Produce Pricing Strategies for Growers and Shippers
The price of produce is always changing over time, affected by factors such as seasonality, accessibility, and the interplay between the forces of demand and supply.
To remain competitive within the market, the price you set for your products and services are key to success. While an initial strategy might be to offer lower prices compared to your competition, this might not always be an ideal strategy, as you have your own operation costs to consider. Set your price too high and your sales may suffer, which leads to unsold stock and inventory issues complicated by the perishable nature of produce.
How, then, should growers and shippers determine the price at which to sell their produce? The solution lies in studying market trends and analyzing pricing data over different seasons to come up with a suitably positioned price point. However, doing this manually can be time consuming and difficult to perform reliably.
Thankfully, Enterprise Resource Planning (ERP) software can help you track, monitor, and analyze market pricing data over many years as well as know your current market position relative to competitors. Check out https://usesilo.com/customers/grower-shippers to learn more about how ERP software can help your business.
What is produce pricing strategy?
A produce pricing strategy refers to the model used by produce businesses to determine their selling price. The best pricing strategy should help ensure that you can maximize profits while satisfying the needs of your customer base.
Typically, pricing strategies are influenced by competition, economic and overall market trend, and consumer purchasing behavior. As such, every grower-shipper will have a unique approach towards their pricing depending on their particular situation.
Popular pricing strategies for growers and shippers
There are several factors that can form the basis of a pricing strategy. The following are some of the most popular avenues that grower-shippers take when modeling the pricing for their products.
Like the name suggests, this pricing strategy works by setting the price of your produce and goods based on what the competition is charging; the competitor prices, rather than consumer demand, is used as a benchmark.
The grower-shipper may then decide to adjust their selling price based on various factors, such as product quality, additional services, and so on. Making a sound decision usually requires some data collection, which usually occurs during market research performed on growers and shippers within the target region to know their prices for different produce.
Some of this data is also published by research institutions, industry organizations and certain government agencies. However, these data sources are not so reliable since they do not reflect price changes and might be outdated by the time a user is making reference to them. It’s better to use fresh, first-hand data to make reliable conclusions.
This method of pricing does come with its caveats in the long-term, as it doesn’t take into account the grower-shipper’s unique costs and circumstances and might not be sustainable for extended periods of time.
The cost-plus pricing strategy involves determining the cost of production, including packaging and transportation costs. Once the cost of production is determined, a fixed percentage is then added to the production cost of one unit of the produce to the consumer. The resulting amount is then usually marked up and used as the selling price.
This pricing model focuses on internal factors like cost of production rather than external ones. However, it can be quite difficult to implement without a proper system to track your expenditures and keep proper records. A good ERP software system can easily help with calculating a produce business’ cost of production and implementing cost-plus pricing.
However, note that this model usually only takes into account direct costs of production, including the price of seeds and fertilizers and regulatory costs. The indirect costs. Which include machinery costs, labor, maintenance costs, repacking and transportation costs, can fluctuate greatly, which makes it difficult to properly quantify and use within cost-plus pricing.
The idea of early pricing is simple – be the first to sell a seasonal product. Doing so allows you to set your price as necessary, as you’re sure to make a decent amount of sales if you are the only one offering particular produce when the season begins.
This strategy can put you at a vantage position to add a premium to what you would have ordinarily sold it for, allowing for greater profit margins. However, this strategy is only usually valid on a temporary basis – as your competitors also start supplying their products, you will have to adjust your pricing to remain relevant on the market.
Supply-and-Demand based pricing
This is a flexible pricing strategy where the price is set by the interplay between the pull of demand and supply. This strategy greatly depends on market insights, since its fundamentals are controlled by external factors over which you have no direct oversight.
Getting these insights can be challenging without analyzing real-time. ERP systems and food produce software can help you gather market insights in real-time, to help you understand the general demand of a particular variety of produce and if the supply is enough to meet its demand.
Market penetration pricing
Market penetration pricing involves attracting potential customers with introductory offers. Essentially, you provide your produce at a great sale price for a temporary period of time, and return it to normal after the promotional period runs out. It’s a good way of acquiring new customers and building a wide, loyal customer base.
The idea is formed on the basis of sacrificing immediate gains for long-term benefits. In the long-term, the benefits and development of the grower-customer relationship will usually outweigh any minor losses you might incur through your promotions.
This pricing model allows you to retain your customers without sacrificing your profit margins. It involves assigning different prices to different varieties of a single type of produce.
For instance, you can sell Romaine, a variety of lettuce for $5 per pound and Butterhead, another variety of lettuce, for $2.30 per pound. This way, a lettuce buyer that finds the Romaine variety to be too expensive can be offered the other variety as an alternate option. This allows you to offer your produce at various levels that appeal to a variety of customers, regardless of their budget.
This pricing strategy is often utilized by grower-shippers that focus on offering a variety of options for a single type of produce.
Bundled offerings serve as another brilliant pricing strategy for growers. It’s a great pricing option to keep your inventory rolling, and to ensure you avoid having a particular product remain in storage and risk spoilage.
For instance, if you are not getting enough orders for a particular stock, such as carrots, you can stack them in a bundle with a fast selling stock, such as radishes, for a fixed price.
This provides benefits for both you and your buyers; you can rid yourself of inventory that would otherwise incur a loss, and your buyers will get a great deal on produce that they might otherwise have bought at full price.