As consumers sip on new prices, profit rises for a fine wine importer.
PriceGain helped a major wine importer implement a new pricing strategy that increased profits and defended market share simultaneously.
Situation: Increased competition adversely affected profit.
Our client imports and sells fine wines. They were experiencing increased competition in a key product category resulting in shrinking market share and falling profits. Pricing was done ad-hoc and our client did not understand how much customers valued their products. Could the company improve its profits by changing prices without sacrificing market share? How would this affect their competitors?
Solution: Research established the price/demand relationship and created a value chain model.
We carried out extensive market research to establish the consumers willingness to pay for our clients products as well as their competitors. In parallel with this research, we built a model of the value chain from the company to the end consumer. We then correlated the price/demand relationship with this model to optimize our clients prices. We worked with the client to explore several scenarios using different assumptions about the competitors reactions.
Results: Gross profit up by 16% and market share remained constant.
Our results indicated that prices should, in general, be raised to increase profitability. The potential gross profit improvement from the price changes was 37% with a loss in market share of only 1.6%. The model also showed that with constant market share, the gross profit potential was 16%. Our client chose to maintain market share and implemented the second price plan that led to a 16% increase in gross profits. The pricing model we developed proved to be remarkably accurate in predicting consumer reaction to the price changes we recommended.