Move guide
Rebuild the price structure
Your report suggested a move on at least one of these four practices:
- how list prices are set;
- the shape of the price architecture;
- whether offers are bundled or sold à la carte;
- how new products or contracts are priced.
This move guide puts most of your business inside a published structure. It sets list prices on a calendar, from more than cost. It prices packages against their parts, and gives every new offer a pricing case before it launches.
If you took the consumer check, go to the consumer section. If your products reach shoppers through retailers, go to the section for brands.
1. When it applies
Use this move guide if your report placed any of these four practices in the lowest two stages.
| Practice | Where it may sit today | Where this move guide aims |
|---|---|---|
| How list prices are set | Lagging: "List prices only change when a supplier cost increase forces it." Basic: "List prices are cost-plus with a standard markup, reviewed when someone remembers." |
Competent: "List prices consider cost, competitor prices and customer feedback, and are reviewed on a calendar." |
| The shape of the price architecture | Lagging: "One price list, thousands of exceptions." Basic: "Tiers or bands exist but most customers sit in negotiated exceptions outside them." |
Competent: "A published structure (tiers, volume breaks, options) covers most business, with exceptions counted." |
| Whether offers are bundled or sold à la carte | Lagging: "Everything is quoted line by line, and a 'package' is just a bigger discount with a name." Basic: "A few bundles exist because a customer once asked for one, and nobody knows whether they make money." |
Competent: "Standard packages sit beside the à la carte price list, and each bundle's price is set deliberately against the sum of its parts." |
| How new products or contracts are priced | Lagging: "New offers are priced by analogy to whatever we already sell, at the last minute." Basic: "New offers get a cost build-up and a sense-check against the range." |
Competent: "New offers are priced with reference to customer value and the competitive alternative, before launch." |
If all four already sit at the middle stage or higher, skip this move guide.
It works best after choosing segments and writing the strategy, and after the exception log in taking control of discounts has run for a quarter. That log shows what your structure is missing.
2. What to do
Seven steps. Designing and testing take two to three months. The new structure launches in the next price cycle.
- Put list-price reviews on the forum's calendar. Give each a named owner. Feed in competitor prices and customer value from learning what customers value.
- Count the share of revenue inside the published structure. If most of it is exceptions, the structure needs redesigning. Table A below does this.
- Test whether a menu fits. A menu prices each option, service level and order behaviour separately, so customers choose instead of negotiating. It fits where purchases repeat and customers can compare. It does not suit bespoke, one-off purchases.
- Where a menu fits, build it in three passes. Build a plain menu first. Add the real complexities, such as growth rebates and key accounts, second. Lock it down third.
- Model the new structure on the customers who make up most of your volume. Adjust it to limit the first change for any one customer.
- Price two standard packages against the sum of their parts. Track each one's margin from the first sale.
- Give every new offer a pricing case before launch. It holds the value reference, the competitive alternative, the structure and a review date.
The four free worksheets do the recording:
- /worksheets/pricing-b2b/list-price-basis for the review calendar and its inputs;
- /worksheets/pricing-b2b/price-structure for the count and where exceptions cluster;
- /worksheets/pricing-b2b/offer-bundling for the packages;
- /worksheets/pricing-b2b/new-offer-pricing for the launch case.
3. What to produce
One table, plus the four worksheets above.
Table A. The structure count and the menu test
| Product group | Revenue ($m) | Share inside the published structure (%) | Do purchases repeat? | Can customers compare? | Menu fits? | Next move |
|---|---|---|---|---|---|---|
A group with most revenue outside the structure, repeat purchases and comparable offers is the first candidate for a menu.
4. A worked example
Illustrative. Written for this move guide. It describes no client.
A laboratory consumables supplier sells to hospitals, universities and private labs.
The count.
- About two fifths of revenue sat inside the published price list. The rest was negotiated prices.
- The exception log showed most exceptions were for delivery speed and order size.
The menu.
- Reagents passed the test: customers reordered every month and compared suppliers.
- The plain menu priced the product, then delivery speed and minimum order size separately.
- The second pass added a growth rebate for the universities.
- The structure was modelled on the customers who made up most of the volume. No customer's price moved more than a set amount in the first year.
Packages and launches.
- Two standard packages, a starter kit and a monthly restock, were priced against their parts.
- The next new product had a pricing case before launch, with a review date three months on.
Four months on.
- List reviews were on the forum's calendar with owners.
- The share of reagent revenue inside the structure was counted each quarter.
