Pricing private label products can be challenging for retailers. With no manufacturer suggested Minimum Advertised Price (MAP) or Manufacturer Suggested Retail Price and no competitors’ prices to base your their price on, retailers are often pricing these products in the dark.
Jerry Bernstein, Board Member of the Professional Pricing Society and President of Value Pricing Group, a leading provider of price management services, shares his thoughts and research on the subject of pricing new products in his article (and Pros blog post), Nine Best New Product Pricing Practices:, and several of these tips can be transferred to pricing private label products:
- Understand Value: “Understanding value from the perspective of the customer is central to pricing new products. […] What features do customers value, and what are they willing to buy?” This is the first question that Bernstein poses in his article, and it is critically important for private label products. Let’s take the example of pricing a private label TV. What features drive the price of the product up? Is it screen size, resolution, refresh rate, number of HDMI imports? And by how much? Using a comparable-product price intelligence solution, you can isolate certain features in order to estimate what those features are worth. Similarly, you can use the solution to estimate brand premiums (so how much are customers willing to pay to have the Sony brand name).
- Get the right competitive pricing position: As Bernstein’s article comments, “Competitive positioning recognizes that purchase decisions are not made in a vacuum. Understand all the competitive alternatives to your product.” Without other organizations selling your private label product, it can be difficult to price it competitively. This is why it is important to identify comparable products, based on their features, and get competitive price information for these products. Using this information, along with the estimated feature value and brand premiums, you’re in a better position to price your in-house products.
- Don’t start a price war: Bernstein very insightfully notes that companies “frequently set prices at parity or below the competition, with a price positioning that can upset industry equilibrium and ignite a price war. A competitor that can’t compete on value will attempt to defend market share by lowering price. The results can be disastrous for all players in the market.” By using competitive price information for comparable products, retailers can avoid underpricing their private label products, which would result not only in lower margins, but also perhaps a price war. Pricing products based on their features and the value the brand caries will help you to choose the optimal price, rather than taking a shot in the dark.
To find out more about how you can use price intelligence as a guiding light to price private label products, read the 5 Price Intelligence Secrets Revealed Whitepaper.
**Used and quoted with permission from Jerry Bernstein