Let’s talk ‘Fair & Equitable’ regarding pricing & trade spending. You all are operating in a complex environment, direct retailers competing with retailers buying through distributors. Or ‘hi-lo’ operators competing against EDLP operators. Conventional retailers vs. natural retailers vs. club stores. And, of course, everyone competing with Walmart.
The reality is that at the end of the day, you need to be at about the same net price (revenue less trade promotion events) for everyone. This includes ALL trade spending, OI’s, scans, lump sums, whatever.
So, why bring this up – let me share some comments I see and hear – ‘we don’t need trade spending at Walmart’, ‘we need to address the pricing at ‘retailer X’ (they buy through a distributor) because they are a lot higher than ‘retailer Y’ (who buys direct). You get the idea.
Funny thing is that as a brand grows, the industry has a rather clever (call it sophisticated) approach to policing itself. There’s really no need to worry about things like the Robinson-Patman Act (you’ll probably hear about it at some point if you haven’t already) or other legislation. It’s a lot more difficult when you get a call from a very good customer asking for specifics as to how ‘competing retailer X’ was able to run the following events and they do not have the funding to do it. It’s some of the roughest conversations many of us have had – especially if they are correct.
A few things to consider – and I’d request everyone to add more – we are all in this together:
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- A direct retailer will have a pricing advantage vs. an indirect – they do not have upcharges for distributors, forward buying on OI’s that they do not see, nor many of the additional fees that happen.
- Walmart does take trade and put it into their retail price. Most large CPG companies operate on ‘net pricing’ there.
- You can certainly execute deep cut pricing events at ‘hi-lo’ retailers – they can be very effective for trial and repeat, and they can be very efficient with limited purchases (scan).
Finally, I’d remember that the main objective of trade promotion is to achieve your sales objectives – grow your revenue & profitability as well as your retailer partners’ objectives. Making sure you are addressing this in a ‘far & equitable’ fashion is key.