Cannabis Firms, You Can Take Up Pricing
“Pricing is by far the biggest tool for earnings improvement." McKinsey & Co.
Almost every cannabis business is caught in a vise of rising costs and declining pricing levels, exacerbated by relentless competition and rapid product turnover.
This nasty reality can be mitigated. Whilst cannabis firms are generally price takers, they often have brands and SKUs where they can take up pricing with minimal volume or brand risk.
This is a compelling opportunity when you do the math. Modest across-the-board price increases (say 3% to keep pace with inflation) can boost bottom line profitability by 25%.
In cannabis, I’ve worked on selected pricing initiatives in high switching categories that have increased Return on Sales by 4-7%.
'Selective' is the key word when it comes to price increases. Cannabis brands typically feature high volume & inventory risk; price adjustments come with execution costs and; there are risks of decoupling your pricing and brand strategies.
Leaders would be ill-advised to ignore price increases as a means of boosting financial and brand performance.
Capitalizing on these opportunities, however, takes work, including: financial and demand elasticity modelling, market/consumer research and total quality implementation.
Here are 3 ways to ‘price to win’:
1. Align your pricing to value delivered, market differentiation and consumer interest.
If your product has lots of consumer-relevant features, is unique or competes in a sleepy category then you have pricing power. Use it to get capture higher margins.
Some marketers should also be mindful that consumers have a hard time believing you are a premium brand if the product is priced in the value segment. In this case, taking up pricing could paradoxically lead to higher volume.
2. Message better
Channels and consumers understand inflation; they also live it. How you position and communicate a modest price increase can be the difference between success and failure. And it never hurts to test your pricing hypothesis in a controlled pilot.
3. Build long term capability
Pricing management should be a shared competency and responsibility between sales, marketing and finance. Regularly monitor your costs, competition, and channel needs to ensure your pricing strategy consistently delivers on corporate goals.
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