The Children's Beverage Group (TCBG) Message Board

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Non-Tech : The Children's Beverage Group (TCBG)

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To: Steve Cox who wrote (2267)	1/7/1999 3:32:00 PM
From: RJC2006	of 2452

I've done retail too. Been in involved in the point of sale display, advertising, strategy etc. Normally, new products are given a price edge to begin with. It's used to generate interest. As I said if you're wondering what happened to the other 15% it could logically be assumed that Walmart has nothing to gain by a large price undercut directed toward the customer. It would stand to drive customers exclusively toward the lower priced product. They don't want to do that. Think of it this way... 1000 units @ 1.00 = $1000 900 units @ .75 = $675 + 100 units @ 1.00 = $100 totaling $775 as opposed to... 800 units @ $.85 = 680.5 and 200 units @ $1 = $200 totaling $880.5 Still a bit off from the 1000 units at $1.00 but tolerable for a product introduction. All new products have a cost of introduction that comes with them. Of course this is assuming that the margins between the two products are identical. The trick is to carefully balance the new product's introduction in such a way that it doesn't shatter the competitive products altogether. Lower prices do generate sales but if they aren't carefully rendered they can work against a retailer. The best possible world is to generate MORE sales rather than competitive sales. Then you are free to keep prices of competitive products stable. This is easier to accomplish with a 10% differential than a huge differential of 25% or more. This way there is a better chance of a customer retaining the old product and picking up the new product rather than them abandoning the old product altogether. That's why typically retailers don't like to pit similar products against one another unless their price points are relatively similar. Initially, 10% is about the highest possible margin acceptable for comparable products. TCBG relies on Walmart's orders and even if TCBG gives them a ridiculously low price of 25% (or more) lower than a competitors, Walmart may not find it beneficial to pass that on to the customer for the reasons I've stated. What it does is entice Walmart to buy the TCBG product line because of the margin but it doesn't mean Walmart will turn around and create havoc on the competition by undercutting too much. I reiterate, the role of a retailer isn't always to sell the "best" product but the most product at the highest price.

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