308. Your CPG Brand's Biggest Retail Problem

0:00How to build a pricing and promotion architecture that create sustainable growth. Promotions don't grow brands, pricing strategy does. And if you get pricing wrong, no amount of promotions can save you. This is a question I get asked the most. What should I price my products at? There's a lot more than just picking a number. Let's dig in. Are you ready to hear more? Welcome to the Bulletproof Your Brand podcast, where we discuss the tactics and strategies you need to give your brand the unfair competitive advantage it deserves. Hello, I'm your host, Dan Lohman. Be certain to comment and subscribe to get immediate access to new brand building episodes.

0:36Please recommend it to friends and colleagues and help me raise the bar in natural. Let me know what your most pressing issues are and I'll do my best to address them on future episodes. At the end of every episode, there's a free downloadable guide to help you go deeper into the topics we discuss. Now let's roll up our sleeves and get started. If you're like most emerging CPG founders, pricing feels like a moving target. Distributor margin here, retailer markup there, freight increases, promo depth pressure, competitor pricing shifts, inflation, slotting, admin fees, and promotional creep. It feels like you're constantly chasing the right price rather than leading a pricing strategy that protects your margin, drives trail, supports retail partners, and grows the category.

1:19And here's the part most founders don't realize. You don't control promotions until you control your pricing, and you don't control pricing until you control your pricing architecture. Promotions instead aren't a pricing strategy and not be a replacement of one. Promotions are event-based. They happen at scheduled events, whereas pricing happens every day. Your pricing plan is what drives your velocity and when done properly, your contribution, what the retailer takes to the bank. Think of contribution as the profitable growth in the category. When contribution is predictable and profitable, retailers love your brand.

1:54Most promotions are rogue contribution, so setting up the right pricing architecture is critically important. Remember, the primary goal of each promotion is to boost your base sales after the promotion end. Base sales are your sales in the absence of a promotion. Today I'm going to show you how to build a pricing and promotion architecture that scales profitably, strengthens your trade partner your trust, eliminates unnecessary deductions, improves promotion ROI, protects your velocity, and removes the chaos from your retail engine. But first, I want to tell you this story that taught me this lesson the hard way.

2:31The story, the brand who lowered pricing to grow faster and nearly bankrupted themselves. A founder once came to me frustrated because growth had slowed. Velocity was still healthy, but competitors were running increasingly aggressive promotions. Their broker kept saying, you need deeper discounts, more promos, more frequency. So they did. They widened their pricing gap. They deepened their discounts. They ran more promotions. They trained their buyer to expect consistent deals, meaning that the customer would only buy their brand when it was on sale. Sales went up briefly. Then everything collapsed.

3:04Margins evaporated. Promotions no longer lifted. Retailers expected deeper discounts. This caused misforecasted everyday sales. Deductions skyrocketed. Cash flow dried up. The product couldn't command premium price perception anymore. The founder thought the solution was better promotions, but the real issue, they never had a pricing architecture. They only had price. Pricing is a strategy. Promotions are a tactic. And when you apply tactics without strategy, you create a financial death spiral. Once we rebuilt their pricing architecture, top-down, shopper-first, retailer-aligned, their margin recovered, velocity stabilized, and they no longer had to race to the bottom to compete.

3:46This episode will ensure you never fall into that trap. Let me back up a moment and dig into the strategies some brands use, why this matters, and how those strategies overlook what matters most, your customer. Big brands invest heavily in pricing elasticity projects. Those are their go-to frameworks for determining their optimum pricing. While that sounds super complicated and scary, price elasticity is just a fancy way of saying finding the sweet spot for your pricing. Too low in your road margins, too high in shoppers ignore you. Now, this does require a lot of sophisticated modeling and advanced strategies, and it can be very expensive for each project.

4:25This is an expense small brands can avoid. I've personally done a lot of these projects, and I've even built the tools and models for this. I share this because I know firsthand that even the most sophisticated tools and pricing models don't accurately predict customer behavior. Funny thing about shoppers, they do what they want, when they want, why they want. No algorithm will ever accurately predict shopper behavior, period. That includes with AI. The quote-unquote experts will lead you to believe that price is the only variable that drives sales and velocity. It does not. Personally, I hate this argument because it assumes customers are stupid and they don't have any other consideration when choosing a product.

