Sell at recommended price, stay in business

Most of us are not motivated spendthrifts but we still give our best in avoiding downright retail exploitation. It is basic economics.

We know when to hunt for good bargains; we are smart enough to turn a craving for an expensive high-end packet of peanuts into a one-month supply of a 15-centimetre jaw-dropping roadside roasted maize and get by.

That is why it sounds ridiculous that one can buy a 500 millilitre drink at up to Sh400 while the recommended retail price (RRP) is Sh180. Unless we are talking about that new techie billionaire or old money retired businessman doing it for the thrill.

For most consumers, it does not make sense to buy taste expensively. But some bars would like you to believe otherwise and have made exorbitant pricing a practice.

We live in a willing buyer-willing seller environment, where supply and demand arrives at an agreed curve, but there is a reason why the RRP is clearly printed for all to see. It is because, with some sensible mark-up, it makes business sense for the bar and all of us to enjoy our tipple and even share a bottle or two of the froth with the friend who, for other reasons on that particular day, insists on a glass of water but maintain a sullen face.

Other countries have laws and regulations for such hyped mark-ups. Ever noticed that outlets that sell their products at way beyond the RRP only last for so long before dying out and a new one pops up?

The beverage industry runs on a three-tier system that includes the manufacturer, the distributor and the retailer. The manufacturer sells the product to the distributor, who, in turn, gets it to the retail outlets before consumers close the chain.

Understanding and navigating these three levels is of the utmost importance because it gives one a sense of what price, on average, a customer and a seller can expect the end product to be. For example, distributors can represent multiple brands and have sales representatives who go out with their product to the retailers.

As a supplier, you want to influence the distributors to move more of your products as opposed to other brands. You can put on incentive contests, do promotions with them or even go on store visits with the sales representatives.

As a distributor, you definitely want to focus on big, volume-driving retail accounts. As a retailer, you keep an eye on your costs while maintaining relatively low prices and high quality.

In the end, what ensures that a brand is sold is how well it is positioned as a quality product while priced fairly.

That is the bottom line. The end consumer only looks at how ‘quality’ it is and how fairly priced it is. Unfair pricing by bar owners often drives them and the well-meaning manufacturers out of business, in the process denying the eager customer their favourite product.

Unfair pricing does the whole chain an injustice and can only be addressed by pricing closest to the RRP. Above the RRP, a retailer needs to know some basic mathematics to survive.

As along as an establishment is well marketed and is known for quality, the closer they sell at the recommended retail prices the higher the volumes they push.