Case study · FMCG and retail · Vitamins and supplements · 12 min read
Source: Pricing Insight engagement records: the quantitative price analysis of 27 May 2019 and the revenue opportunity analysis of 14 June 2019, built on two years of retailer scan data to 24 March 2019 and FY18 shipment data. All figures are identified, not realised. None is a benchmark for another business.
A$10.5m to A$20m of retail sales value in year one, from four pricing levers. Nature's Care is an Australian maker of vitamins and supplements, including the Healthy Care range, sold through pharmacy retail, where its largest customer is a national pharmacy chain. In that retailer the natural health category grew 16.3 per cent in three years, to A$1.09b, while Nature's Care's share fell from 16.8 per cent to 10.4 per cent. Pricing Insight ran a strategic pricing diagnostic on two years of weekly scan data, FY18 shipments and a capability assessment with the executive team. It found a brand priced 16 per cent below the category average, selling six in ten units on deal, with promotions that bought less baseline each year and a pack price architecture with no consistent logic. Repricing RRPs, resetting promotion depth, rationalising the range and rebuilding pack price relativities were sized at A$10.5m to A$20m of retail sales value in year one and A$24m to A$47m over two years.
| Client | Nature's Care Manufacture Pty Ltd, a Sydney-based maker of vitamins, supplements and natural health products, including the Healthy Care range, sold through pharmacy retail in Australia. |
| Service | Strategic EBIT Opportunity & Risk Diagnostic: retail price positioning, promotion and price elasticity analysis, gross margin by SKU, pack price architecture, a pricing operations capability assessment and a roadmap. |
| Status | Identified. A$10.5m to A$20m of retail sales value in year one and A$24m to A$47m over two years, sized at retail prices. Not converted to Nature's Care revenue or EBIT on this page. No realised figure is reported. |
| Scope | The natural health category at the largest retail customer, about 1,900 active SKUs and A$1.09b of scan sales in the year to March 2019, including A$113.8m of Nature's Care sales; FY18 shipment data for the Nature's Care range. |
| Period | Proposal agreed in February 2019; data analysis and capability assessment from April 2019; interim findings presented on 28 May 2019; revenue opportunity analysis prepared for 14 June 2019. |
The brief · Chief Commercial Officer, Nature's Care
Realise price through a more efficient price and promotional strategy that balances depth, frequency and types of promotion.
01Nature's Care: a growing category, a shrinking share and a brand sold on deal
A category up 16.3 per cent in three years. Natural health sales at the largest pharmacy retail customer rose from A$937m to A$1,090m between the years to March 2016 and March 2019, about 5.2 per cent a year. Over the same period Nature's Care's value share fell every year, from 16.8 per cent to 10.4 per cent. The decline sat in its biggest segments, Healthy Ageing, Daily Wellbeing and Immune Health, and the analysis found it was not driven by price.
The commercial pressure was immediate. The retailer and the category were setting new norms for promotions, including frequent "50 per cent off" events, and the business needed a position for its second-half promotional submissions. It also carried a target of more than 2 per cent net price realisation for the second half of the financial year, with a brand refresh and higher brand investment planned for the following quarters.
Growth went elsewhere. More than half of the category's growth came from smaller manufacturers with niche, ingredient-led products, many priced above the A$20 category average pack price. They grew without low prices and without large brand budgets, through targeted products at the right price points.
02What the diagnostic found: a brand under-priced on shelf and over-reliant on promotion
Three findings, one for each pillar of the Pricing Periodic Table.
Value
Nature's Care was priced below what the market paid for comparable products. Its average price per pack was A$16.53, 16 per cent below the category average of A$19.67 and about 15 per cent below the smaller manufacturers. Against private label and unbranded makers, which carry less marketing, fewer resources and less credibility, it was under-priced in several key ingredients. Category growth had come from products at or above the average price per pack, and new products in the A$18 to A$25 range were the clearest gap.
