Pricing Scenario: Shipping Through Distributor or Direct

If you own or manage a business that produces products or services (like essay writing where students are in search of where to pay to write essay ) that sell through a retail channel, there are two pricing scenarios that you need to develop so that you can determine what your selling price will be to either the retailer and the distributor that will sell to the retailer and within these two scenarios, two additional scenarios for a pick up price (at the manufacturing or warehouse location) or delivered price.  Potentially, you can have multiple delivered prices (full truck load, limited truck load, etc.) as illustrated below:

Pricing Scenarios

Because of the above, in order to sell efficiently as a small business owner or manager you should be creating two separate price lists if you sell your items both direct to retail or through a distributor (who then sells to the retail) – one price list for direct customers and another for distributors.  On each price list you should provide one set of prices quoted as both FOB (AKA pickup) and delivered for all of your products.  Although this is not really what I want to cover in this article, the benefits of separate price lists are:

  1. Easier to manage your targeted SRP by adjusting your sell price.  Typically, your selling price to distributors should be less than that to direct customers because ideally you want your SRP to be one price at any retail location (this will be further discussed below)
  2. Since more margin is added when going to distributor vs. direct, which results in two different sell prices, it becomes easier to manage your profitability by have P&Ls for direct customers and P&Ls for distributors
  3. Custom programs.  Some distributors are not properly educated on your product benefits.  Paying extra money for placement in their catalog so that you can drive messaging and awareness to the local reps within the distributor company could be the difference of a distributor pushing your product vs. not pushing it

Now going back to the original point of the article: how to develop the two separate pricing scenarios.  Let’s assume that the average retail margin is 40% and the average distributor margin is 10%.  Let’s also assume that at a sell price of $1.50/unit, you will be hitting your targeted profit margin.  Below are the SRPs for Direct and Distributor based on the above:

Direct Customers: $1.50/(1-.6) = $2.50 SRP

Distributor: ($1.50/(1-.9))/.6) = $2.78 SRP

As you can see from the above, you pricing structure will not be consistent in stores that ship through distributor vs. stores that ship direct from your plant.  In order for the Distributor pricing to lead to $2.50 SRP, the sell price would need to be $1.35 as opposed to $1.50. Or, your Direct price should bump up to $1.67 to deliver a $2.78 SRP.  You might be wondering what this has to do with marketing?  Well, if your direct price is the same as the distributor price then good luck trying to sell to large customers.  They will know and recognize that you aren’t giving them the best deal since going through a middle man is always more expensive.  Therefore, two separate price lists is the way to go so that you can have two different pricing structures.  Furthermore, your direct customers will never see your distributor pricing and vice versa, always giving you more leverage.

Going From Small to Big Business: What You Need to Know as a Manufacturer

So you have a product that you sell locally, for now.  Whether it is a local cupcake business, bread producer, toy manufacturer, etc. this will apply to you because your goal is success and the more success, the better…right?

Growing your business requires incremental dollar sales month over month, year over year.  Holding everything constant (product, price, distribution, placement, etc.) there is no reason to believe that the customers that you currently sell to or the shop that you currently sell at  will produce more sales one year over the next.  Therefore, the only way to grow when holding everything constant is to increase the number of stores that you are selling to.

There are two ways to go about this: continue to sell locally or expand into national or regional accounts such as Costco, Target, Toys R Us, etc.  In either scenario from the above and similar to what you require for growth,what retail is looking for when deciding to take on new products in their finite space is also incremental dollar sales.  What I mean by this is the following:

If you sell locally your famous mustard recipe, why would a retailer want to replace an item on their shelf that is already profitable for an item that has yet to be proven?  The answer is this: you need to demonstrate to the retailers why your product will drive incrementality to their mustard category.

Incrementality within manufacturing is typically achieved through innovation or differentiation/unique characteristics of your product vs. the competitor.  Perhaps for mustard, it could be that your mustard is Kosher Certified and USDA Organic whereas Grey Poupon or Boar’s Head is not.  Also, maybe your mustard is incremental due to the unique packaging that doesn’t leave crustiness on the rim after closing the cap and storing in the refrigerator (I hate this!).  Whatever the differentiation is, you must prove that it is valuable differentiation and therefore, incremental in dollar sales because existing mustard consumers will switch to your product for whatever that added value is.

Now there are two ways to get in on shelf at bigger accounts:

  1. Analyze the competitors within the space that you want to compete in and recommend to the retailer a competitor that you would like to “pick-off” because it is slow moving, but nutritional label, etc.
  2. Present to the retailer via research (surveys, customer testimonials, consumer needs, etc.) why your product deserves a slot on shelf

Developing these stories is the tricky part.  Adam and myself have the experience of selling-in to national retailers over various industries and would love to hear your story and how we can help, if needed.

Burger King – Marketing Strategy

Food Trucks and Touch Screens?

Burger King is creating a good amount of marketing buzz around their new menu and the experience that consumers will have.  They have redeveloped their menu, which is somewhat reminiscent of McDonald’s to be more health conscious by adding salad and wraps options.  They will somehow be incorporating a touchscreen into their point of sale and using food trucks to get their product out to the masses.

 

What is their marketing strategy here? Here are some takeaways from the whole concept.

Takeaways:

Track your sales. For a big company to shift like this means that their stores aren’t performing as well as they hoped.  John and I are adamant about tracking sales dollars and quantities and as Burger King probably has been losing share to competitors, they hope to get it back with this new product launch. Track your sales so you can make marketing programs to tackle a downturn.

Get people in your door.  Any type of retailer knows that if they can get you in their door and on their grounds, they can probably sell you something you did not want to buy, eat, or have. Give them a reason to come by – like Taco Bell and the Locos taco, Burger King hopes to create a new customer experience.

Test your product.  With the food truck, Burger King plans on sampling the new product to the masses before they actually release to stores. How can you do the same? Test your market before you assume that everyone will love your product or service.  You might be liked be everybody because you smile, but that does not mean you know what everyone likes to smile about.