Product Managers Think That There’s Something Fishy About Their Prices

by drjim on February 20, 2012

How grocery stores handle fish prices can teach product mangers a great deal…

How grocery stores handle fish prices can teach product mangers a great deal…

How are sales of your product doing? Not so well? Are you thinking about changing the price of your product? Is it looking like you are going to have to raise your prices because everything is costing you more? What’s that going to do to your sales? Have you told the account manager and business development manager that you work with? It turns out that the fish department in your local grocery store is having the same problem – maybe they can show us what we need to be doing…

So What’s Making Prices Go Up?

The world is a complicated place for all product managers, especially those who work in the grocery business. When we start the see the costs that go into our products start to creep up, we need to ask ourselves what is going on here? Is dealing with problems like this even part of our product manager job description?

In the world of grocery stores, product managers have seen their seafood prices jump by 5.4% during the past year. This is a big deal – during a global recession, if you have to raise the price of your product then you’re going to start to lose customers.

There’s another issue going on here. In the highly competitive grocery business, there is always another store that is trying to take your customers away from you. If you keep raising your prices, then there’s going to be some competitor who doesn’t and they’ll have a good chance to steal customers away from you.

What Options Does A Product Manager Have When Costs Go Up?

So we all know that it’s possible that costs for our products can go up. What’s a product manager to do when this happens?

It turns out that there are a number of things that we can do. The first is to push back on your vendors. Just because your vendors are trying to raise their prices to you, does not mean that you need to put up with it. When you start to see higher vendor prices, you need to sit down with them and ask them why they are raising their prices. You need to understand their answer to this question and you need to agree with it before you accept their new higher prices.

If you decide to pass price increases on to your customers, then you’re going to have to take a close look at exactly where you are going to be raising your prices — this calls for some strategic management of prices. In the world of grocery stores, they’ve discovered that there are some areas, such as dairy, meat, and perishables categories that are much more sensitive to price increases.

Finally, if you decide to absorb price increases you’ll need to run some numbers. Just how much of an increase in prices will you be able to absorb and for how long? Make sure that you know the answer to these questions before take the hit to your bottom line.

What Does All Of This Mean For You?

Welcome to the real world – the cost of making your product is not fixed, it will change over time. Unfortunately, sometimes it’s even going to increase. Learn how to deal with this situation and you’ll have something else to add to your product manager resume.

As a product manager, you’re going to have to understand why this is happening. In the case of the fish department in grocery stores when they have to deal with higher fuel prices, it can drive the cost of fish up. It’s how they deal with these cost increases that can teach us product managers a lesson or two.

What all of this comes down to is understanding that we have three options when our product’s costs start to creep up. First, we can talk with our vendors and find out why their costs to us are increasing. If it’s not justified, then we can push back and perhaps even start to seek out alternative suppliers. Next we can absorb the cost increases and hide them from our customers, and finally we can choose to pass them on to our customers and live with the consequences of doing so.

None of these options are easy to do. As product managers we need to carefully take a close look at our markets and understand what they are willing to bear. No matter what we do, we don’t want to surprise our customers or like week-old fish they’ll put up a big stink!

- Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: What percentage change in your product’s price could you absorb and at what level would you have to start passing the increased costs on to your customer?

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What We’ll Be Talking About Next Time

I did it! I confess! Take me in! See that product over there on the floor lying in a pool of blood? I killed it. Don’t even begin to think that this was a crime of passion, this was most defiantly a pre-mediated product murder and I’ll gladly stand up in any product court and tell everyone who will listen to me that I’m the criminal – I murdered that product!

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