Taking direction from your customer might not always be the best solution.
Recently I received a call from a food processor looking for some advice about his product cost. He had been to a category manager to get his product on the shelf. The feedback from the category manager was that the cost was too high. He suggested he had a lot of experience in the category and the supplier needed to sharpen his pencil and reduce the cost by about 20%. With the cost reduction the opportunity would be there with a listing and according to the category manager, lots of opportunity for volume. To be honest, I might have made this type of suggestion when I worked for a retailer.
Do you lower your cost and take the volume or not?
We discussed where he was at before meeting with this particular customer. His product is on the shelf in a few retailers and he has it listed with a distributor. None of these customers had pushed back on cost. He has had some traction but not big volume.
When I challenged him about what he was doing to generate sales in the existing customers the honest answer was not much. The big win was getting to the shelf which is a huge accomplishment for sure.
The cost reduction did leave him with some profit but probably not enough. He would still make some money but there would be very little room to invest in sales and marketing programs. Essentially it would be an edlp, play unless he wanted to invest all of his profit to generate some excitement.
After we reviewed where he is today:
1. Only 1/6 retailers or distributors are really pushing back on cost. Sure they always want it lower but you can tell the difference between negotiating and overwhelming feedback.
2. The product is selling at the regular retail that is set based on his current cost. That is encouraging and important.
3. Going through all the work to develop, produce and sell a product is very frustrating if your profit has been diminished and you get close to trading dollars. He would find it disheartening and be at the mercy of his customers for any programs at the shelf.
We agreed the best strategy was that he needs to invest the 20% in programs that will get the product selling better with his existing customers. This is work. It is not always fun work and you don’t always get what you want. It is also what will separate you from the crowd and get your products into the shopping cart. He needs to build a solid sales plan for each customer.
Your customers can be very persuasive but they don’t understand your business as well as you do. Yes I would have suggested a lower cost would result in a lower retail which would likely result in more sales. This does not mean it would have been right for the supplier’s business.
You need to listen to your customers but any shelf is not the right shelf. You have to do what is right for your business. That being said you also have to do the work, which means developing and implementing a retail sales plan. A great product with a great sales plan will get into more shopping carts more often.