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Pet Food: Premium Offering Finds Premium Pricing Strategy – Case Study


Industry: Consumer / Pet
Area: Pricing Strategy and Revenue Growth Management In collaboration with EBITDA Catalyst, Revology's strategic partner for driving value creation for mid-market Private Equity.

SITUATION

Client Background
The Client, a Private Equity owned ultra-premium fresh pet food provider, had been growing primarily through DTC.

Beside premium food in a variety of sizes and protein types, the Client offered an innovative line of “Vet-assisted” RX pet food options, that combined premium fresh human-grade quality, with prescription medicine for a variety of common conditions

Inflation & Competition
Both commodities & labor costs were up significantly, resulting in untenable declines in margins and profitability. The competition appeared to offer highly competitive prices, primarily under a SUBSCRIPTION model. This appeared to limit potential for price increases, resulting in Client’s apparent “no win” situation.


One-size-fits-all Pricing

The Client’s pricing didn’t segment to capture the highly differentiated value created in the RX food offering. The Client also didn’t sufficiently reflect in their pricing the differentials between a high-convenience, low commitment, high choice model vs. a higher volume / fewer SKUs / high commitment strategy both it and key competitors offered.

Offering Design / Channel

Client was just beginning to consider Autoship and subscription models. Client had not developed a strategy and approach for Retail beyond one regional mid-sized chain.

Client’s price-pack architecture was limited and not well developed for recurring shipment models.

Pet food products on store shelves for dogs and cats.
Wide view of pet food aisle with various brands and types of dog and cat food on store shelves.
Climbers navigate a challenging wooden obstacle course outdoors.
Participants engage in team-building activities on a wooden climbing frame.

OBSTACLES

Insufficiently Developed Segmentation

The lack of separation in pricing approach between completely different value propositions resulted in Client trying to be “best of all worlds to all people”, leaving both growth and profit unrealized.

Misunderstanding of Competition’s Pricing Points, Value Claims & Strategy
Partly due to opacity / confusion factors in pricing for pet food, and recommended daily portion nutrition values, Client had failed to analyze key value claims and “why” Competition’s prices appeared so low.


Lack of Vehicles For Executing Tiered or Differentiated Pricing

Absent a multi-channel approach and a recurring-revenue model, Client played with a hand tied behind their back: “Pricing on our website is all there is, and it is what it is.”

Challenges In Executive Alignment and Emotional Pricing Decisions

The Board routinely intervened in pricing discussions. The original founder and the Chief Medical (Vet) disagreed with any pricing increase on mission / emotional grounds.

ACTION

Revology reset to an offering design that positioned Client to fully harvest value, including segmented price-setting actions in the inflationary environment.

 

Quantitative and Stakeholder Deep Dive
We conducted a comprehensive analysis of the client’s transactional data and detailed interviews with key stakeholders, including the operating team of the PE owner.

Uncovered Key Insights to Debunk Misjudgment of Competition’s Pricing
We found, for example, that competition used completely different (much lower) recommended daily Kcal feeding portions for like-for-like pets, well below VIN guidance in some cases. This resulted in what seemed like lower prices to “meet every budget”, but would in the end require subscription customers to order more often, a deceptive practice. More importantly, Client seeking to compete in their “order whenever you like” approach with Competitors’ subscription pricing was strategically misguided.

Corrected size & price pack pricing

Client’s bulk size discounts were recalibrated to reflect a Covid-driven higher preference for larger size packs.

Recommended Substantial Price Actions & Intro of Autoship & Membership Pricing

The client finally had a better toolset to execute a segmented pricing strategy and compete like-for-like with subscription models.

Developing Financial Impact Model and Analytical Tools

Built customized analytical tools in SQL & Excel interace for continuous monitoring and data-driven adjustments to ensure pricing discipline

Pricing strategy chart showing GM gain and membership revenue percentages.
Data visualization of pricing strategies, GM gains, and revenue percentages for pet food premium offerings.
Pet food sales trend from 2017 to 2027 showing increasing demand.
Pet food sales are rising rapidly, with a focus on premium offerings and strategic pricing from 2017 to 2027.

RESULTS

Key Insights Powered A Confident Pricing Strategy and Price Actions

Offering Design Enlarged:

  • Introduction of Autoship and Subscription options allowed the Client to reward loyal customers with competitive pricing

  • Established Recurring high quality revenue stream, providing “off-ramp” to lower price points / portion to price sensitive customers

Price Execution:

  • Fact-based process brought even hesitant, emotional stakeholders into the consensus

  • Conservative price elasticity assumptions did not materialize, with unit loss minimal

  • Grace period helped RX customers feel the company stayed true to its values

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Have a Revenue Growth Analytics pain point, a question, or a content suggestion?

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210 Delburg St, Davidson, NC 28036, United States
+1 803-701-9243

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