Unlocking the full revenue potential of your existing portfolio
It’s a challenge faced by every manufacturer in Consumer Tech & Durables. You launch a product onto the market, it does really well… but, as your rivals bring out fresh products, you find yourself forced to lower the price of your own product to maintain its sales momentum. In the worst cases, this cycle could see your prices and margins being driven down, but without the desired impact on sales volume.
The million-dollar question is this: can you unlock potential to increase revenues and margins by avoiding a one size fits all approach to your product pricing strategy?
In this article we will show you how you can increase revenue by identifying price inelastic products that are currently wrongly fueling your price erosion.
Moving beyond month-on-month price changes
In order to properly understand price erosion, we need to move beyond focusing on monthly changes in the average selling price. Instead, we look at the long-term trend line derived from those monthly changes. This helps us to assess the rate at which products are devalued as they age in their natural lifecycle
We scrutinized price erosion across four product categories (cooling, mobile computing, PTV and washing machines) in seven markets (Brazil, France, Germany, Great Britain, Italy, Japan, Spain).
Looking at the whole of 2023, we observe high price erosion in the TV category across all markets, while major domestic appliances (washing machines and cooling) showed much lower erosion in nearly all markets.
Overall, this reflects ongoing product dynamics in those categories, with the shorter product lifecycles of TVs accelerating price erosion since products effectively age faster, compared to washing machines and refrigerators.
How to slow down price erosion to maximize revenue in existing models
The key lies in assessing a brand’s portfolio and identifying those that are both:
- price-inelastic (if you increase the price by +1%, the volume of sales goes down by less than -1%)
- have a high price erosion rate (stronger than the market average).
Across all seven chosen markets and four product categories, we found that a staggering 29% of the 2023 revenue came from products which are price inelastic, and yet suffered the worst price erosion.
Breaking that down by product categories, TVs stood out as being the most addressable, with 36% of their sales value coming from items that are inelastic products with higher-than-average price erosion.
Let’s take a closer look at TVs, then, and see how we would set about slowing down price erosion to improve sales revenue.
For the inelastic TV products with price erosion that is faster than the market average, we simulated the revenue impact of stabilizing the price of each product to match the average price erosion for that market.
The result? An astounding potential to unlock additional revenues of 107 million Eur. compared to the 2023 revenue for total TV sales across these seven markets, that represents an overall revenue increase of 0.6%.
Are you ready to unlock the full revenue potential within your own product portfolio? Get equipped to master avoidable price erosion, powered by gfknewron Predict.
Footnote
Definition of terms:
• Price erosion: the average trend line derived from monthly changes in average selling price.
• Price elasticity: the change in the behavior of buyers and sellers in response to a price change for a specific product or service.
• Inelastic product: if you increase the price by +1%, the volume of sales goes down by less than -1%
