Worksheet · B2C via trade: Brand Pricing Health Check
Set an own-brand walk-away price
This sheet applies only to a business that makes the retailer's own-brand product, or has been asked to.
Own-brand supplied at whatever price keeps the volume ends up paid for by the brand. This sheet works out the return own-brand earns on its own capital. Then it sets a walk-away price for the board to agree before the next tender. It builds the Competent step of the check:
Own-brand is priced for a fair return on the capital it uses, worked out separately from the brand.
Step 1. Split the profit and the capital
Say how you split shared lines, stock and overheads. Line time or volume both work if used the same way every year.
| Item | Brand | Own-brand | How it is split |
|---|---|---|---|
| Volume (units) | |||
| Net price per unit | |||
| Variable cost per unit | |||
| Contribution per unit | |||
| Share of fixed cost | |||
| Capital employed (plant, stock, debtors) | |||
| Return on capital (%) | e.g. 28% | e.g. 4% |
Step 2. The price options
| Basis | Price per unit | What it means |
|---|---|---|
| Covers variable cost only | Keeps the volume and earns nothing on the capital | |
| Covers full cost | Breaks even and still earns nothing on the capital | |
| Earns our cost of capital on own-brand capital | The floor this row asks for | |
| What a competitor could supply for | Their cost to serve, plus a charge for any capacity they must add | |
| Lowest competitor bid last time | A record, not a target |
Four rules for the options:
- Own-brand is priced on its own capital, never on the brand's.
- We never price at marginal cost when own-brand is most of the category's volume.
- We do not anchor on the lowest competitor's price. We estimate what they can supply for.
- Spare capacity counts only if we can rely on it for the whole contract.
Step 3. Walk-away and target
The target is the higher of the cost-of-capital price and what a competitor could supply for.
| Contract or tender | Walk-away price | Target price | If we lose it: volume, exit cost and plan | Agreed by the board on |
|---|---|---|---|---|
Plan for the volume you would lose before you negotiate. A walk-away you cannot afford is not one.
Done when: own-brand has its own capital and return worked out apart from the brand. Its price earns at least your cost of capital on that capital.
Adapted from our own own-brand walk-away analysis (PSP, 2010).
From the B2C via trade: Brand Pricing Health Check. Your report links the sheet for each of its moves.