Pricing's part in our volume to value journey

It is everywhere, messaging of New Zealand’s ‘volume to value’ mantra, numerous publications illustrate the criticality of executing on this but there are layers, so which one first, and are there low hanging fruit?

New Zealand’s Economic Plan released in 2019 includes this mantra as a pillar, with the vision being “To build a productive, sustainable and inclusive economy” by becoming a more productive nation, within that there is significant thought, effort and investment with agritech, food and beverage industries explicitly stated in the transformation plans.

Observations are that the conversation around ‘volume to value’ typically includes attributes or product format, brand or origin or story, but one area not often discussed is pricing and the associated strategies with it.

It often feels like we look to export statistics and when there is growth it is automatically attributed to our efforts on ‘volume to value’, is that right? sometimes… but not always. Often it is not of our doing, it can be attributed to underlying factors because of anomalies in markets, unexpected events, changes in demand profiles because of Covid-19, or in recent years geopolitics?

It is a critical area we need to get right, as ecological limits are being reached, and exceeded, with increased pressure to reduce intensification on natural resources which will also drive our consumer’s ‘willingness to pay’.

New Zealand largely operates a cost-plus pricing model when it comes to our exports, companies are assessing value-based models now which is more complex and requires different operating models to achieve it, but essential if we are serious about transitioning to cross border e-commerce (CBEC) options in the wake of the pandemic.

Pricing, and deliberate strategies behind them could be a low hanging fruit?

It’s been interesting in recent weeks, questions in conversations with leaders are pushing us to think about ‘what’ or ‘who’ we are pricing for, is it to maintain market share, or command more of one when markets eventually rebound? are we discounting unnecessarily? and how do we price appropriately in a crisis while maintaining our integrity and not seen to price gouge and continue to deliver value.

Rafi Mohammed, author of ‘The 1% windfall” talks about the concept of ‘discounting with dignity’ (if necessary), and understanding the next best alternative for customers, to enable us to set a price for the current market that doesn’t inhibit our ability to lift pricing rapidly once an event has passed.

It appears that hero products in markets are under pressure, and with it, the profitability of some industries with some seeing a shift of value being placed in ‘safe and secure’ with more ‘simplified’ products as opposed to ‘format’, but question is what is the price customers are willing to pay?

Analysts have calculated that a 1% increase on price, if demand remains constant, has on average an increase on operating profit by 8.7%.

Covid-19 brings the opportunity to accelerate New Zealand’s ability to capture premiums, perhaps early success can be achieved by assessing our pricing models and strategies.

Do we really need to discount, or do we need to check our underlying assumptions? If we do… do we set conditions and ask, “if you, then I”, meaning if you need “a” price, then I need “something important to my business”).

It is key to know what influences a customer’s confidence when buying, as these are often not based on the overall economy, they are industry nuances and knowing what customers are saying about our pricing.

Bill Gates said, “don’t compare yourself with anyone else in this world, if you do so, you're insulting yourself”, that is at an individual level, but do we insult ourselves by comparing our pricing with other markets as opposed to establishing what is right for us?

Ngā manaakitanga

andrew

Ngāi Tūhoe

View this week’s headlines on our Fieldnotes page here, or alternatively on our app available on Apple and Android devices.