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Why better understanding of price vital to drive profits – column | just-food

Food manufacturers operating across Europe, faced with differences in how sensitive different markets are to price, need to develop innovative pricing and promotional strategies to win, Dr Anthony Graham, IRI’s executive vice president of international solutions and innovations, argues.

Pricing is the simplest and most effective lever to pull to optimise margins – but manufacturers need to know when and how far they can heave.

A 1% increase in price can lead to overall profit increases of 10-20%, depending on the EBITDA margin of the manufacturer. However, getting pricing wrong can have a negative impact on the brand and even lead to delisting by the retailer. Knowing which prices to increase, which to reduce, which items to promote more aggressively, and how that should vary from country to country, is critical to driving profitability for manufacturers.

The relationship between price and volumes is well-established in economics theory. It is classically measured by looking at how sensitive demand is to price change. Products highly sensitive to changes in price are considered to be ‘elastic’, whereas those where price has a limited impact on volumes are considered to be ‘inelastic’.

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Why better understanding of price vital to drive profits – column | Food Industry Comment | just-food.

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