[00:00:05] Melissa Traverse: Hello, and thank you for joining. I am Melissa Traverse, Director of Community here at BevNET & Nosh, and I am excited to welcome you to the Nambase podcast, a podcast built to help CPG owners and operators navigate growth challenges and grow more profitable businesses. Be sure to check out nambase.com, BevNET's platform made for the CPG community, where you can find this episode and so much more. Today we are talking about a question most brands will face in their lifetime, and that's when sales are down, what should you do? One answer that's often considered is to lower the price. But in today's market, especially for premium brands, that can be the wrong move. If the real issue is awareness, positioning or something else, discounting may not solve the problem and it might actually make things worse. Inflation and the current economy are affecting the way consumers shop, but it's not affecting everyone in the same way. Some shoppers are increasingly constrained and looking for ways to stretch every dollar. Others are still willing to pay more for products that feel meaningfully better, more convenient, more enjoyable, or more connected to how they want to eat and live. That split is creating a market where value brands and premium brands can both win while the middle gets harder to defend. To figure out exactly what that means for brand strategy, I am joined by Scott Sanders of Carbone and Jeff Levering of Consumer Marketing Group. Scott brings the operator perspective from a premium brand with a clear value proposition. And Jeff brings deep expertise in pricing, trade spend, promotion strategy, and consumer segmentation. Well, Scott Sanders Jeff, thank you so much for joining me today. I'm really looking forward to diving into this conversation, especially with two people who know this topic so very well. I'm going to start with a couple of introductions. Scott, let's start with you. You've been in consumer packaged goods for A long time, you've been the co-owner of a brand, you've been on the broker side, you've been on the brand side, pricing and analytics. Tell us a little bit about what you're up to now with Carbone.
[00:02:14] Scott Sanders: Yeah, so glad to be here, Melissa, and this is such a great topic. So my role at Carbone focuses on leading the business intelligence function, which is wide ranging and really everything to do from analyzing supermarket scanner data to doing market research to really wrangling our own internal data. And we think a lot about, as a super premium position brand, how do we make sure we're delivering on the promise that we feel our consumers expect from us?
[00:02:43] Melissa Traverse: Well, this show came from one of your LinkedIn posts. And for all of our audience, if you're not following Scott on LinkedIn, you definitely should because you share some really fantastic information there. Your LinkedIn post about the economy and inflation, like I say, helped spark this discussion. You're looking at this from inside Carbone. How does your role day to day shape the way that you're thinking about value pricing and whether consumers are still willing to pay for premium products?
[00:03:12] Scott Sanders: Yeah, well, the insight actually came quite a while back, going back to the COVID crash in 2020, six years ago already, if you can believe that, and hearing about the theory that the recovery might come in a K shape. So some people might recover better than others in the economy at large. And I think there's a lot of data to show that that's exactly how it played out. And you have consumers who have recovered very well and some who did not. And I think one of the side effects that you see coming from that is that super premium brands that are delivering a very strong value proposition, and I consider Carbone to be one of those, are doing very well. And some of those closer to the value end of the spectrum are also doing very well, but primarily store brand. And your question was about like, how do we think about that at Carbone? And specifically in my role, you know, more broadly within the company, we make sure we have like a really, really good quality product. You know, the brand is in its fifth year and was established by chefs who've worked in Michelin-starred establishments and who have just such a high worth ethic, highest standard for the quality of ingredients that go into the product and the process through which we make them. But on my side, it's kind of monitoring to make sure that we are continuing to perform well in the market, that consumers are valuing the quality that we do put into the product, and that we're supporting our retailers well.
[00:04:50] Melissa Traverse: Carbone has been around for a while and in my opinion, certainly from where I sit, it is established as a premium brand. Most of the brands who are in the non-based podcast audience are positioned in a premium way. You know, typically they're the brands who you see at Expo West. They're either on the shelves of Whole Foods Market or would like to be. Is it safe to say that they should all consider themselves a premium brand? How do you know whether you are a premium brand or not?
