IRI: Make sure the price is right

by Jeff Gelski
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Canned foods with prices on supermarket shelf
Know which consumer your brand will target, where the brand will be sold and whether price-discount promotions make sense, says Information Resources, Inc.

CHICAGO — Marketers of consumer packaged goods rely on merchandising activities, including promotions featuring discounted prices. Yet they could focus more on price-pack architecture and making sure an item’s everyday price was correct initially, according to the report “Merchandising for Growth: Connecting the Dots for Maximum Activation” from Information Resources, Inc. 

Susan Viamari, vice-president of Thought Leadership for Information Resources, Inc.
Susan Viamari, VP of Thought Leadership for Information Resources, Inc.

“In order to come up with an effective promotional strategy, we’re seeing that the first thing you need to do is start with a solid price-pack architecture,” said Susan Viamari, vice president of Thought Leadership for Information Resources, Inc., in an interview with Food Business News, a sister publication of MEAT+POULTRY. “Before you get your promotional price right, you need to get your base (everyday) price right.”

Volume sales are stagnant in consumer product goods in the United States, and sales growth largely is stemming from price increases, according to the report. In grocery, sales in dollars increased 1.5 percent on a compound annual growth rate from 2012-15 behind a CAGR of 2.9 percent for average price per volume. Sales volume in grocery decreased 1.4 percent on a compound annual rate from 2012-15.

Getting pricing architecture right could drive a 1 percent to 2 percent increase in top-line sales for consumer packaged goods, according to the report. Four critical elements influence price-point architecture: portfolio strategy, brand strategy, channel dynamics and consumer needs, according to IRI.

First, a company should assess all the brands in its portfolio and identify those brands that will benefit from promotional activity. Second, brand strategy means having a simple and clear value proposition. A premium brand needs to maintain premium price positioning.

“Some categories, some brands don’t really respond great to promotional pricing, to promotions,” Viamari said. “For those brands, driving solid sales volume and maximizing margins means you need to get your everyday price-point correct.”

Marketers in the breakfast meat category increased merchandising activity in the past year and met with some success as volume grew 4.1 percent.

“Breakfast meats, or meats in general, have gone through a pretty high inflationary period,” Viamari said. “We see marketers more heavily merchandising, promoting temporary price reduction to alleviate some of that pressure.”

Consumer trends also apparently are boosting sales volume for breakfast meats.

Breakfast meats - Jimmy Dean sausage, Oscar Mayer bacon
Consumer trends are boosting sales volume for breakfast meats.

“Folks have a pretty high focus on eating breakfast,” she said. “They think it’s a healthier start to the day, and of course protein is all the rage, particularly at breakfast time.”

For the third element of price-point architecture, company marketers should focus on channel dynamics, such as what channel/retail outlet will carry the brand, and segment their customer base. Marketers should determine which channels and which customers are most important to each of their brands.

In the grocery channel, an item may have a higher everyday price but be used more often in promotions, such as discounting, Viamari said. In the dollar store channel, an item may have a lower everyday price but not be used in promotions as much.

Viamari defined “shopping trip mission” as well. The consumer’s mindset determines the mission, whether it be stock-up, fill-in, quick trip or special purpose.

Stock-up refers to consumers wanting to load up or restock. Fill-in means consumers need a few specific items, such as fruit, vegetables and fresh milk. For quick trip, an example might be buying a gallon of milk. A special purpose could be buying items for a birthday party or dinner party.

“Different consumers may prefer different channels on different shopping trip missions,” Viamari said. “You need to have pricing strategies for all the different scenarios.”

For the fourth element of price-point architecture, company marketers should understand the brand attributes that are most valuable to key consumers. Promotional materials should reflect those attributes. Also, consider what amount of premium consumers might pay for those attributes.

“It’s really important to understand what your key consumers are looking for,” Viamairi said. “For example, you may be willing to pay a premium for organic ingredients where I may be not willing for organic ingredients because for me, eclectic flavors are more important.”

To download the full report, go to http://www.iriworldwide.com/en-US/insights/Publications/Merchandising-for-Growth.

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