Merchandising

The Ultimate Bait: Attracting Retailers via Price Incentives

price incentiveWanting to get your product on the shelf and actually getting your product on the shelf are two very different things. Many entrepreneurs know this after pitching to numerous retailers and hearing the same thing over and over again: no. You know you have a great product that belongs on the shelves, so why isn’t anyone saying yes?

The answer: you need to differentiate yourself. To do this, you have to show that you can provide retailers with value. One way to do this is by offering price incentives. Retailers look to generate the largest profit margin they can, so if you can offer your product at a lower cost than your competitors, then you have an advantage. However, it’s understandable if you don’t want to cut prices too much. You’ve worked hard on your perfecting your product, and you know its value. These price incentives are a tool to use if you need additional leverage when negotiating with a retailer, but are not necessarily the only way to get your product on store shelves. If used in combination with thorough market research, an engaging pitch, and proof that your product is a value-add to the retailer, these price incentives can help you turn that “no” into a “yes.”

1. Offer discounts

Any reduction in your initial price makes it seem like you are offering the retailer a good deal, no matter how small the reduction is. There are a couple of different discounts you can offer:

  • Trade discount: This is your basic discount. For example, you give the retailer 20% off, without any volume restrictions.

  • Volume (quantity) discounts: This is key to using reduced prices without incurring a loss for your own business. If the retailer buys over a certain amount, then they can get a discount on the product. This encourages retailers to purchase a specific quantity in order to qualify for the discount, which they will happily engage in because it allows them economies of buying.

  • Cumulative quantity discounts: This is a type of volume discount on an aggregate purchase over a period of time. The discount increases with the amount of product purchased. Since it is a continuous purchase, it discourages retailers from buying goods from other sellers.

  • Lump sum and per-unit discounts: Offering a lump sum discount can equate to the same effect as a per-unit discount. These discounts are not quantity based but are often used to supplement quantity discounts. For example, a manufacturer may offer a volume discount and a lump sum bonus payment as an incentive.

Before deciding on the type of discounts, you should choose a pricing strategy based on your pricing objectives. You can choose to offer steep discounts or low prices in order to beat out your competition, or you can offer a higher initial price to convey an image of high quality (psychological pricing). When setting an initial price, keep in mind that it’s easier to lower your price than to raise it. Once you select a pricing strategy, then you can develop a pricing structure and select the types of discounts to offer. Here are some examples of typical pricing methods:

  • Cost-plus pricing: The most basic method of pricing- set the price at production cost plus desired profit margin.

  • Target return pricing: Set the price based on the desired return from the product.

  • Value-based pricing: The price depends on how much value your product will give customers.

One final note about pricing and discounts- when discounting your products, be careful not to discount your product below its value. If a retailer is still complaining about high prices after your discount offer, it may be time to walk away. You don’t want to undercut the value of your product and you don’t want to lose too much money. Thus it is important to know your margins and what markup you want to retain.

2. Provide additional rebates

Offer the retailer compensation for the merchandising of your product. For example, a rebate can cover the cost of additional advertising, additional positioning, and special marketing. If there are any other costs you are able to cover, mention so to the retailer. The more support you can provide them and the more money you can save a retailer, the more likely they are to say yes to you. If you plan on offering in-store promotions and say you will cover all the costs, the retailer will get free promotion and you will get a potential boost in sales and also prove to the retailer that there is ample demand for your product. It’s a win-win situation.

3. Free-of-charge goods

There may be no such thing as “free lunch” in economics, but in this case, providing free goods to the retailer is an incentive that reaches beyond the scope of the retailer to its employees. You can combine this with the volume discount- for example, you can offer additional goods for purchasing a specific quantity. You can also offer free goods for purchasing a new product or an additional product line. This encourages both the retailer and their employees to become more involved in the active selling of your products due to the incentive of free goods, samples, or gifts

Ultimately, these price incentives work in tandem with other strategies to combat retailer objections. It is important to remember the value of your product and to know when to walk away from a potentially harmful deal. In order to make the most convincing argument, it is imperative that you do your research on the retailer beforehand. With thorough research, you can also better gauge which price incentive will work best on the retailer, increasing your chances of securing the deal.

 

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Nancy Chen

Nancy Chen is a Content Marketing Intern at Repsly, Inc. and is currently completing a Marketing degree at Northeastern University. A contributor to the national online publication Spoon University, she is experienced in delivering knowledgable, quality material to readers.

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