[00:05:18] Scott Sanders: You have to ask consumers. You know, I think that's really what it comes down to. Do people perceive that premiumness within the brand? You know, and we, you know, internally, like we look at the pasta sauce category and we've segmented brands into different value tiers. And price is a component of that. Certainly the more expensive brands, you know, gravitate toward being super premium or premium. And then the other segments we look at are kind of mainstream in value, plus private label within its own segment. We assign those tiers partly qualitatively based upon how we feel consumers react to those brands. It really is, I think, based upon how consumers feel about those brands. I think there are a lot of emerging brands that I've observed over the years that end up on shelf at a very high price. And part of that is because they need to charge that much, because when you're subscale, it's very expensive to go to market. They may be offering certain attributes that they feel are valuable to consumers, and there may be only a small slice of consumers who agree that those attributes are valuable. So yeah, super premium price, but super premium perception, that's a different thing.
[00:06:30] Melissa Traverse: Well, we're going to get into pricing and perception a little bit later on in the conversation. Jeff Levering, thank you so much for joining us. You have been at brands like Del Monte, Wholesome Sweeteners. You're now at Customer Marketing Group as the Chief Data Scientist of Pricing and Trade Strategy. Can you tell us a little bit about yourself and what that role means at Customer Marketing Group?
[00:06:53] Jeff Levering: Yeah, so thank you for having me on. I've been doing pricing and promotion work for going on 25 years now, being able to work at companies like Del Monte and Wholesome Sweeteners, where we see a difference in pricing responsiveness from the lower end of the pricing spectrum to the higher end. So 20 years, I've seen a lot of different brands work with OPP, private label, doing everything from pricing analysis, promotional analysis, and distribution analysis for every channel up in the US.
[00:07:21] Melissa Traverse: Well, when I was talking to Scott about this podcast conversation, he said, we have to have Jeff on. And I'm so glad that he did. Can you explain how you're viewing the current state of inflation and exactly what a K-shaped economy, that bifurcation, means for food and beverage brands?
[00:07:40] Jeff Levering: One thing that I always recommend for brands in the way I view the categories that I work in, which is there's not an average consumer. There are a base of consumers underneath, and it varies based on occasion and on their liquidity. There are income-constrained consumers that during the holidays, they might buy premium brands. when they get a paycheck, they might splurge on a functional beverage. So the way we go to market, a lot of times the way I view it is, if you're utilitarian brand, so if it's something that you need to have, you're probably going to be lower price, more price sensitive, promote a little bit more. If you're more, as Scott Sanders, attribute-led, it's more emotional-based, it's about trust, if you're in functional beverages, if you're in something like pet food or baby food, some people differentiate the two, then in those cases, it's not about promotion, it's about having that attribute and you can be higher price and you don't need to promote as much.
[00:08:40] Melissa Traverse: And is it right to assume, it seems obvious, but the folks who are at the lower end of the K-shaped economy, is it safe to assume that they are the ones who are getting squeezed the most? Or is the squeeze happening on both sides?
[00:08:55] Jeff Levering: I think for the most part, at least from the data I see, it's mostly from the lower income. And so as you have a middle income that becomes uncertain about the economy, then they're going to shift down. And for, like I said, the utilitarian type products, they're going to shift down and you're going to see more value-driven behavior, trade down, promotional buying, versus if you're at the upper income, which is a smaller part, just by definition of the economy, they're not going to see a big change in the way they go to market.
[00:09:26] Melissa Traverse: You know, in our preparation for this discussion, Jeff, you mentioned Engel's law and use that to help explain the difference between what lower income and higher income shoppers prioritize. Could you explain that?
[00:09:39] Jeff Levering: Angle's law is basically saying that the higher income somebody becomes, the less they spend on their overall food purchases. When we think about the average consumer, which I just said I don't like looking at, we have to understand that's made up of a bunch of different people. And so at the upper income, they have a lot more disposable income to spend on things that is more functional, more useful for them. Whereas the lower income, which on the other end of Engel's law, which is saying the less they make, the more their income is spent on food. So they're going to be more constrained on what they can buy. So there's going to be less impulse purchases. And if those are going to occur, they typically occur around paychecks.