5:07We all know this is not true. If it was, then premium decadent products would be declining in sales, and the exact opposite is true. This is also true in trying economies. We'll dig more into this as we move through this episode. For now, I just wanted you to have that additional context. Why pricing architecture matters. This is part of the retail operating system. Pricing architecture sits at the intersection of brand health, trade spend, KPIs, contribution, promotions, retailer expectations, your competitive framework, your shopper mindset, category dynamics, margin preservation. In the new retail operating system, pricing is foundational because your distributor pricing depends on it, your retailer markup depends on it, your promotion ROI depends on it, your perceived value depends on it, your ability to scale depends on it.

5:58And most importantly, pricing, not product, is what determines whether you survive retail long-term. Let's break down the five pillars of pricing and promotion architecture that create sustainable growth. Strategy number one, price for your core shopper, not your competition. Your price isn't the problem, your pricing architecture is. Promotions can't fix bad pricing, they make it worse. That was really important. Let me repeat that again. Promotions can't fix bad pricing, they make it worse. When you have the wrong pricing coupled with poor retail execution and inefficient strategies, your promotions will make them worse.

6:36They will shine an unflattering light on the problems, something you want to avoid at all costs. Most brands price themselves based on competitive pricing, category norms, retailer feedback, what seems right, cost plus formulas. This is the fastest way to destroy your margin. Your pricing must reflect your brand value, your attribute strategy, your problem-solving role, your trade-up logic, your category contribution, your product experiences, your shopper's willingness to pay. Premium shoppers are less price-sensitive, more loyal, more values-driven, more profitable. Price for them, not the bargain hunter.

7:14Consider the problem your customers are trying to solve when they purchase your brand. This includes your mission. If they want clean-label, mission-based products, then they know that comes with a premium price. Your price highlights your commitment to provide constant quality and value every time they reach for your brand. Remember that your pricing sets a standard customers can expect from your brand. Action step this week, identify your value anchor. What comparable premium products set the price context for your shoppers that they already accept? This can be in a different category. This becomes your pricing guardrail.

7:49Strategy number two, build a pricing ladder, the foundation of all margin protection. Stop pricing for competitors. Premium shoppers aren't comparing you the way you think. Most brands use competitive products as the benchmark for their products. While this is quick, easy way to measure your daily pricing, it overlooks the value your products deliver. Your pricing comparisons need to take that into account. Build that into your KPIs. Your pricing ladder must include Number 1. COGS fully loaded ingredients labor packaging overhead allocation Number 2. Distributor cost COGS plus outbound freight plus distributor margin Number 3.

8:29Wholesale retailer cost distributor cost plus markup Number 4. Retailer price range what shoppers will stay on the shelf Number 5. Sale price range your promotion windows Number six, everyday margin and promotion margin. Both need to be healthy. A lot of brands erode margin during promotions. This is a big mistake. Why this matters? If you skip this architecture, retailers will choose their own suggested retail price. Distributors will create their own pricing. Your promotion margins will disappear. Deductions will explode and inconsistent pricing will confuse shoppers. Consider this. Are there any categories that you only purchase when they go on deal?

9:09You know their exact promotion cadence and you plan your purchase ahead. I know I do. One of my favorite brands goes on sale every 12 weeks. I always stock up then when it goes on sale. Your customers will do the same thing if you train them to only purchase your brand when it's discounted. Conversely, you need to know when your competitors promote. What is their promotion cadence? We'll talk more about how to use that to your advantage in future episodes. For now, realize that their promotions might cannibalize your sales if your pricing signals to shoppers that your brand is comparable, that is a good substitute for your brand.

9:47Action steps this week. Build your pricing ladder for all SKUs. You will immediately see where the margin is leaking. Strategy number three. Build a promotion architecture, not random deals. The ladder that protects your margin. One diagram can eliminate 80 % of your pricing chaos. Trade spend is your second largest expense behind cost of goods. Most brands treat promotions like events. You must treat them like a system. Your promotion architecture must define, one, your frequency. How often do you run promotions? Number two, depth. How much do you discount? Number three, mechanics, TPRs, bargos, multi-pack, loyalty offers, secondary displays.

