• Alumni  
  • FacebookTwitterLinkedInXingGoogle+RSS
  • Country websites
 
 
 

PRICE CHAMPIONS – Growth-based pricing strategies to create value for retail and industry

2008

The current increases of raw material and energy costs are putting many FMCG manufacturers and retailers under pressure. Worried about rapidly decreasing margins or losing consumers as a result of price increases, managers and retailers are facing a conflict, as their respective pricing decisions are based on different backgrounds.

However, both retailers and manufacturers are asking themselves the same question: Will an increase of price indices lead to success? And in fact, only 12% of all brands and 18% of all retailer categories are successful after a price index increase and manage to simultaneously increase their market share. In contrast to these price champions, 16% of all brands and categories lose market share after a price index increase.

To find out why some brands and categories are successful and others are not, Roland Berger Strategy Consultants and GfK analyzed various aspects of 3,202 brands in 262 categories for 13 retailers in the German market. This represents the largest amount of data that GfK has ever provided for a study.

Over the course of the study, several factors were identified that increase brand or category value creation potential, which determines the probability of increasing market share after a price index increase.

Overall: Manufacturer brands, private labels and stores

1. For successful value creation, brands and categories must be healthy. To assess the health of a brand/category, the first-choice buyer rate is recommended.

Manufacturer brands

2. Producer brands can be tapped more easily in consolidating/declining markets/categories. In particular, declining and consolidating markets, which are often known for their price wars, offer value creation potential.
3. Small and medium-sized brands, and small manufacturers and brands in particular, can have a great deal of value creation potential. Big companies can use sub-brands to address segments with high value creation potential.

Private labels

4. Private labels are more successful than manufacturer brands in value creation strategies, as they can quickly increase their first choice buyer rate. This shows that there is untapped consumer potential for value-added private labels.
5. Today, private labels depend heavily on the category context. While manufacturer brands depend more on marketing and management decisions, private labels benefit greatly from positive category development. By pushing a category, retailers can boost their private labels at the same time.

Stores

6. Success factors for retailers depend on format. While discounters and hypermarkets create more value by attracting new consumers to the category, supermarkets do so by improving consumer loyalty.
7. Value creation is more probable but less frequent in highly relevant categories. In categories that are very important to retailers due to their traffic creation and popularity among customers, retailers are more hesitant to increase price indices even though the probability of success is higher

Apart from these findings, which are supported by actions with which retailers and manufacturers can increase their value creation potential, the study introduces the "value creation cube", a tool that integrates retailer and manufacturer perspectives. At a single glance, the cube illustrates value creation potential for the brand and the retailer category as well as category relevance. Recommendations for sensible pricing decisions are made depending on which section of the cube retailers and manufacturers operate in.

Top

More publications