[00:10:20] Scott Sanders: So Jeff, you mentioned OPP, which I bet is something that not everybody knows what that means. It stands for opening price point. And in one of my past lives, I worked with my family's business, which produced an OPP chocolate syrup brand called Bosco. And in many of its markets, it really was the opening price point in the category for a brand. And you were also talking about the trade down that a lot of consumers in the middle are doing. And I don't think that a lot of them are going to the OPP brand right now. And I see that in the category data that I can see in pasta sauce and some other adjacent categories where you know, I think where people are trading really isn't a private label. For splurges, a lot of people do, you know, like we can see in some data that we have people trading to Carbone from some of the mainstream brands, which was surprising to me that some of that was happening. But I think to your point, you have people who might for a special occasion or say to trade from a restaurant occasion, you know, to go out to a restaurant, instead they'll buy a jar of expensive pasta sauce and make a nice meal at home. And I think the other place that they traded is the private label. And I think private label is doing well because retailers are close to their consumers. They're paying attention to what they need and what they value and have built up a different level of trust than some of these mainstream brands, which have taken costs out of their products. They've downsized and done shrink inflation. And that level of trust is not what it was a generation ago.
[00:11:51] Jeff Levering: The special occasion one is the one that always really jumps out to me. There is also the case that you switch between what you eat and what you have relationships to. People are going to have to buy food at some point. There's a really good book that I always recommend, which is called How the Other Half Eats. And it talks about moms that actually eat the leftovers of their kids. And so when we talk about the really income-constrained consumer, as professionals in CPG, we typically look at just raw data and say, oh, well, this sells well, so I need to get this in more distribution. And we forget sometimes that there are consumers that are making decisions at the point of contact, at the shelf. every day and they have different stories. So, one day they might have that full paycheck or they've gotten a new job and they're going to celebrate with some carbone. Other days, it might be the end of the month, their car broke down and they can't afford that and so it's just pasta with some salt.
[00:12:53] Scott Sanders: Yeah, there's one brand I worked with in the past that would send out special merchandising teams at midnight on the last day of the month so that when benefits would replenish, people would actually line up in stores with carts to check out at midnight when their benefits replenished. And I think for a lot of us who are working on brands, we don't see that. It's invisible to us. But I think you make a really good point. You know, it's something that is worth paying attention to, especially for those who want to compete, you know, to win over some of the mainstream people who some of the mainstream brand buyers who might be switching.
[00:13:31] Melissa Traverse: Scott, you mentioned private label, and certainly that's an area we see growing, we hear about it growing. How should non-private label brands highlight their value when they are competing directly against private label on shelf? I mean, a brand like Carbone, certainly if you want to treat your family to a nice meal and buy a bottle of carbone, that's great. But you guys need to sell pasta sauce. It can't just be a special occasion purchase. How do you folks over there thinking about competing with private label?
[00:14:05] Scott Sanders: I don't think we compete directly with private label. It's a different type of purchasing occasion. You know, like we were talking about with those large types of occasions, whereas I think a lot of the folks who are purchasing the super premium types of brands are either those who are in the middle or on the lower end of the K-shaped recovery and might be wanting to do something special, or they're on the upper end and that is their everyday thing. And it might even be a trade down from say eating out on a regular basis. For those who have brands that are competing more for the middle or the lower end of the K-shaped recovery, I think it is having a very clear value proposition. And I think a lot of those mainstream brands have lost that. One brand that I've heard is doing well is Arm & Hammer in laundry detergent. And they have, I think, the heritage of the baking soda inclusion that I think is valuable to people. And there is some recognition amongst consumers that that adds value, but they operate at a value price. you know, and some places that they may end up, you know, around OPP or near OPP. And that's something that I think, you know, brands that are going for value going for mainstream could could mimic something like that.
[00:15:27] Melissa Traverse: That is such an interesting example. Jeff, I know that you certainly work with and see so many brands. If a brand is sitting between being cheap and more of a splurge, how should they figure out whether they have a real path forward to call themselves a premium brand and how should they think about pricing and promotion?
