A Framework for Smarter Price Increases
- Pauwel Nuytemans
- 21 aug
- 7 minuten om te lezen
Every autumn, commercial teams struggle to lock in next year’s pricing. Too often, the process is driven by gut feel or simply copying last year’s approach. The result? Missed opportunities, increased exposure to retailer pushback, and value leaking out of the P&L before the year even begins. When inflation was spiking, price increases were easier to determine. But with inflation cooling down, the question becomes more complex: what’s the right list price increase now?
A successful growth plan combines UPG (price) and UVG (volume). In our previous article, we focused on growing the core through volume. In the next two pieces, we’ll explore the main levers of price: Net Pricing and Promotions. In this article, we’ll talk about List Price Increases.
At Falcon, we’ve developed a practical pricing framework that’s currently used in engagements with several clients. It combines well-known pricing methods to determine the right list price increase and associated negotiation mandates.
Falcon’s Pricing Framework
Our framework (Exhibit 1) has three layers:
Cost-Based Pricing: the starting point, designed to protect the P&L against rising costs.
Value-Based Pricing: a reality check against market and customer potential.
Risk-Based Pricing: for larger FMCG players, an additional layer to manage pricing risks in European Buying Alliance negotiations.
Out of these three, cost typically varies most year to year, so that’s where we start. It’s designed to protect the P&L from rising costs. For fast-growing businesses or margin-pressured categories, the starting point may be different.
We start with the basics: what list price increase is needed to cover additional costs? That’s the foundation. But it’s just the starting point.
Next, we shift to Value-Based Pricing, where we assess which categories, segments, or SKUs offer more pricing headroom. This step transforms your initial draft into a smarter, more differentiated pricing plan. It also starts to lay the groundwork for tailoring negotiation mandates per customer.
For larger FMCG players, those navigating European Buying Alliances, there’s a third layer to consider: Risk-Based Pricing. This involves managing pricing differences across countries and customers, particularly where Net Pricing gaps can trigger comparisons and challenges.
Importantly, we keep this step last on purpose.
Risk mitigation is crucial, but it shouldn’t become the strategy. Price differences across markets are normal. Brand positionings differ. Cost structures aren’t shared. And not every deviation is a threat. The goal is to build a plan that wins, not just one that avoids getting punished.
Cost Based Pricing
This step is straightforward. You need to assess how your cost base is evolving next year:
· Inflation: What’s the impact of cost increases (raw materials, tariffs, etc)?
· Investments: Are you planning additional spending (e.g., marketing, promo, overhead)?
Then set your profit ambition: hold margins, grow them, or reinvest. If costs rise by 1.5% and you want to hold margins, you’ll need a net price increase of 1.5%. But list prices are rarely the same as net prices, negotiation concessions (both local & international) eat into them. And don’t forget promotional spend: if your net prices increase, your promo costs might rise, depending on your promo financing. In the example below, a +3% list price increase translates into only a +1.5% net price gain once negotiations and promo effects are accounted for (Exhibit 2).
Mix management can also protect margins, growing categories with higher average margins, but that’s a whole separate topic.
Value Based Pricing
This is where market realities meet your P&L. We use three well-established exercises, applied at both SKU and customer level.
a. Headspace
Start by benchmarking your price positioning, both against the category average and your main competitor. These benchmarks often translate into recommended retail prices. If the market has shifted in the past year, it’s worth revalidating those recommendations. The gap between the actual shelf price and your recommended price is what we call “headspace” (Exhibit 3).
When that headspace is positive, meaning the market price is below your recommended level, you’re in safer territory to propose a price increase. The retailer may follow suit by raising the shelf price to protect their margin with limited risk of outpricing yourself. Of course, the reality can be very different. Retail competition often keeps market prices low, so headspace can be more theoretical than actionable, but it remains a valuable signal to refresh annually.
We advise running this analysis on both shelf prices and average prices (including promotions). In promo-heavy categories, a brand may appear premium on shelf, but deep discounts can tell a very different story in real-life competitiveness.
Another useful step: compare prices per litre or per kilo across your different pack sizes. Is your pricing architecture still intact? We’ve seen cases where the larger size ends up costing nearly the same as the smaller one, suggesting erosion in the price of the bigger pack or over-inflation in the smaller. Let this guide how you price by size.
b. Net Pricing Architecture
This is a straightforward, but often eye-opening, exercise: compare your net prices across retailers and across all SKUs, both excluding promotions and including them. As a rule of thumb, price differences of 10–15% across major customers are normal. Above 20%, things get uncomfortable, unless there’s a clear commercial logic (think EDLP vs. Hi-Lo pricing strategies). That’s why the promo-inclusive view is essential: it gives you the true net picture.