10:28Number four, objectives. Increase trial, build awareness, boost velocity, increase basket size, or lift. What is the purpose of your promotion? What are you trying to accomplish? Number five, seasonality. When promotions matter most, what time of the year influences your sales? For example, soup demand increases in the cold months. Number six, retention targets. What percent of buyers do you want to repeat purchase? Why this works? Promotion discipline prevents dependency, makes you less dependent on competitor pricing, protects your margin positioning, your pricing signals your value. Improves ROI.

11:05Protects margin. Makes forecasting easier. Predictable sales are easier to plan and forecast. Reduces deduction exposure. Most deductions are based on pricing discrepancies. Aligns retailer expectations. Retailers want predictable, profitable brands. Trains shoppers appropriately. Rewards shoppers. Invites new customers. Increases shopper traffic when done right. Action step this week. Map out your next 12 months of promotions on one page. include dates, depths, discounts, expected lift, retention target. This instantly improves retailer confidence. Strategy number four, use contribution, not velocity, to justify pricing and promotions.

11:46Contribution drives velocity. Retailers don't care who sells the most units. They care about who makes them the most money. Velocity is not the most important KPI. Contribution is. Contribution asks, how many profitable dollars are you bringing into the category? Are you adding or subtracting from the retailer's margin? What is your dollars per point of distribution relative to others? Here's the truth. Premium brands can win pricing arguments even with lower velocity because their contribution is higher. A high contribution brand needs fewer promotions, protects more margin, is more valuable to retailers, is less likely to be discontinued, commands better placement, they attract premium shoppers, and they have a higher market basket.

12:31Action steps this week. Run contribution for your best SKU, your weakest SKU, your top competitor, your category average. This will clarify your pricing strategy instantly. Strategy number five, build guardrails that prevent margin erosion. Your promotion counter needs guardrails. Discipline is what protects your margin positioning. Your pricing and promotion architecture must include non-negotiables. Number one, minimum margins. Never run a promotion that drops you below an acceptable margin. Number two, pricing force. Never discount below your premium pricing threshold. Number three, suggested retailer pricing guidance.

13:10Retailers need clarity, otherwise they'll price you incorrectly. Number four, promo caps. Limit how deep and how frequent your promotions can be. Number five, pricing integrity audits. Quarterly check for regional drift, distributor inconsistencies, competitor-driven pressure, margin creep. Why this works? Guard guardrails create discipline. Discipline protects runway. Action steps this week. Document your guardrails on one page and share them with your broker, your distributor, your internal team. Everyone must be aligned. Recap. How to build a pricing and promotion architecture that creates sustainable growth.

13:46Number one, price for your core shopper, not your competitor. Number two, build a pricing ladder that protects your margin at every step. Number three, create a promotion architecture with discipline, not randomness. Number four, use contribution to guide decisions, not velocity. Number five, establish guardrails that prevent margin erosion. When you integrate all five, you create predictive profitability, retailer trust, consistent promo performance, clean invoices, fewer deductions, protected margin, scalable pricing logic, and a stronger brand story. This is how premium brands scale, not by racing to the bottom, but by controlling the architecture that supports their value.

14:29If you have additional questions about pricing and promotions, reach out to me. I built a really cool tool to help you evaluate the impact of your pricing. It does require access to syndicated data. Until then, subscribe and follow the show. Visit RetailSolve.com for brand building tips and strategies. Connect with me on LinkedIn. Share this with a founder struggling with pricing. Promotions don't create growth. Pricing architecture does. I'm Dan Lohman, and this is the Bulletproof Your CPG Brand Podcast. Want a competitive edge? The recipe for success. Here's this week's free downloadable guide.

15:05New product innovation is a lifeblood of every brand. New products fuel sustainable growth, attract new shoppers, and increase brand awareness. Learn the crucial steps to get your product on more retailer shelves and in the hands of more shoppers. Maximizing your trade marketing can pour rocket fuel on your lunch. Thanks for joining us today. Please reach out and share your most pressing questions and I'll do my best to get you the answers that you need on future episodes, including expert advice from CEOs and industry thought leaders. Comment, leave your questions, and get this week's free downloadable guide and the show notes at RetailSolve.com slash session 308.