[00:15:49] Jeff Levering: If you play in Functional Beverage or in one of the pet baby foods, that's very clear. There is going to be a premium and there's going to be a private label. Selfishly, I always like looking at just the elasticities. Premium brands have wider bands of what we call indifference ranges, which means that Sometimes the small changes or big changes in price have really no impact to their velocities. As you move further down in the price ranges, you start seeing bigger responses to volume for changes in price. And what that tells you is it's probably that you have consumers that are more price sensitive and you're sitting closer to the value end. And so one of the things that we talk about in the industry a lot is called thresholds. So a threshold would be a place like, classically, it's 99 cents. If you go over 99 cents, you see these large drops in volume. We don't see that for premium Brad Avery much, but we still see it a lot for value brands. And so part of that is what's called an internal price reference. So for a lot of us, if we're shopping, $5 on a product in the grocery store is not a lot. For some people, it's a lot, especially when you add up and you have high school boys that are eating a lot, right? So for both brands or for both ends of the spectrum, whether it be value or premium, you need to be economically efficient. And because over time, you know, we have inflation, it's not going away. And so for the premium brands, like I said earlier, you don't need to promote a lot. It's more about trial. It's about awareness. It's shallow promotions. a tag every now and then, even a lot doesn't matter. For a value brand, I do allow because for that you're trying to retain those consumers, you're trying to have them keep coming back. For those promoting deep and promoting often if you can afford it is great. It doesn't have to be as much, but deep really works well for pantry loading.
[00:17:48] Melissa Traverse: How is a brand able to figure out what their pricing thresholds are? I think that, you know, depending on what happens with the economy, if we do see prices continue to increase, then brands might be in a position where they were a few years ago, where they were increasing prices. And that may be, that may be happening again. What's the best way as a brand operator to figure out what your thresholds really are?
[00:18:15] Jeff Levering: So what's really nice about the United States and about CPG in general is we have a lot of data. We have a lot of retailers. We have a lot of products in market. And if you do walk the aisles, you'll see a lot of brands will end up congregating around thresholds. And the reason they do that, and a lot of CPG executives don't like hearing this, is the retailers are actually pretty smart when it comes to this. they see when they go over a certain price point, volume drops, and you'll have retailers push back when you cross over those price points. And so one of the things for value is your whole reason for being on shelf is to turn fast. So a lot of retailers would take lower margins, whereas the premium brands, they move slower, so they require higher margins. And so a retailer will tell you very quickly whether or not, hey, you cross this, you're going to lose volume. And if you don't have your own data, data is very expensive, and you can't do your own analysis, the best is just to ask, you know, what are the perceived thresholds in this category? A lot of retailers actually do know.
[00:19:17] Melissa Traverse: Scott, how would you, as someone who's working directly for a brand and certainly has before, how would you think about taking price increases and what data points are you monitoring to understand whether or not the time is right and to understand how much?
[00:19:36] Scott Sanders: Yeah, that's so carefully would be the short answer. And, you know, I think in conjunction with sales agency or broker support that you have to have their sense of what's going on and with, you know, assessing consumer tolerance and willingness to pay, ideally. There's some accessible, more accessible today than in the past, but relatively accessible ways to do survey work to understand, are consumers willing to tolerate? Are they willing to pay? beyond where they are now and what impact will that have on volume. And with super premium brands in general, not specifically Carbone, but in general, I've found that consumers are, similar to what Jeff was saying, surprisingly willing to pay more than you would think. And in past work, I've tried to use some of that research to give brand operators confidence that they can charge more, especially if it means that they might, you know, flip over a threshold from, say, kind of neutral to negative profit to flipping to making money. It's probably, you know, there may be some volume loss, but it's probably worthwhile if you can be on the right side of that equation.
[00:20:57] Jeff Levering: we hear a lot about shrinkflation and about how consumers don't like shrinkflation. And then we have this, what we call the say-do gap, what people say versus what they do. They say they don't like shrinkflation, but when you shrink the product and keep the same price point, you typically lose less volume than if you just take a price up. And the elasticity, which we can measure how much volume you lose for the change in price, The impact of just shrinking your size typically has a third to a quarter of an impact than if you were to take your price up.
[00:21:32] Melissa Traverse: I'm sure you've seen brands who do take a price increase and all of a sudden they realize whatever it is, maybe it was too high, maybe the value that they perceived they had wasn't actually the value that they had. What does a brand do when they take a price increase and then suddenly realize it wasn't the right move?
