The Pricing Debate

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The Pricing Debate

By John Stanley The great pricing debate was started in a workshop in the U.K in August 2007. The debate took place in the U.K, but I’m sure the message applies to other countries. It’s not just a British phenomena. In the room were some of the leading growers and retailers from the UK, Ireland and Denmark. Put Your Prices Up It was generally agreed that the wholesale price of plant material needed to go up. Over the last few years the price has remained relatively statue whilst fuel costs have increased by 20% and other costs are eating into the profits of the grower. If this continues the supply chain will be affected in a negative way and many growers will go out of business with a resultant shortage of plants in the marketplace. It was generally agreed that the vast majority of stock product is not price sensitive in the consumers’ world. The majority of consumers don’t even know the name of the product, never mind the price. As we attract more of the Generation X and Jones Generation consumers; they are less price aware than their parents. It was also agreed that business owners in the growing and retail sectors of the industry are fully aware that prices need to be raised and that the market will accept the price increase, so what is going wrong? The Pricing Challenge It was agreed that the real challenge came at the “pointed end”. The wholesale person and their relationship with the plant buyer. Plant buyers in independent garden centres across the UK, generally (and there are exceptions) are buying plants with price being the primary motivator. Rather than analyzing the consumers needs and wants and looking at ways of adding value that benefited both retailer and wholesaler, many plant buyers are looking purely for a price deal. Squeezing the wholesaler on price, but even more damaging to the industry maintaining a lower gross profit and providing the consumer with a lower value product. The result is that nobody benefits and margins are squeezed all along the supply chain. The plant manager should not take all the responsibility for the lower margins. The wholesale sales representative also needs to take some responsibility. Many of the supplier representatives were unaware of the consumers needs and wants, they are unable to provide guidance to the retailer on how to maximize the merchandising opportunities. They are more interested in selling a product rather that growing the category. Many of the suppliers did not know the stories related to the product and can only make a sale based on physical appearance of the product and the price. You can imagine the debate got quite passionate at times, but all agreed a combined course of action was the only way forward. The Solution The solution is awareness training for middle management. Both parties need to understand the consumer better. Garden centers have a bigger challenge than some other retailers. Many retailers target a specific age group, for example IKEA and Zara target Generation X whilst Waitrose Supermarkets target Baby Boomers. A garden centre needs to concentrate on the Jones Generation and Baby Boomers, it has a wider target market. But, it’s everyones role to understand female consumers and their desires when it comes to decorating their outdoor living room. Both parties should be aware of the price barriers of the product and how they can add value to overcome the price barrier. Then they should discuss the optimum price point for that product. Negotiations should not be developed on a cost plus basis, (what it cost to grow, plus a margin) but should start with the optimum retail price point and work backwards. The aim is a healthy profit for all partners in the supply chain. With increasing consumer demand to buy local, the debate will increase in intensity in the coming months and year. This debate was held in the late summer of a Northern England, but I am confident that the same debates are being held in California, USA, Melbourne, Australia; and Baskoop, Holland The new styles of merchandising and displaying plant materials give the industry an opportunity to make a reasonable profit and we should review pricing structures as well as merchandise and display techniques. This is not an opportunity to “rip the customer off.” This is an opportunity to ensure the industry can invest in its future. If it doesn’t, the consumer will be the one who will eventually suffer. John Stanley is an internationally recognised conference speaker and retail consultant with over 25 years experience in 18 countries. He has authored several successful marketing and retail books including the best seller Just About Everything a Retail Manager Needs to Know. John’s retail experience covers hands-on retailing in supermarkets, hardware stores, garden centres, farmers markets and drug stores. For more information John Stanley and his services visit his website www.johnstanley.cc