback. 

Lack of Data-Driven Decisions

Relying on intuition rather than data can lead to suboptimal pricing. You don’t need a fancy data program package, there are many ways of conducting market research in the golden age of the internet.  data and analytics to inform pricing decisions and to continuously monitor performance for adjustments. 

Failure to Scale

As a business grows, the pricing model should adapt to new scales of operation, which can affect costs and margins. Producing more goods leads to increased costs, but also provides relief as you renegotiate ingredient and packaging costs. Not scaling pricing appropriately can hinder growth and profitability. 

Avoiding these common mistakes will help put your brand ahead of the competition and set your brand up for success in the grocery channel. Be sure to follow PRESENCE Marketing for more valuable tips and insights!