How to maximize revenue in 'older' cannabis markets

It’s a bit ironic but nonetheless true that large MSOs, LPs and ancillary firms need to maximize revenue in their ‘older’ markets like Colorado, Washington and Canada if they are going to sustain their growth trajectory. 

At a certain point, you either run out of newly legal markets to enter (and the capital to tap them) or the patience waiting for their sales to lift off (see New York).

Firms are being hit by a trifecta of doom in their core markets. 1) slowing demand 2) hyper competition and 3) falling retail/wholesale pricing.  The challenge is compounded by higher costs for labour, energy and capital (if you can get it).

In this environment, managers should prioritize revenue management, or squeezing out every possible dollar of revenue.   My consulting work focuses on 2 areas:

I. Selective price increases

Modest price increases can be a quick and effective way to boosting the bottom line.  

Take this anonymous dispensary chain with a 12.5% operating profit, 20.5% fixed cost and 67% variable cost base: assuming volumes remain stable, a 1 percent price increase would generate an 8 percent increase in operating profit.  This impact is almost 50 percent better than a 1 percent fall in variable costs and more than 3x better than a 1 percent increase in units sold.

I see two opportunities for price increases.  First off, selectively take up price where your price point does not reflect the product value delivered.  This gap could be determined by objectively analyzing your product benefit versus buyer need states, by comparing relevant product differentiation on shelf against your peers or by assessing the level of competitive intensity in the category. In each of these cases, marketers need to undertake proper consumer, channel and product research.

Secondly, your product may be delivering a higher than required wholesaler or retailer margin.  Taking small price increases while still satisfying target resale margins could drive higher revenues at minimal volume risk. 

II. Close revenue leakages

Leaving money on the table is common in large firms or those with poor controls.  You can stem leakages by: clamping down on unauthorized discounting & merchandising programs; limiting the extent of off-invoices discounts like product RTVs; properly billing for shipping & expedited costs; preventing customers from taking the early payment discount AFTER the early payment period and; challenging unfair invoice penalties.  Firms should also consider increasing prices for payment types (e.g., credit cards) with high transaction costs.

Fixing these leakages is part sleuthing (i.e. finding the leak), adding practical controls, tweaking incentives and change management to ensure the bad behaviours don’t return. 

#pricing #growth #pricingstrategy #revenue #revenueleakage mature markets