[00:21:54] Scott Sanders: I'd almost argue about the opposite. Something I've seen with some brands recently is some brands actually cutting price and possibly not having the impact that they wanted. So yes, some short-term impact on volume, but without any fundamental change. And this is talking about kind of the middle of the road brands, mainstream middle-tier brands. Them cutting price, not changing anything about their value equation, And, you know, they didn't cut enough to go down to being like more competitive with private label for it to be, you know, to be competitive on price. And the value didn't change. And it wasn't enough of a cut to be that meaningful to consumers. I think that's probably as dangerous as raising price and not having the desired impact. And I've probably seen more of the price cut problem recently than the other way around.
[00:22:57] Jeff Levering: On that note, I will say I have seen a few brands that have gone too far. When they try and buy it back down, which is very difficult, they don't get all the volume back. Once you lose a consumer, there's a really good chance that at least three-fourths of them, up to three-fourths of them actually, you might leave forever.
[00:23:17] Melissa Traverse: Jeff, private label unit growth is rising, and private label isn't always the lowest-priced option on the shelf anymore. What does that tell us about how store brands are evolving?
[00:23:30] Jeff Levering: So some of the store brands are actually becoming mini brands. And so I live in Austin, H-E-B, their private label brands are essentially brands. People will talk to them the same way they talk about national brands. And so for that reason, their quality is coming up. They own the shelf. We're approaching almost European style levels of private label expansion. The difference here is brands pay so much that while there is a consumer movement, especially at the lower income, the income constraint to private label, I still don't see brands going away in the short term and consumers will still use them for internal price anchors, as well as for funding the retail operations.
[00:24:15] Melissa Traverse: We talked a little bit about how holidays can create an opportunity for brands to be the choice versus a private label choice because it's a special occasion. Have either of you seen any ways that brands are able to hold on to that customer after the holiday is over? because the value that they offer the customer is so important to that buyer that they decide it is worth paying a couple of dollars or whatever it is more. Have you seen any tricks that brands use in order to hang on to those customers who trade up for special occasions?
[00:24:50] Scott Sanders: I think having the right quality of experience for the consumer and the right value proposition makes all the difference. You know, I think about the Carbone product where when we have significant amounts of trial, when we measure and see that there's trial going on after a certain amount of time, we see that that repeat really happens. And I think it's because of the quality of the product. what people don't see. And I'll talk a little bit about the process, because I think it's kind of fun. It's interesting to hear about the tomatoes that we source are packed in small cans, number 10 cans, instead of vats. Our competitors put them in large vats. And that's because it actually preserves the integrity of the tomatoes when they get cooked. Going to those larger containers would save 10 to 15 minutes of process and cook time, and it also requires quite a lot of can openers. It requires a whole process around opening up all these small cans that is annoying to deal with and you know, adds cost and the mainstream brands won't do that to improve the quality. But given the folks associated with the Carbone brand who have, you know, this Michelin level restaurant background, that's what they insist on. You know, we prep, we cut the onions, the garlic, we mince the garlic, you know, at the time of production, not receiving them either individually quick frozen or pre-chopped. They're delivered whole and they're shot right on site before cooking. And we hand-strip basil as well, again, right before cooking. And it makes for a quality of product that you can notice is different. So that's a long way of saying, like, you provide a great experience, they're going to come back.
[00:26:36] Melissa Traverse: And I would certainly think that around the holidays or whenever you see those spikes that your marketing team is leaning way into differentiators like that on social media and other forms of promotion to give consumers a reason to hang on to that premium product.
[00:26:56] Scott Sanders: Yeah, and I honestly think that's part of the experience. You know, the connections that they have with these big influencers who actually come and seek us out and want to participate. You know, names like Alex Cooper, who's collaborated with Mario Carbone, the namesake of the Carbone product and the Carbone restaurant. Olivia Wilde and Chase Stokes and Kelsey Ballerini. And LeBron James, I know him. He's worn our sweatshirt. You know, he's been spotted wearing a sweatshirt. And, you know, Post Malone sought us out to, for example, to set up a rigatoni truck at one of his events. That's somebody I've heard of as well.