On a retake, all four practices could be answered at the middle stage.
What it looked like in our work
From our own work. Redrawn.
A manufacturer laid out its pricing options on one line, from where it stood to a full menu. The position it wanted sat between the second and third.
- Where it stood: product pricingOne offer for the market. Sales negotiated freely to meet customer demands, and discounts ran very high.
- Option 1: net priceSimplified and tightened discounts, with one net price per product.
- Option 2: priced by segmentA value proposition and price for each customer segment.
- Option 3: a practical menuStandard service levels priced as options, with a few packages.
- Option 4: a full menuEvery product, service and term priced on its own, so customers make the trade-offs themselves.
Whichever option it chose, a few rules held for all of them:
- Any discount off the menu needs the pricing committee's approval.
- A rebate pays only for profitable volume growth.
- One price book goes to every customer.
- A trade discount is given only for a defined trade-off in price or service.
- An order-by-order change needs a cost to justify it.
A partly packaged menu
Illustrative.
A practical menu sets a few packages, each with a base price, and prices the rest as add-ons. Here are three packages for a business that sells a made-to-order product with service.
| Package | Turnaround | Quality | Contract | Support | Base price |
|---|---|---|---|---|---|
| Low price | 5 to 6 days | Standard grade only | None | Phone only | 85 |
| Regular | 2 to 3 days; next day +12% | Standard; premium grade +4% | Long contract −8% | On site +12% | 100 |
| Full service | Next day | Standard and premium included; top grade +4% | One-year minimum | On site included | 115 |
Each package has a reason to exist. The low-price package strips out what costs most to provide. The full-service package bundles what the most demanding customers ask for anyway.
5. Effort and dependencies
- Pricing owner and analystDesign the structure.
- SalesTests it with customers.
- FinanceModels the effect on each customer.
What you need
- A quarter of the exception log, and the segments from the strategy.
- Competitor prices and the customer value evidence.
How long
- Two to three months to design and test.
- A menu redesign in our own process notes ran in three phases over about four months.
What gets in the way. We have seen these in our own work:
- A list price nobody uses. At an industrial distributor, list prices lagged the market and lost meaning. Manual overrides became normal, and cost-plus took hold.
- Costing off the wrong number. The same business set its internal transfer costs so high that rival resellers made a healthy margin before its small sites broke even.
- Forcing a menu where it does not fit. Menus fit badly with bespoke, infrequent purchases, and with markets that have an erratic price leader.
- Too many prices. Past a point, each extra price costs revenue.
6. How will you know it worked?
The test is how much business runs inside the structure. Retake the check after the next price cycle. Each of these should be true when you answer:
| Practice | You can answer Competent when | A document alone does not count if |
|---|---|---|
| How list prices are set | List prices are reviewed on a calendar, with cost, competitor prices and customer feedback as inputs. | The calendar exists, but the last review still started from cost alone. |
| The shape of the price architecture | A published structure covers most of your revenue, and the exceptions are counted. | The structure is published, but most customers still sit outside it. |
| Whether offers are bundled or sold à la carte | Standard packages sit beside the price list, each priced against the sum of its parts. | A package exists, but its price is a discount nobody set against its parts. |
| How new products or contracts are priced | Your latest launch had a pricing case, with its value reference and competitive alternative, before it shipped. | The case was written after the price was set. |
For consumer businesses
This section is for the B2C Consumer Pricing Health Check. Here the structure is a price ladder, bundles and the way each price is shown.
When it applies
Use it if your report placed any of these four practices in the lowest two stages.
| Practice | Where it may sit today | Where this move guide aims |
|---|---|---|
| How prices are set | Lagging: "Cost plus a habitual margin, or whatever the last person set." Basic: "Cost-plus with a competitor glance for visible items." |
Competent: "Prices weigh cost, competition and customer value, with the logic written down per major category." |
| The good-better-best structure | Lagging: "One product, one price, however the range grew up." Basic: "Multiple options exist but their price gaps are historical accidents." |
Competent: "A deliberate ladder (good-better-best, sizes, bundles) exists with sensible gaps customers understand." |
| Whether products are bundled or sold à la carte | Lagging: "Every item has its own price and customers assemble what they want; a 'deal' is two things for less." Basic: "Bundles exist, for promotions or as standing packages, but nobody has priced them against the à la carte total, so nobody knows whether they add margin or just discount the basket." |
Competent: "A standard set of bundles and add-ons is priced deliberately against the à la carte total, and their sales are measured." |
| How prices are communicated at the moment of choice | Lagging: "Prices appear wherever the system puts them; presentation has never been discussed." Basic: "Some care goes into key price points (.99s, round numbers) without knowing if it works." |
Competent: "Framing (anchors, comparisons, per-unit or per-week terms) is deliberate for major products." |
What to do
- Re-set the prices of your top category. Use four inputs: the cost floor, the competitor's price, customer value and how sales respond to price. Write the logic for each price point.
