Optimizing Pricing Strategy for a Wholesaler

Client Challenge 

A wholesaler in the consumer goods sector approached Varish Partners with a significant challenge: one dominant retailer accounted for approximately 60% of their sales. Despite already being offered the lowest prices, the retailer demanded additional discounts to support a promotional campaign, requiring at least a 30% discount to execute the sale. The wholesaler was concerned about the financial impact of further price reductions and sought a solution to determine the lowest price they could afford while maintaining profitability. 

Objective 

The client needed a comprehensive cost analysis to identify how low they could go on pricing without undermining their profit margins. Varish Partners was tasked with creating a full cost calculation model that could account for fixed and variable costs and simulate potential pricing scenarios based on varying sales volumes. 

Varish Partners’ Approach 

1. Cost Structure Analysis 
   We began by working closely with the client to understand their cost structure. This involved categorizing costs into two main components: fixed costs (e.g., warehouse rent, staff salaries, equipment depreciation) and variable costs (e.g., cost of materials & packaging). A detailed breakdown was conducted to ensure that all relevant expenses were accounted for. 

1. Baseline Calculation 
   Using the client’s current sales volume, we calculated the total cost per unit 

1. Modeling Various Sales Scenarios 
   To explore the impact of the retailer’s proposed promotional campaign, we developed a model to simulate how the total cost per unit would change with increased sales volume. This model demonstrated how fixed costs per unit would decrease as sales volumes increased, allowing for greater pricing flexibility. 

1. Optimized Pricing Recommendations 
   With the new cost data, we were able to calculate the lowest price the client could offer while still covering their costs and ensuring a reasonable profit margin. This allowed us to determine the feasibility of the retailer’s requested 30% discount. 

Outcome 

By partnering with Varish Partners, the client gained valuable insights into their cost structure and was equipped with a clear strategy for setting pricing based on different sales volumes. Our detailed cost model empowered them to confidently offer the additional discounts requested by the retailer, knowing they could still achieve profitability if the campaign successfully boosted sales. 

As a result, the client was able to: 

• Secure the retailer’s promotional campaign, maintaining their dominant position in the retailer’s product range. 

• Offer competitive pricing without compromising margins, ensuring long-term profitability. 

• Strengthen their relationship with the retailer by supporting their marketing efforts with well-calculated discounts.