People
Prices were set by cost-plus habit, not by a pricing function. The capability assessment with the executive team found no documented pricing strategy, no team that owned price, and price lists built from cost-plus mark-up. The business held a large amount of scan data but did not yet use it to set shelf and promotional price points. Management agreed that some products could carry higher prices.
Structures
Promotions carried the brand. Sixty per cent of Nature's Care units were sold on deal, against 36.4 per cent for the category and 30.6 to 39.7 per cent for the two leading brands. Its share of units on promotion rose 4.3 points in a year while its baseline sales fell 9.7 per cent. Pack prices showed no consistent architecture across pack sizes, and FY18 gross margin, 52.5 per cent across the range, varied widely by SKU: 38.5 per cent of shipment value sat in high-value SKUs earning below the average margin.
Four priorities followed.
Reset RRPs to the value of each product.
Close the gap to the category and to comparable brands, ingredient by ingredient, where the price index is lowest.
Set promotion depth by SKU.
Use measured elasticity to choose the discount that pays, rather than the deepest one the calendar allows.
Rationalise the range.
Make the case to the retailer for fewer, clearer SKUs in a category of about 1,900 active lines.
Rebuild pack price architecture.
Set consistent price per tablet relativities between small, standard and large packs.
03What Pricing Insight did: a strategic pricing diagnostic from shelf data to capability
Five analyses, each built on the client's own data. Two years of weekly retail scan data were matched to FY18 shipment data, so every shelf price, promotion and margin could be read for the same SKU.
Price position by ingredient and pack.
Average price per pack for every brand in each ingredient group, sub-category and pack size band, indexed to the category.
A brand under-priced on shelf and over-promoted on deal, in a category that rewards value.
Promotion and elasticity analysis.
Volume uplift at each discount depth for every brand, with SKU studies of products that regularly clashed with competitor promotions.
Margin and value quadrants.
Every SKU placed by shipment value and gross margin, with examples in each quadrant compared with competing products on RRP and price per tablet.
Pricing operations diagnostic.
Capability assessed across strategy, people, analytics, structures and systems, with a roadmap for a pricing function and governance.
Revenue opportunity analysis.
The four levers sized for year one and over two years, prepared for the executive team in June 2019.
Elasticity explained the habit. At shallow discounts Nature's Care responded like the category; at 30 per cent and deeper its volume response climbed steeply, well above the leading brands. Each deeper discount appeared to work, which pulled promotion depth down further, while baseline sales and the brand's price position weakened. One example: a coenzyme Q10 line with an RRP of A$32.99 showed little change in volume between A$25 and A$35, yet most of its margin came from weeks sold at A$20 to A$25.
04What was identified: A$10.5m to A$20m of retail sales value in year one
Four levers, sized separately. RRP optimisation carried A$5m to A$10m of retail sales value in year one; promotion depth A$1.5m to A$3m; range rationalisation A$2m to A$3m; and pack price architecture A$2m to A$4m. Together they came to A$10.5m to A$20m in year one and A$24m to A$47m over a two-year program, with RRP optimisation adding a further A$3m to A$7m in year two.
The opportunity was measured where the shopper pays. All four figures are retail sales value at shelf prices in the retailer, not Nature's Care's own revenue or EBIT: the share that reaches the manufacturer depends on the retailer's margin and on trade terms. The diagnostic also set out what the business needed to capture it: price analytics to support a new RRP architecture and promotion plan, a category strategy to take to the retailer, and a pricing function to run both.
Status: identified. Metric: retail sales value at shelf prices, sized lever by lever from retailer scan data for the year to 24 March 2019 and FY18 shipment data. Not converted to manufacturer revenue, gross margin or EBIT. The four levers are sized separately and their ranges are added; overlaps between levers were not netted out. Not disclosed: trade terms, cost of goods and any realised result.