- Rebuild one price ladder. Set an entry price that defends against cheap rivals, gaps that lead customers up, and a premium rung. Table B below does this.
- Price your three best-selling combinations as bundles against the à la carte total. Test them for a quarter.
- Set the framing of your five most-seen prices on purpose. Choose the anchor, the comparison and whether to show a per-unit or per-week price.
- Give every new product a pricing case before launch.
The four free worksheets do the recording:
- /worksheets/pricing-b2c-direct/price-basis for the four inputs and the logic;
- /worksheets/pricing-b2c-direct/architecture for the ladder;
- /worksheets/pricing-b2c-direct/offer-bundling for the bundles and their test;
- /worksheets/pricing-b2c-direct/price-presentation for the framing.
What to produce
Table B. The price ladder
| Rung | Role | Price ($) | Gap to the next rung up ($) | What the customer gets for the step up | Margin (%) |
|---|---|---|---|---|---|
| Entry | Defends against cheap rivals | ||||
| Core | Where most customers land | ||||
| Premium | Earns the most per sale |
A worked example
Illustrative. Written for this move guide. It describes no client.
A gym chain runs 15 clubs.
- Its three memberships had grown up over ten years, and the gaps between them made no sense to members.
- The ladder was rebuilt: an off-peak entry price, a core membership, and a premium tier with classes and a second club.
- Personal training sold in packs of five and ten, priced against single sessions. Sales of each pack were measured.
- The core and premium memberships were shown as a weekly price beside the monthly one.
On a retake, all four practices could be answered at the middle stage.
What it looked like in our work
From our own work. Figures changed.
For a retailer with thousands of lines, our pricing work gave every line a role. The few lines customers compare were priced hardest. The many they do not watch carried the margin.
| Role of the line | Share of lines (%) | Share of sales (%) | Target price position | Price change (%) |
|---|---|---|---|---|
| Core leaders | 0.5 | 6 | Below the cheapest local competitor | −8 |
| Core matchers | 1.5 | 6 | Match the cheapest local competitor | −5 |
| Related lines | 4 | 9 | Keep the gap to the core lines | −2 |
| Tactical lines | 8 | 14 | Just below the main competitor; match its promotions | +1.5 |
| Less sensitive lines | 86 | 65 | The average of the main national competitors | +3 |
Prices fell on the lines customers watch, and rose a little on the rest. Across the range, the average price rose by about one per cent.
Effort and dependencies
- Who. The pricing owner and an analyst design. Marketing tests with customers. Finance models the effect.
- What you need. Sales by product and option, the competitor basket and the evidence on what customers would pay.
- How long. Two to three months to design and test. Launch in the next price cycle.
- What gets in the way. Too many rungs. Each extra option has to earn its place, or customers stop choosing.
How will you know it worked?
| Practice | You can answer Competent when | A document alone does not count if |
|---|---|---|
| How prices are set | Each major category's prices weigh cost, competition and customer value, with the logic written down. | The logic is written, but prices are still cost plus the usual margin. |
| The good-better-best structure | One ladder has been designed, with gaps customers understand. | The ladder is designed on paper and has not reached the shelf or site. |
| Whether products are bundled or sold à la carte | Your standard bundles and add-ons are priced against the à la carte total, and their sales are measured. | Bundles are priced, but nobody measures what they sell. |
| How prices are communicated at the moment of choice | The framing of your major products' prices is chosen on purpose. | The framing was chosen once and never checked. |
For brands selling through retailers
This section is for the B2C via trade Brand Pricing Health Check. For a brand, the structure runs from the shelf back. It starts at the shelf price shoppers see, then the retailer's margin and terms, then one list price per product. The pack sizes need a ladder that makes sense per unit.
