Price Management for Consumer Goods

consumer goodsThe most important aspect of price management for consumer goods is that manufacturers typically do not sell their products directly to the end consumers. Instead, retailers or other third parties are engaged as intermediaries. In order to set optimal prices, the manufacturers must take the behavior of the retailers into account in their price decisions. There are many forms for this, ranging from vertical price-fixing and resale price maintenance (under which the manufacturer sets both the wholesale price and the final price to consumers) to strategies for joint profit maximization. In general nowadays, the retailer can set the selling prices to consumers autonomously. When setting its own prices, the manufacturer needs to consider whether the retailer uses a cost-plus calculation to arrive at its selling price or behaves instead in a profit-maximizing way. The balance of power between manufacturers and retailers plays a key role in the implementation of prices. Different constellations and patterns of behavior can have strong effects on profit. We observe a pronounced trend toward multichannel strategies, facilitated by the Internet which poses unusual challenges for price management of consumer goods. These include price differentiation online vs. offline and the avoidance of channel conflicts.