Snack product:Looking for advice on pricing strategy...

zig

Hi All,

Sorry for the long post, just wanted to lay out the detail.
Just wondering if you could offer advice...

Just to briefly explain, I produce packaged flavoured peanuts, the flavours are unique and for now, it is all made at home. I have so far supplied to a few customers.
But Ive actually stopped trying new sales just for now, as Im in a bit of a limbo price wise.

So far, Ive supplied a few customers, I have been supplying them at a promotional price but also letting them know it will be going up to full price in the future.

My problem is with the full price and the strategy I should take on. I've been warned and warned not to undervalue my product, but at the same time don't want to put everyone off buying them. I've heard a few gasps from people when I mention a full price I had in mind before I realised I might have to look at the long term instead.

Ideally I would like to make this business grow in the long run and have the price at such a price that it is not considered a more expensive item than its competitors. But this would mean probably not making a reasonable living off it for at least a year if not longer.

Between bars, hotels, off licenses and shops I have great potential in terms of finding customers. And at the risk of sounding salesmanish/big headed, they ARE tasty and unique, i.e. Ive confidence in the product itself.

I seem to have two options in front of me which Im really struggling to deal with...

1. I could charge the price I would like to see it at in the long run ( or even a small bit above that), it would mean I could be consistent, I would have happy customers , and it would make life ALOT easier for me in terms of sales.
But it would also mean that I dont begin to see actual profit (beyond paying myself even a small amount) for at least a year, if not longer, mainly due to the capacity of what I can produce as a one man show, but also due to lack of equipment/funding for larger quantities (in terms of packaging etc). Basically, like any product, once I can produce far larger amounts, my costs per unit will go way down.

2. Charge a higher price , sell it is a high value product, but not spend a long time in near 'slave labour' mode, i.e. I could pay myself right now what the product is worth in terms of time.

In my heart, I want to do option 1. But whats "in your heart" isnt always good for business. The advantage is consistency and having a much easier time selling the product. Plus the retailers etc would have an easier time selling it.

The disadvantage is I would be working seriously hard and taking extremely low pay, if any at all for a while. Ill get over that. But the bigger risk is that I could end up running into costs that I haven't taken into account yet (Ive been very thorough with my potential costs however, and usually overestimate if Im unsure). And these extra costs may be the signal that I don't have a business at all if I want to expand.

Its very important to note that I am on 188euro/week Back to Work Enterprise Allowance. Ill have that for a year, and 75% of it for another year. So I DO have a huge fall back right now.
Its also important to note, on a personal level, Ive no dependants, and no mortgage so Im free to be broke!

The thing about option 2 is I can always drop my price in the future, and even then, thats only if I have to. It also means I get a clear short term look at the profit Im making on them, and the margin will only go up with large quantities.

But it will be much more difficult to sell them in the first place.

Overall, whichever option I decide , I really really dont want to go down the road of turning around to a customers and telling them Im going to have to charge more. Id rather I got organised with my price now.

I know its up to me, but Id love to hear other peoples 2c worth in terms of which is the best strategy!

Any advice would be great
Thanks

ssbob

Hi Zig,

Firstly I would like to commend you on starting a new business in these trying times even with the "fall back" of the 188euro per week.

It may be no harm to have 3 different pricing strategies ie. for Large, Medium & Small customers but this really depends on your current customers and their ability to order more.

If I were you I would really look at getting finance to invest in your business to help you increase capacity and allow you more time to drive sales thereby utilising this capacity and allowing you to make a decent living.

Have you a website or anything?

ssbob

DubTony

Irrespective of what value you put on the product, the important thing is what value the consumer puts on it, i.e. if it's too expensive they simply wont buy it. Retailers in the convenience sector have a particular margin they expect to receive on snack items. The same applies to hotels and bars (this is usually higher), but they generally sell at a higher price.

Compare your product with a similar and successful competitor in the marketplace. Find out what price they're selling into retailers for and you'll have an idea of what you can expect to get. Consider also that a well advertised product generally allows a smaller retailer margin than an unknown one, as the manufacturer is usually big enough to dictate terms to small retailers (obviously not the selling price).

I think you've made a mistake by going in cheap and informing them that it's going to get dearer. The ideal way to drive sales in this sector is to offer retailers a deal on the product on the basis that they pass it on to their customers. Supplying on a "buy 3 get 1 free", or similar, basis, allows the retailer to pass on the discount while still achieving his desired margin. BTW, I don't see the hotels and pubs being the main market for these products, it should be grocery retailers and convenience stores.

I can probably help a bit more if you would like to PM me with more info (packaging, pricing etc.)