05The Pricing Periodic Table elements this work assessed
Three analysis elements built in the diagnostic, nine identified for the next stage. The Pricing Periodic Table maps 61 elements of pricing capability in nine domains across three pillars: Value, People and Structures. The diagnostic built the market price, price modelling and price position analysis, and identified the strategy, team and price architecture elements the business would need to act on it.
| Built | 41 Ci Market price intelligence, 46 Pm Price modelling, 47 Ps Price position and key value items: two years of scan data read by ingredient, pack and promotion, elasticity by discount depth, and the price index against every competing group. |
| Strategy | 06 Ws Written pricing strategy, 10 Pp Pricing power, 12 Mi Margin improvement program, 14 Np New product pricing: a documented strategy, RRPs set to value, and new products priced into the A$18 to A$25 gap. |
| People | 26 Pf Pricing function mandate: a team that owns price, promotion depth and the category case. |
| Structures | 43 Pi Price increase process, 49 Lp List price alignment, 51 Dt Discount structure and tiers, 52 Rl Price relativities and volume breaks: an active price increase program, promotion depth by SKU and consistent pack price relativities. |
06Three lessons for a CEO
Read share loss before cutting price
The category grew 16.3 per cent while Nature's Care's share fell from 16.8 to 10.4 per cent. The decline was in segments where price was not the cause, and the brand was already 16 per cent below the category average.
Measure what each discount buys
Nature's Care's volume response climbed steeply beyond 30 per cent off, so deep deals looked like they worked. Sixty per cent of units sold on deal while baseline sales fell 9.7 per cent.
Size the opportunity where the shopper pays
RRPs, promotion depth, range and pack architecture together carried A$10.5m to A$20m of retail sales value in year one, a case the business could take to its retailer.
07Questions this case study answers
How do you know if a consumer brand is over-promoted?
Compare the share of units sold on deal with the category and with the leading brands, and track baseline sales alongside it. At Nature's Care, 60 per cent of units were sold on promotion against 36.4 per cent for the category, and promoted volume rose 4.3 points in a year while baseline sales fell 9.7 per cent. When promotions grow and the baseline shrinks, the brand is paying for volume it would otherwise have sold at full price.
How should a vitamins and supplements brand set its RRPs?
Index price per pack against each ingredient group, sub-category and pack size, not against one competitor. Nature's Care sat 16 per cent below the category average and below several unbranded and private label products. In that category, growth came from products at or above the average price per pack, so RRP optimisation carried the largest share of the opportunity, A$5m to A$10m of retail sales value in year one.
What does a strategic pricing diagnostic deliver for an FMCG manufacturer?
A sized opportunity and a plan to capture it. At Nature's Care it combined two years of retailer scan data, FY18 shipments and a capability assessment of the executive team. It identified A$10.5m to A$20m of retail sales value in year one across four levers, and set out the analytics, category strategy and pricing team needed to act on it.
Related case studies · FMCG, retail and healthcare
How much of your volume is sold on deal, and what is it buying?
A first conversation covers your scan data, your promotion calendar and how your RRPs are set, and whether a diagnostic is the right first step. Ron Wood, +61 410 534 099.
Ron Wood is the Founder and Managing Director of Pricing Insight, an Australian pricing strategy consultancy he established in 2007. He has worked in pricing for around 30 years, first as a pricing and commercial manager in consumer goods, building materials and capital equipment, and since then across 160+ pricing engagements. He also founded Pricing University, which has trained more than 5,000 executives.
To discuss a pricing diagnostic for your business, contact Ron Wood at info@pricinginsight.com.au or on +61 410 534 099, or visit Pricing Insight.
Figures are from Pricing Insight's engagement records for Nature's Care: the quantitative price analysis of 27 May 2019, the pricing operations diagnostic of 27 May 2019 and the revenue opportunity analysis of 14 June 2019. Market figures are from retailer scan data, moving annual totals to 24 March 2019; margin figures are from FY18 shipment data. Competing brands are not named. All opportunity figures are identified, sized at retail prices, and are not Nature's Care revenue or EBIT; no realised result is reported. Figure 3 is a diagram of the method. No figure on this page is typical or guaranteed.
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