[00:27:39] Melissa Traverse: I want to go back to premium pricing because almost all of the brands in this audience are most likely positioned as a premium product. Jeff, what are some of the warning signs that a brand that may show that a brand thinks it's premium, but the shopper doesn't? I mean, obviously the sales and velocity are one, but is there anything else that the brand can look at to understand whether or not they are being perceived as a premium product?
[00:28:08] Jeff Levering: One of the things is actually promotions. So I look to see if on promotion, you see a very big spike in lift. If you see a very big spike on shallow promotions, that's typically saying that, hey, you're probably not getting the right value on an everyday basis. And so for those reasons, I typically say, we need to do something about this. Some of it is just communication. So a lot of premium brands, what they suffer from is trial and awareness issues. And so the more they can create more trial and awareness and justify the being, you know, why they justify the higher pricing, you know, whether it's, you know, carbones better, you know, opening number 10 cans, or it's just better protein or whatever it is, making sure they communicate because what a lot of premium brands forget to do is to communicate to the consumer of why that price needs to be, you know, is needs to be that high.
[00:29:01] Scott Sanders: You were effectively talking about measuring sales, Jeff. And I know a lot, you know, and to your point, Melissa, that a lot of the brands are in the premium space and maybe the emerging space who are part of this audience. And I know that they may not be purchasing data from Spins or NIQ or Sarkana, which are the common data sources. I just want to share some creative ways to get data for those who are working with certain players in the industry. And probably known for some people listening, but for those who don't know, You know, if you're dealing with Whole Foods, they make data available at no charge through their portal. If you sell through Kahee, they make data. It's messy data, but it's good data. Kahee makes depletion data available at no charge to people who work with them. And UNFI provides data. There is a cost to it, but it's not quite what it would be if you were to go to a Nielsen or Cercana. And again, that's depletion data that, tells you what they're sending out to stores and gives you a pretty reasonable read on the retailers that draw from those distributors what they're selling through.
[00:30:19] Melissa Traverse: Jeff, are there any resources that you find yourself using that folks who are operating brands out there could also use?
[00:30:26] Jeff Levering: In addition to the ones that Scott mentioned, I also look at their Amazon data. I've had brands where they get their zip code, their actual addresses for where they're shipping and overlaid that with IRS data and can find, hey, this sells really well in high income, high tax return zip codes. Guess which stores I'm going to go target? Right. And so that's actually a really good thing. And then I actually use a lot of Google Trends. Google Trends is really interesting and giving telling me if something is trending up or down, you know, and sometimes it's down. And so then that knows the marketers. Again, I'm not a marketer. I deal in the in the consumption data, much like Scott is to tell, hey, we need to do something to change the social media game that we're running right now.
[00:31:12] Melissa Traverse: Jeff, you gave a really good example of how brands can understand whether or not their consumer thinks of them as a premium position product by their promos and their promotion results. Are there any other probes or tests that brands out there can try to drill down and diagnose whether the issue for why they aren't selling the way that they want to is in fact a pricing issue, an awareness issue, positioning, channel, pack size. I'm just kind of throwing out a bunch of ideas there to see if you have any methods that brands can use to dig in a little bit.
[00:31:48] Jeff Levering: The first thing I actually look at a lot of times also is to look at household penetration. If you have a very low household penetration, many times reducing the price isn't going to help because you don't have a broad enough consumer base that's even looking, right? So if you can get, usually a lot of the marketing firms can get some of that data, you can buy some data on your panel. How big is your household penetration? What's your buy rate? Is that growing or not? I usually recommend as a pricing guy, this kind of hurts a little bit, but my first recommendation typically is to go after awareness before you just adjust price because adjusting price, if they're not looking for it and they just don't see it on shelf, changing the prices is going to help.
