Finding the right price for your product is complex. The Venturepark Labs team suggests keeping these 3 things in the forefront of your decision making.
1) Cost of Goods Sold
The Cost of Goods Sold (COGS) includes all the direct and indirect costs related to making a physical product. This includes materials (ingredients, unit and case packaging), direct production labour (including pre and post production) and manufacturing overheads (factory operation overhead, etc.). It is important to also be aware of the impact of cost of goods inflation in the short and long term.
Tracking of COGS also helps brand owners test different scenarios to understand the impact of individual factors on final costs and identify cost reduction opportunities.
For more details, BDC has a newly launched Entrepreneur Toolkit to help brand owners understand the components that go into COGS: Here
2) The Category
Retailers organize their stores using the concept of product categories. Categories are typically grouped based on factors such as product benefits, consumer usage, and storage requirements (frozen, refrigerated, ambient). Example of categories could be: ready to drink refrigerated juices, salty snacks, shelf stable pasta sauces, herbal supplements for kids, etc. Understanding the category a product falls into gives brand owners marketplace knowledge to help their price decisions.
To gain insight into product a category look for:
Trends impacting the category predicted growth or decline
Estimated typical gross margins achieved by other brands
Promotional intensity typical for the category
The competitive landscape (see Resource Library Post on Competitor Analysis)
3) Sales Channels
Sales channels describe the pathway the product takes from manufacturer to consumer. In a traditional retail structure brand owners should understand the margins required by brokers (5-10%), distributors (20-40%), and retailers (30-50%). This is included into a brand owners price. Different sales channels may require a different approach to pricing.
Understanding the impact of cost of goods, the category and sales channels can help a brand owner find the most effective approach to their pricing strategy. For more info, BDC has helpful guidance on Price Setting and Strategy
Finding the right wholesale and consumer price for packaged products can be both a science and an art. Brands owners can strive to review pricing structure frequently as costs, product, distribution, brand and impact of inflation evolve.
Written By: Venturepark Labs Team