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Using Willingness-to-Pay Insights when Negotiating with Trade Partners

Posted by PriceBeam on October 24, 2017

Using WtP to negotiate better deals

Despite the emergence of e-commerce and direct sales, it is still the norm in most consumer goods industries that most of the sales goes through trade partners, either retailers or distributors. For consumer goods manufacturers this means that there is both a price to charge to the retailer and also a price that the retailer charges the final customer. In most jurisdictions it is illegal to directly dictate end-customer pricing, but knowing what the end-customer is willing to pay, and what s(he) values the most, can still be very useful information for the manufacturer as well as for the retailer.

For the manufacturer, knowing end-consumer willingness-to-pay allows them to position the offering versus competition. A further break-down of WtP along segments, or broken down by attributes of the product (e.g. does the customer pay X because of characteristic A or characteristic B, or C, D, or E?). Knowing what consumers are willing to pay, allows the manufacturer to finetune marketing communication as well as Point-of-Sale promotions and sales materials. If you know that consumers react favourably to price promotions on your brand, then this is of course something to push as part of the overall marketing mix (even though it is better to convince consumers that they should not buy your brand on price). Similarly, if you know that your consumers value product characteristic A and B, but not C and not price promotions, then you push A and B through various media communication channels, and stay away from price promotions and communication on C.

Willingness-to-pay research can also be used to support Recommended Retail Prices (often known as MSRP in USA, RRP in Europe) towards the retailer or trade channel partner. If you are planning a price increase, then it is useful to be able to show that the final consumer is willing to pay a price that is in line with an increased RRP/MSRP. In the end it is the retailer's sole decision what to charge, but he will be open to fact-based research showing that he too can charge a higher price.

Similarly, Willingness-to-Pay research by customer segment will be very useful in the conversation with the retailer. If you can show that certain consumer segments are attracted to premium products, or premium communication, then the retailer can turn that into that knowledge of having certain premium products on the shelf will be good for premium consumer footfall or overall good for his shopping basket optimization.

PriceBeam's newest methods for gaining willingness-to-pay insights include both comparative analysis and attribute analysis, both topics that are of high value when discussing portfolio and promotional optimization with the trade. Get in touch to learn more.

 

 

Legal disclaimer: in many jurisdictions it is illegal to dictate prices that should be charged by customers or channel partners. Recommendations are often OK, but this article does not suggest any specific avenue of how to deal with trade pricing. Any action you want to take is your own responsibility and you should always seek legal advice before engaging in specific pricing practices.

Topics: Pricing, willingness to pay

Written by PriceBeam

PriceBeam
PriceBeam posts regular guides, articles and news related to pricing and strategy. Go have a look!