Faced with persistent economic tensions, the French seem to be paying ever closer attention to the price of consumer goods. As a result, pricing policy plays a central role in the marketing strategy of manufacturers who sell their products through supermarkets.
For your brand, defining sales prices has become a major challenge. That's why we've decided to devote this article to it.
On the program: the fundamentals of pricing policy and the different strategies recommended by marketing. We will then develop the specificities of the retail sector, where you will find the keys to defining the right pricing policy for both your customers and your retail partners.
Pricing policy covers all decisions taken to determine the price of a product.
There are several factors that help companies set their prices:
Price is one of the 4Ps. As such, it is an essential part of the marketing mix.
And while there's nothing to stop you developing other models, marketing theory suggests 5 proven pricing policies.
The premium pricing strategy involves charging higher prices than the competition, in order to target a customer segment with high purchasing power. The extra cost is justified by the product's high-end positioning. By adopting this policy, you'll create a feeling of exclusivity, and the price level will naturally filter out consumers who can afford to pay the premium price.
This strategy generally results in lower sales volumes but higher margins. You need a high-quality product with specific features, such as cutting-edge technology. What's more, you need to already benefit from a prestigious brand image for the premium price to be justified.
Examples of brands using premium pricing: Porsche, Louis Vuitton.
The skimming strategy means charging higher prices than the competition, in order to target a customer segment with high purchasing power. This technique is reminiscent of the premium strategy, but is used more specifically in the context of new product launches, where a surprise effect is expected. For example, the success of the iphone (1) is based - in part - on a pricing strategy designed to convey the image of a technological breakthrough. Your target is the share of consumers who are prepared to pay more to be among the first to use an innovative new product.
This approach translates into lower sales volumes but higher margins, and enhances the quality of your brand image.
It is essential, however, that this choice of high price is justified by the obvious quality of your product, or by a technological advance that sets you apart from your competitors.
After the initial launch phase, gradually lowering prices becomes necessary to broaden your target, especially when you release new products.
Examples of brands using the skimming strategy: Bio Natessance, Apple, Nespresso.
The penetration strategy aims to set prices lower than those of the competition when launching a product, in order to attract new customers and rapidly gain market share.
Low prices will satisfy customers, generating positive word-of-mouth and increasing sales and brand awareness. Beware, however, that this technique can also trigger a price war with your competitors, who will be tempted to react by lowering their prices in turn. This can have a serious impact on your already reduced profitability.
Also, bear in mind that once the launch is over, the price will increase. This price increase may be difficult for your customers to accept.
The penetration policy is used in highly competitive markets, where you can achieve a high volume of sales and consequent market share, but lower margins.
Examples of brands using the penetration strategy: Io liquid detergent, Free.
The alignment strategy consists in charging prices similar to those of your competitors. This pricing technique is generally applied to food products. It is therefore often found in supermarkets.
This system keeps you competitive with your rivals, and the psychological price is already determined by the existence of similar products. In this strategy, the manufacturer aims to win market share without charging too high a margin, by taking advantage of the maturity of an already established market.
Examples of brands using the alignment strategy: Danone, President.
The differentiated pricing strategy consists in adapting the price of the same product to the different clienteles or distribution channels involved. The selling price of the same product may therefore vary according to the distribution context, although its production cost remains unchanged.
Here, you'll be relying on a number of factors:
Examples of brands using the differentiated pricing strategy: Nestlé, Coca Cola, Unilever.
For a brand present in supermarkets, pricing policy presents challenges that go beyond simply setting product prices. It encompasses the brand's perception, its competitive positioning and, ultimately, its ability to retain its place on supermarket shelves.
But why is the world of supermarkets so price-sensitive?
To begin with, manufacturers face competitive pressure from the profusion of similar products on supermarket shelves, which often dissuades them from raising prices for fear of losing market share to substitute products. Brands are thus engaged in a veritable price war, which is further enhanced by the margins achieved by retailers. In an attempt to turn the balance of power in their favor, and to ensure that they are among the cheapest, some brands no longer hesitate to display their prices directly on the packaging, to make retailers flinch. Danone makes extensive use of this practice.
What's more, mass retailing is characterized by a high frequency of promotions. You therefore need to be proactive in taking part in these initiatives to boost your sales, and not suffer the aggressive strategies of your competitors without reacting.
Last but not least, price negotiations are generally dominated by distributors. This is particularly true in periods of inflation. This is also evident in the first quarter of 2024, with the introduction of the Bruno Le Maire law, which shortened negotiation deadlines, thereby increasing the pressure on manufacturers.
Despite these constraints, it's crucial to view retailers as partners, not adversaries. Winning brands focus on trade marketing to optimize promotional campaigns and, in general, work on an optimal pricing policy.
However, finding the right pitch and convincing your distributors is generally done by presenting them with quantified analyses. For example, knowing the price elasticity of your products enables you to negotiate on the basis of tangible elements. Remember, you and your distributors have the same objective: to maximize profits.
Data is the key to successful negotiations with central purchasing bodies (see our white paper on the subject). So, to develop an effective pricing strategy, it's imperative to send your sector managers into the stores. They can then work methodically on price surveys. Your brand's prices first: are your products displayed at the right price? Are the price tags visible? This enables us to understand whether sales are falling or rising. For example, your product is currently selling less in one store. The sector manager visits stores and realizes that the price is displayed on average 10% higher than it should be. This could be one explanation.
Then comes the competitive price survey: this practice enables you to identify your competitors' pricing strategies and find the best possible positioning. These findings often lead brands to rework prices with their distributors.
This is why it has become essential to equip your sector managers with a mobile, retail-oriented CRM to guarantee exhaustive, relevant shelf surveys. The analysis of field data will enable you to adjust the most strategic assortment during annual negotiations.
Pricing policy in supermarkets is a key factor for manufacturers. It determines how your brand will be perceived, its position in relation to the competition, and its durability in the marketplace. Choosing the right pricing strategy is essential to maximize revenues, build customer loyalty and maintain sustainable profitability.
