Many FMCG businesses have long sustained pricing differentials between different European markets, enabled by the absence of a dominant cross-European retailer and a stable currency and regulatory environment. This stability has led to a relative lack of focus at the regional level, and an accumulation of terms, retros, discounts and price adjustments at the local level that have largely gone unnoticed beyond their borders. However, the unstoppable rise of Amazon together with the uncertainty of Brexit mean that significant pricing differentials will soon require urgent fixing, especially for UK-centric businesses. So why do these two events make such a difference, and how do you tackle such an enormous challenge?
The growth of Amazon across Europe is quiet but monstrous – it has invested over €15Bn in Europe in the last 5 years and started to dominate sales of some categories, but without physical locations or regional sales figures it rarely gets noticed on a day-to-day basis. What makes this retailer unique in Europe is that it has both the reach and expertise to source branded goods where they are the cheapest, and the scale to make this worthwhile. For example, one of our clients recently discovered that Amazon had switched their sourcing of a top-selling branded food product from the UK to a wholesaler in East Europe, whose prices were less than 50% of the UK price. This pricing gap has long been in place, but until now it had not been exploited. This was a double hit for the UK team – firstly losing sales without warning, and secondly discovering a pricing differential that had been unnoticed for a number of years.
The impact of Brexit is a more recent consideration. although the depth of the impact is harder to gauge at this stage and some brands and categories may not be affected at all. The last event of this scale was the introduction of the Euro in the early 90’s, that caused a flurry of activity and doom-mongering but turned out to be a relatively false alarm. The only certainty this time round is that change is coming, and it is better to be ready before it comes than wait until it has happened.
All of this might sound a bit downbeat – but at Sellex we believe there are a a few simple steps that can help you minimize the risk of your current situation, specifically where pricing is concerned. The first and most critical step is to gain Pricing Visibility of your current framework – a clear understanding of your pricing at the triple net level (all customer payments included) is a critical enabler to a robust plan. The second step is to update or develop a set of Pricing Guidelines that can be a reference point across all your businesses, and the third step is Pricing Implementation. This will vary by client and market, but for most there will be some extreme ‘outliers’ that need immediate attention, and the bulk of the business will be challenged to squeeze its’ price ranges within the regional guidelines over a period of years.
There’s never a ‘good time’ to tackle this challenge, but we encourage you to take control of your regional pricing architecture before Amazon does it for you. Please get in touch with us on email@example.com for a free, confidential assessment of your current situation or a more detailed discussion.