[00:32:33] Scott Sanders: If you do have access to Nielsen or NIQ or Cercana or Spins data, there's some measures that you can do some creative math with to do what's called a sales decomposition analysis. And that effectively gives you insights into the four P's of marketing in some way. My sales might be up, might be down. Is that because of distribution? You know, because I have either lost doors or gained doors or breadth of distribution? Is it because my, you know, is price a factor? Is promotion a factor? And, you know, and kind of baked into a place which is harder to measure through that data, but you could say assortment might be a measure for that. But I think that's a really good diagnostic if that's what you're going for, to see what's driving it. Because sometimes you might have a brand that's, say, doing very well, and it could be simply the result of them having gotten a lot of new distribution all at once and not necessarily having strong velocity that's coming along with it. So after the impact of all that new distribution is over, they could struggle. Or vice versa, the other way. A loss of distribution at a key account might make the business not look so hot, but there might be strong fundamentals in terms of velocity, pricing power, and so on that are underneath that.
[00:34:04] Melissa Traverse: I'm also curious to hear about how you two think about channel strategy. We hear that more consumers are shopping at places like BJ's, Costco, Aldi, Walmart, but there are certainly brands, more established brands, who they may be on the shelves of Whole Foods Market or even Erewhon, and they might also be at Costco. Like I think of, you know, Poppy or, you know, brands like that, for example. How should brands think about pricing and promotion by channel?
[00:34:38] Jeff Levering: Depending on what category they're in, you know, there are a bunch of different channels. If you're in C store, convenience stores, those typically not price sensitive, you can pretty much price as high as you as you want. If you're as you mentioned, Erewhon, as high as you want, it's not a problem. Costco, they're going to have certain thresholds they're going to want you at with their 14% margin. I will typically recommend to pick an anchor customer and it's got to be a big one. You know, this has to be a Walmart, this has to be an Amazon or a Costco Sam's and say, this is where you're going to anchor all your pricing and then work off of there. So, your Aldi's and your Dollar's would be below that, and then you move up to your Mass, your Target, then your Grocery, and then your kind of super premium Naturals, and you get to the Sprouts, the Whole Foods of the world. So, most brands, if you're premium, shouldn't be playing in dollar. You probably shouldn't be playing in convenience. You should be playing in the Whole Foods, in the Air Ones. You're gonna have a less of a store sample. The store universe for the natural and independence is a lot smaller than the dollars in the drugstores. It sounds really enticing to, hey, I can get into thousands and thousands of stores by getting into a CVS or Walgreens or Dollar General, you know, but those are really high cost retailers. And so I don't play that game if you're a premium manufacturer.
[00:36:07] Scott Sanders: Yeah, the framework that I really like, it's called OBPPC. It's You know, something originally pioneered by Coca-Cola stands for occasion, brand, pack, price and channel, which I think is effectively what you just discussed, Jeff. And really, I think one of the key drivers of that is occasion. Like, will the consumer of a super premium product have the right kind of shopping occasion or usage occasion to buy, you know, a meal solution at CVS? Probably not. And maybe that means for that channel, you don't have an entry that you offer there. But for club, it might make sense for those who want to have a stock application. Some of the retailers you mentioned are ones that do have strong own brand offerings. And I think it goes right back to where, you know, there is this splitting in the aisle where it's not about trading down, but it's trading to the value proposition. You know, the super premiums that many of which do well in some of those alternate channels, because I think they have a very strong value proposition. And then store brand, which, again, I think has a very strong value proposition because the retailers are so close to their consumers, so close to their shoppers. And it doesn't mean that they're cheap, that it's cheap, but it's acceptable quality, lower price, and there's not a lot of risk in the eyes of a lot of consumers in going there. And I think that's especially true with some of those strong retailers that you mentioned.
[00:37:41] Melissa Traverse: If we're thinking about pricing thresholds, Jeff, I think you mentioned Amazon. As far as I understand, Amazon now needs to be the lowest priced retailer or as low as any other retailer that there is out there. I mean, I guess it just is what it is, but how does that shape your pricing strategy when you know that such a large retailer demands that they have the lowest price that you're offering anybody?
[00:38:13] Jeff Levering: So it's easier if you're just starting out because you can start your price pack architecture from scratch and build it so you can, there's all these rules out there about where Walmart wants to be priced, where Amazon wants to be priced, where now Sprouts wants to be priced. So all these different retailers have their rules about how they want to be priced relative. If you're already in market, it actually becomes a distribution question first. that says which UPCs do I want to put in certain channels so that I don't have this easy price comparison, whether it be variety packs, whether it be odd sizes. In some cases, it's just a unique UPC that can't be mapped between different retailers.
