CPG Pricing Strategies: How Do You Price a CPG Product?

By Joshua Weatherwax

7 min read

March 17, 2022

If you run a small or mid-sized CPG company, you know that pricing can make or break your sales figures.

But it’s not as easy as just picking the lowest price and winning.

You need to consider a range of factors including your costs, consumer demand, competitor pricing schemes, promotions, and more. Too low, and you can lose money with each sale. Too high and you risk losing market share and shelf space to the competition.

Read on to learn more about CPG pricing, see some common strategies, and learn some best practices to help you grow your business sustainably.

What Is CPG pricing?

CPG pricing, or Consumer Packaged Goods pricing, is the process of setting prices for products sold in retailers and online. Essentially, it’s using the variety of tools at your disposal to pick the prices for each product to maximize sales and profits. It can be a complicated endeavor and requires looking at data and consumer trends to do effectively.

Common CPG Pricing Strategies

Since CPG products have been a staple of consumer culture for hundreds of years, a few tried and true pricing strategies have emerged. However, each has its own pros and cons, so it’s important to experiment and pick the one that works for your particular business. You also need to understand the small CPG landscape so you can meet changing consumer trends.

Here are the 5 most common CPG pricing strategies:

  • Cost-based pricing. The most common pricing model is cost-based pricing which considers the whole pricing package. Here, you calculate your production costs for a product and then add a pre-determined markup for the sales prices. This lets you recoup your costs and ensure a profit for each product you sell. However, it doesn’t take into account the competition or consumer demand trends. This means you may have trouble keeping up with shifts in the market. It also requires you to maintain stable production costs because an increase will either eat into your sales price or force you to increase prices and risk upsetting customers.
  • Competitive pricing. Another popular model, competitive pricing is exactly what it sounds like. You look at your biggest competitors, see their prices, and try to match or undercut them. This is a great model for industries with less variation between product cost and quality. However, if your overhead costs are higher than the competition, you’ll quickly eat into your profits and risk defeating yourself with this model.
  • Penetration pricing. A great model for highly competitive markets, penetration pricing involves launching products at a low price to spark interest and then raising it once you’ve built demand. Large companies like Walmart have used this strategy for decades to quickly take over a market and limit competition. This model requires you to have the capital to sustain smaller margins while interest builds and the ability to build enough loyalty that consumers will stay after you raise your prices.
  • Value-based pricing. Also called demand-based pricing, this model involves using research into consumer demand to set pricing that matches their needs. The value in the model comes from knowing what consumers are willing to pay and meeting them at this price. If this price gets you a decent profit, it can be highly lucrative. However, this does require a good retail data analytics tool that gives you insight into demand trends, consumer behaviors, and shifts in the market. Luckily, investing with a company like NielsenIQ lets CPG companies use this model to grow quickly and sustainably.
  • Price skimming. The opposite of penetration pricing, price skimming involves launching products at a high price and then raising it once competition enters the market. This is generally reserved for products that establish a new market or where the current competition is too weak in quality or demand to be a threat. However, it can be a risky model if consumers see your products as overpriced or if competitors can undercut you and gain market share.

CPG Pricing Best Practices

As with retail analytics best practices, it’s important to adhere to CPG pricing best practices, so you can get the biggest return on your investments.

Here are 4 best practices for CPG pricing:

  • Understand your customers. You’ll never achieve long-term success if you don’t have a strong understanding of who your ideal customer is. Establishing buyer personas to segment your target market and gain greater insight into what they want and how you can help is key. Track as much data as possible, understand the factors that influence the demand of consumer goods, and use this to adjust your strategies to match shifting demand trends.
  • Look to the competition. Paying attention to your competition’s pricing models and their level of success can help you better understand the market and consumer trends. This is particularly important in the modern era where brand loyalty is at an all-time low and consumers look to business transparency and pricing instead.
  • Don’t get into pricing wars. While it is valuable to know what the competition is doing and if it’s successful, you really don’t want to get pulled into a price-based competition. This will just lead you both to undercut yourselves and miss out on profits. Instead, use competitors as a benchmark and seek to differentiate your offerings and maximize sales.
  • Build your brand. Brands that are trusted and are known for quality can charge more for products than lesser known ones. Invest in CPG marketing and work to meet consumer needs. This will set you up for long term success and let you set the tone for the market rather than having to simply react to it.

Use Data to Set the Best Prices

Companies that aren’t using retail data when pricing their products are missing out on valuable revenue. Understanding what’s selling, where, and for how much is key to success.

Fortunately, with Byzzer’s reporting solutions, you can have all the data you need at your fingertips. Contact us today to see what our tools can do for your business. You’ll also want to read about the top CPG trends for small businesses in 2022.

Byzzer provides breakdowns of all these attributes in easy-to-digest reports. Best of all, we’ll show you how to leverage this information for your action plan.

Sign up for a free account with Byzzer today!

See your products in more carts.

Unlock free access

Byzzer Content Hub

Shelf Space Optimization for SMB CPG Brands

7 minute read

For an emerging CPG company, getting your products on a retailer’s shelf is just the beginning of a long journey....

Retailer Chargebacks and How to Avoid Them

5 minute read

As an emerging CPG company, the last thing you want to deal with are retailer chargebacks. They eat into your...

Stated vs. Qualified Product Attributes

6 minute read

In today’s CPG health and wellness landscape, wellness is no longer a category but a set of attributes. This means...

Stay in the loop with industry insights.

We’ll send you the latest and greatest on Byzzer, CPG, retail, manufacturing, and more.