Once you have this data, pressure-test your internal pricing logic. Are you seeing rational differences between similar SKUs or sizes? In some cases, the best-selling SKUs end up with the lowest prices and margins.
Why? Retailers use them to drive price perception, eroding their own margin. Then they come to you asking for extra funding to close the gap. If you give in, you’re fuelling a price war and ironically, making your most profitable SKUs the least profitable. This investment doesn’t lead to growth; it leads to downtrading, weaker retailer margin mixes, and ultimately a return visit to your office asking for more support. It’s a vicious cycle and one that suppliers need to break, not reinforce.
c. Profit Pool
We touched on this in our third newsletter, but it’s worth revisiting, because understanding the profit split between you and your retail partners is essential ahead of any price discussion (Exhibit 4).
Start by mapping the full profit pool: your gross margin, the retailer’s margin, and how total absolute value is divided across the chain. Then track how it has evolved over the past year, shifts here often become hot negotiation topics.
From there, assess where you’re under or over your fair share, by segment, by SKU, or by customer. If the current split leans heavily in your favour, it might make sense to moderate your list price increase.
After all, long-term growth depends on partnership and partners need to make money too. Pricing decisions aren’t just about your P&L. They’re about creating a healthy, sustainable profit structure that lets both sides invest and grow.
d. Summarising your findings
You run these diagnostics at SKU level, but the real clarity comes when you consolidate them, into a summary table by segment and customer (Exhibit 4). You can build different views: one using shelf prices, another using average prices (factoring in promotions). You look at net prices excluding and including promotional support. All of this is done per retailer, alongside a national average.
While list price increases are applied nationally, this work will help define drift mandates, how much an account manager can reinvest per customer. It allows you to close pricing gaps between customers or make deliberate strategic trade-offs between price and volume through negotiated counterparts.
Expect a flood of datapoints. Some will contradict each other. You might have headspace to price up, but declining retailer margins. There’s no universal rulebook for these trade-offs, context is everything.
To bring clarity, we apply a simple color-coding system (Exhibit 5), rating each parameter green, orange, or red. It helps you step back, spot patterns, and prioritise where to push, hold, or pull back, across customers and categories.
Risk Based Pricing
In a second step, broaden the lens: how do those prices compare to retailers in other alliances? Even if the current risk feels manageable, it can escalate quickly if a retailer switches alliances. The risk doesn’t just travel, it compounds.
Price differences across countries are normal, up to a point. Cost structures aren’t automatically shared across markets. Brand positioning can differ widely from one country to another. The contractual counterparts are not the same.
The real risk emerges when products and markets are highly comparable. In those cases, the price spread should be minimal, think 0% for retailers like Intermarché, Auchan, and Casino within Aura Retail. For others, a 10–15% deviation can still be explained by local dynamics. But once you go beyond 20%, you'd better be ready to prove that the products are fundamentally different.
The principle is simple: risk causers, those priced significantly below the alliance average, should typically move up faster than risk receivers. But it’s not always linear across the portfolio. It’s a puzzle. You might need to push harder on a specific segment, while deflating elsewhere to maintain overall balance of your increase to reach a deal.
You’ll need to assess the impact of local pricing plans on that risk. Sometimes, your local strategy and risk mitigation efforts will be aligned. Other times, they’ll conflict. And that’s where judgement kicks in. It becomes a numbers game:
What is the magnitude of the risk?
How important is the local customer or the cell creating it?
How comparable are the products (same formulation, brand positioning, etc)?
The answers guide your approach: whether you need to take bold action, let the risk decline gradually, or absorb it for now.
But don’t forget. Build to win first. Manage risk second.
Bringing it together
In this final step, all the insights come together to shape a pragmatic, segmented pricing approach. Specifically, you use the output from the previous layers to:
Differentiate the gross list price increase by brand, segment, or in specific cases, even by variant.
Define customer-specific mandates, i.e. how much each account team can re-invest during negotiations. Here you can be quite aggressive in sku differentiation.
Balance the mix to hit your overall profit target and make dealmaking feasible.
For example: your topline target may be a 3% increase, but that doesn’t mean applying a flat 3% across the board. You might go +4% on beans and only +2% on ground coffee with 0% drift and 50% on others other sku’s, driven by a mix of cost, value potential, and risk exposure.
From Framework to Action
At Falcon, we support clients end-to-end, from defining the list price increase to building differentiated customer mandates and negotiation approaches.
If you want to benchmark your pricing planning process or discuss how to apply this framework in your business, we’d be happy to exchange thoughts.
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