Is it better to start with a low manufacture suggested retail price in CPG and increase them later on, or start high and lower them?
This was a question posted to Quora that I answered, which I have re-copied below:
I know consumer products, so can only answer from that perspective:
- Do your research against competitors and the category to find the price range. If you plan to go to retail, you do in-store research and your online price is then dependent on your retail price. If you will sell online, research your competitors and category as you would for retail, but you might find a much wider price range.
- Research the product size/unit count. There is generally an optimal size that allows for sufficient shelf turnover/product movement and maximizes your revenue. You do that by looking at what is on-shelf already. If your product size is too large, then consumers may not need to purchases as often, leading to slow shelf movement and possibly product spoilage.
- If your product benefits/features are considered to offer premium value to the consumer, then you might lead with a higher price for the category. If not, then you might have a lower price for the category.
- Always try to price higher, because it’s a lot easier to come down in price. Also, you will need every margin point you can squeeze out of your product, especially if you are a start-up or small consumer product company. Without the benefits of leveraging your fixed costs and your COGS over a larger volume of products produced, you will barely eek out a profit, if that. Additionally, price higher so that you can cover yourself from having to make any price increases for the next few years, if possible. That way, you have more breathing room to absorb raw material price hikes, instead of passing along to consumers, which would likely affect sales.
- If you are selling online only, then you have wider latitude to test your price. This week’s buyer is probably different from next week’s buyer, so you have less to worry about in distorting your brand (unless you are already an established consumer brand). In this case, test to get your optimal price/volume that you want, and re-test occasionally. I tested a product once from a low of $20 to a high of $80, while also altering the benefits/value/quantity that I communicated to the end buyer, just to see which set worked the best. Or, if you have direct marketing resources, either because you have a list of past customers or you have purchased a list of prospects, you can test with much less brand distortion effects.