When it applies
Use it if your report placed any of these four practices in the lowest two stages.
| Practice | Where it may sit today | Where this move guide aims |
|---|---|---|
| How the recommended retail price and our list price are derived | Lagging: "Last year's list plus a percentage, and the recommended retail price is whatever the retailer chooses to print." Basic: "List is cost plus a target margin, with the retailer's margin bolted on top." |
Competent: "List price is worked back from the target shelf price, with the retailer's margin, trade terms and our margin each stated." |
| Whether there is one list price per product | Lagging: "The same product has more list prices than we have states, because prices were negotiated net and the list was worked out afterwards." Basic: "A national list exists on paper, but customers are on contract prices that ignore it." |
Competent: "One list price per product is loaded in the system, and every customer's price is list minus stated terms." |
| Whether pack sizes and variants have deliberate price gaps | Lagging: "Pack prices are historical, so a bigger pack can cost the same per unit as a smaller one, or less than a competitor's for no reason." Basic: "We notice cannibalisation after a launch." |
Competent: "Price per unit steps down the pack sizes by design, and the gap between our brand and own-brand is a stated target." |
| Whether shelf price points come from what shoppers will pay | Lagging: "The shelf price is whatever cost-plus and the retailer's margin leave, and nobody has asked a shopper." Basic: "We know the price points that matter in the category from watching the shelf." |
Competent: "Target shelf prices by pack and channel are set from competitor gaps and category price points, and the retailer's margin is worked back from there." |
What to do
- Set target shelf prices for your top products, by pack and channel. Start from competitor gaps and the price points that matter in the category.
- Write the shelf-back sum for your top ten products. Work back from the target shelf price through the retailer's margin and your trade terms to your list price and your margin. Table C below does this.
- Test the next terms request against it. Ask what the request would do to the shelf price.
- Count the list prices for your biggest product. Then set one list price per product, with each customer's terms stated separately.
- Give every remaining exception a reason code and an owner.
- Plot price per unit down every pack size, against the nearest competitor and own-brand. Fix the steps that go the wrong way. Write the gap you intend to hold on promotion.
The retailer sets the shelf price. Your target is a recommendation, and you may not require a retailer to charge it. Ask a lawyer where a case is unclear.
The four free worksheets do the recording:
- /worksheets/pricing-consumer-trade/consumer-price-points for the price points and a shelf price test;
- /worksheets/pricing-consumer-trade/rrp-basis for the shelf-back sum;
- /worksheets/pricing-consumer-trade/one-list-price for the move to one list price;
- /worksheets/pricing-consumer-trade/pack-price-ladder for the ladder.
What to produce
Table C. The shelf-back sum, top ten products
| Product | Target shelf price ($) | Retailer margin ($) | Trade terms ($) | Our list price ($) | Our margin ($) |
|---|---|---|---|---|---|
A worked example
Illustrative. Written for this move guide. It describes no client.
A cereal maker sells through the two big grocers, independents and a wholesaler.
- Its biggest product had seven list prices in the system, because prices had been agreed net and the list worked out afterwards.
- One list price per product went in, and each customer's price became list less stated terms. Three exceptions remained, each with a reason code and an owner.
- The shelf-back sum for the top ten products tested a terms request from one retailer. It would have pushed the shelf price past a key price point.
- The large pack cost more per serve than the medium pack. Its price was reset so the ladder stepped down.
On a retake, all four practices could be answered at the middle stage.
Effort and dependencies
- Who. The commercial manager and an analyst design it. Marketing sets the price points. Sales takes the new list to customers.
- What you need. Shelf and scan prices, the retailers' margins, and every customer's terms.
- How long. Two to three months to design. The move to one list price runs customer by customer, in stages.
- What gets in the way. A customer whose net price rises under one list. Model the move in stages, and agree with each customer what changes and when.
How will you know it worked?
| Practice | You can answer Competent when | A document alone does not count if |
|---|---|---|
| Whether shelf price points come from what shoppers will pay | Target shelf prices by pack and channel are set from competitor gaps and category price points, and the retailer's margin is worked back from there. | The targets are set, but list prices are still cost plus margin. |
| How the recommended retail price and our list price are derived | List price is worked back from the target shelf price, with the retailer's margin, trade terms and your margin each stated. | The sum was done once and not used on the next terms request. |
| Whether there is one list price per product | One list price per product is loaded in the system, and every customer's price is list less stated terms. | The list is set, but customers are still on contract prices that ignore it. |
| Whether pack sizes and variants have deliberate price gaps | Price per unit steps down the pack sizes by design, and the gap to own-brand is a stated target. | The ladder was plotted, but the wrong-way steps are still there. |
The worked examples are illustrative.
Think we've used your work without proper credit? Tell us and we'll fix it.