The Quality of Price

Like other product features your pricing policy also has quality aspects

As feed prices are now skyrocketing and grain growers can strongly position themselves towards the feed industry, the costs of our commodity supply is once again in the spotlight. The pressure on animal production caused by imports, climate change and biofuels is paired with growing cities, rising transport costs and environmental restrictions. It will most probably not be passed on to the consumer in a 1:1 ratio but rather continue to eat the margins of livestock producers – and their suppliers. It surely is challenging to sell feed in this scenario.

In every animal feed leaflet or company brochure we find something about price-worthiness or return of investment. But with rising input costs, the argumentation gets harder. All our services and customer relations seem to be reduced to the price. But if $ 6.50 is not right, will $ 6.49, 6.20 or even 5.50 sound better?  And for how long will it go? When will I have to say § 4.50? Will I need to cut my bonus, fire sales people and make compromises on the product? Is it the farmer or the salesman who spoils the price? It surely is not the competitor.

For some consumer goods we find that price is a key feature of the product. Okay, now everyone will say: ”No, no, you can’t compare consumer markets with B2B.” That is probably right. But we can still learn a little bit from these markets. The price difference between a good chocolate and a budget bar is higher than the true difference in cost of production and logistics. The price has a message; it is a part of the brand and so on. So what does a mineral premix have in common with chocolate, cars or Italian boots?

Now, when buying animal feeds, farmers will off course not pay an out-of-range premium and they know, because of the heavy competition between feed companies, they can simply take good quality for granted. But looking in the other direction it should also be obvious that this level quality cannot continue to exist, when it is not paid for at all. When prices fall below a certain margin, quality will follow quickly. And that is expensive.

It is now crucial to keep an eye on the price list and not to kick off a cascade of compromises across the product portfolio. This can cause irreparable damage. Farmers clearly see a message within the price. It is an indicator for where you stand on the downward spiral and it’s a key quality parameter is consistency. So, design your pricelist carefully. Make it transparent and let it appear logic. The market will always go up and down. But the quality of your pricing policy determines if you are able to achieve on long term profitability. My, grandmother told me, that during the war, the pub in her village was always full, no matter if the Germans, the English or the Russians flew their flags. The pub is still there today.

From FeedStuffs 19. October 2007: 10-29-07 pg 10.indd