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 categories (cooling, mobile computing, PTV and washing machines) in seven markets (Brazil, France, Germany, Great Britain, Italy, Japan, Spain).
Looking across the whole of 2023, we observe high price erosion in the TV category, while major domestic appliances (washing machines and cooling) showed lower erosion.
Overall, this reflects ongoing product dynamics in those categories, with shorter product lifecycles of TVs accelerating price erosion as products are aging compared to washing machines and refrigerators.
How to slow down price erosion to maximize revenue in existing models
Let’s take a closer look at TVs, then, and see how we would set about slowing down the price erosion within this category to improve sales revenue from existing models.
The key lies in assessing a brand’s portfolio of products 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).
We analyzed sales of TVs across the seven chosen markets, assessing those for which we have data on their price elasticity and price erosion. What we found was that a staggering 36% of the 2023 revenue came from products which are price inelastic, and yet suffered the worst price erosion.
We then applied modelling of the price elasticity of each product, allowing us to simulate the revenue impact of increasing the price of each 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 tap into this revenue potential? Get equipped to unlock the full revenue potential from your existing portfolio with our analysis of your products’ price erosion and price elasticities, 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%