[00:38:55] Scott Sanders: which you see a lot like in electronics at Walmart, for example, where the SKU has a W at the end, and it's the same thing available somewhere else, but it's just for Walmart. And it probably is slightly different to make it cost a little bit less, but it makes it really tricky for anyone to compare the products in an easy way.
[00:39:21] Melissa Traverse: I had another question about promoting and we talked a little bit about pricing elasticity. How can brands promote enough to drive trial and awareness but not train their consumers to be waiting for a sale so they can stock up and they're only buying you on promotion?
[00:39:40] Jeff Levering: So I'm going to push back a little bit about training consumers. That is one of those words that I've heard my entire career. There are very few categories which I would say the consumer is trained. Now, that's not to say there aren't consumers that only buy on promotion. In fact, we know that a lot of people only buy on promotion. Promotional buyers are typically light purchasers. They're not your heavy users. Your heavy users are going to be buying on and off promotion. They will pantry load. But as a manufacturer, I want pantry loading. I want to be all over your pantry, in your garage, in your refrigerators, because that's brand blocking for me. I want them to open up and keep seeing my brand. What I tell brands typically, especially if you have low household penetration or awareness, is seasonality is driven by occasions. Holidays, Thanksgiving, Christmas, Memorial Day, July 4th. you need to promote when people are in the stores. If that's the first week in January, it's due the first week of January. If you're a hot dog, you better be on July 4th and maybe the week before, right? So, you know, just like turkeys, turkeys, you promote those in November, you don't promote them in July, right? So, I'm always, be where the consumers are. And going back to like, you know, there's to, you know, pasta sauces, I want the premium brands to be on promotion when everyone else is on promotion, if you have low household awareness. And the reason is, and I recommend this for every founder, for every brand manager, for anyone in CPG, is to walk the shelves, particularly Walmart on Saturday mornings on the cereal aisle. If that's chaos and there's shelving is all messed up, things are moved around, there's out of stocks, I wanna be on promotion so that yellow tag entices somebody to try it. To say, even if it's confusion, pick up this brand and try it because if they see that this product tastes a lot better than something else they would have bought because it was out of stock, I just got a new consumer.
[00:41:46] Melissa Traverse: Well, I thank you both so much for sharing such useful information. And in closing, I wanted to ask you each the same question and that's if you know for the brands who are out there listening to this and realizing that they may be stuck between a value item and a splurge item. What's the first question or what are some of the first hard questions that that leadership team should be asking themselves to be able to analyze what's going on and how they get to that, you know, either premium placement or, you know, recognize that they really are a value product?
[00:42:26] Jeff Levering: So one, you have to pick a lane. You can't be value and premium. That confuses the consumers on what you are, what value you're offering. So my first question is, are you actually better than everything else in the category? Are you competing with the best of the best? If not, you might want to lower your cost, be economically efficient, and then sell as much as you can that way. And if you're premium, add more attributes, justify that higher price, and put all your social media behind it?
[00:42:57] Scott Sanders: There is clearly demand for premium products. It's more conditional than it was a decade ago. If a shopper understands what they're getting, is it better taste? Is it better ingredients? Is it better experience? a better value. And value doesn't have to mean cheap. Value means that the price is justified. That is where a brand can deliver. And the brands that are premium, like a Carbone, those brands need humility, too. The shopper is really the one that decides whether that extra splurge is worth it. And as a brand operator, it's for you to understand your consumer well enough to know if they value what you're bringing to the market.
[00:43:48] Melissa Traverse: Scott Sanders, thank you so much for joining us from Carbone and for bringing this topic up in the first place. Jeff Levering, thank you so much for joining us from Customer Marketing Group. It was such a pleasure to have you and all of the insights that you shared. For everybody else out there, thank you for listening to the Non-Based Podcast and we will see you next time. That concludes another episode of the Nambase podcast. If you enjoyed the show, please leave us a review and follow us on your listening platform of choice. You can also watch and listen to past episodes on nambase.com. And don't forget to join our Nambase Slack at slack.BevNET.com for company updates, industry networking, and community discussions. See you next time.
