Insight
At a discounter, you don’t negotiate price. You negotiate the price point.
By Thijs Terwiel
Most suppliers walk into a discount buyer with a cost price and hope for the best. That is the wrong order.
Discounters work with a ladder of fixed shelf prices, for example €0.99, €1.49, €1.99, €2.99, €3.99, €4.99, €7.99 and €9.99. The shopper never compares your product with your recommended retail price elsewhere. They compare it with whatever else sits at the same price point in that aisle.
Start at the shelf and work backwards
- 1.Pick the price point. Example: €4.99.
- 2.Strip VAT. At 21%, that leaves €4.12.
- 3.Take off the retailer’s target margin, calculated on the selling price (not as a mark-up on cost). At 40%, your selling price is about €2.47.
- 4.Check whether your landed cost plus your own margin fits under €2.47.
If it doesn’t fit, change the product
The answer is rarely “drop your margin”. The answer is usually to change the product:
- fewer pieces or a smaller pack, with the same value to the shopper
- smaller or simpler packaging
- a display-ready unit that saves the store handling time
- a shipping mode that suits the retailer: FOB or delivered
Two lessons I keep relearning
The jump between price points is brutal. Moving from €4.99 to €5.99 does not simply cost you a fifth of your volume. In my experience it can cost far more, because you now compete with a different and often stronger set of products.
And a discount version should be a discount version. If the exact same item sits at €9.99 at a discounter and €14.99 at a specialist retailer, you lose the specialist. A dedicated specification protects both channels.
Price point first, product second. Get that order right and the negotiation gets a lot shorter.