Photo for: How to Price White-Label Cannabis Products

Insights

How to Price White-Label Cannabis Products

Position your white-label cannabis product on either of these two levels: lower-priced but value product or higher-priced and premium product.

16/10/2018

When it comes to pricing white-label cannabis products, retailers and dispensaries are faced with a choice: they can either attempt to position their product as a lower-priced, value product, or they can attempt to position their product as a higher-priced, premium product. The pricing decision essentially boils down to a simple question of “value or premium.”

Is a value or premium strategy right for you?

In the world of traditional white label goods (such as those you might encounter at Target, Whole Foods Market or Costco), the typical strategy is a value strategy. Think about it – when you see a “365” product from Whole Foods, you know that it will be priced below a competing product from a national brand, or when you see a “Market Pantry” product from Target, you know that it will be lower priced than a similar product with the exact same characteristics. The story is true for just about any other industry, where white label products are treated as generic items that should be priced lower than branded goods.

For that reason, many people assume that they should price their white label cannabis products lower than those of competing private brands. But there are several unique aspects of the cannabis market that make it qualitatively different from other markets. For one, cannabis is not a national market. Recreational cannabis use is regulated on a state-by-state basis, so there are not any national brands – like a Coke or Pepsi – that generic products need to compete against (at least yet). This introduces quite a bit more pricing uncertainty into the market and opens up new pricing opportunities for you.

Secondly, there are ways to create premium pricing for your product based on a wide range of other factors than just the underlying product. You can think of this as the Trader Joe’s strategy – consumers are perfectly willing to pay more for these private label products because Trader Joe’s has invested so heavily in its overall brand. Think about the experience of shopping at Trader Joe’s – the shelves are perfectly merchandised, staff members are hired who can help to give off the Trader Joe’s vibe, and consumers inherently trust the quality of the products that Trader Joe’s sells. The product are even fun to buy – think of how a simple box of pasta becomes a fun “Trader Giotto’s” Italian brand. You can think of this as a model for your own dispensary, where the overall presentation and quality of your offerings can help to create a premium price, even for a generic, white label product.

Creating the right pricing model

Of course, implicit in any discussion of pricing is that your price is competitive with that of the overall marketplace. This is particularly true for white label products, which by their very definition are widely available elsewhere to other retailers. Why should a consumer pay $19.99 for your CBD oil when he or she can get the same CBD oil for just $14.99 from a different seller?

So the first step in coming up with a pricing strategy is figuring out the “market price.” This is typically a range, and from there, you can determine whether your product should be priced at the top or bottom of this range.

The next step is determining your overall cost structure to sell this product. Many people make the mistake of assuming that their only cost is the initial sourcing cost – the price they pay to the manufacturer for the generic product. But that is not accurate – your selling costs also include the costs of store employees who must sell this product, as well as any packaging, labelling, marketing or branding costs.

At the end of the day, you will need to sell your white-label cannabis product for a price that’s high enough for you to make a profit, but not so high that consumers won’t actually buy it. By tweaking this number, you can come up with a margin that you are willing to live with. In other words, if you can project high enough sales for a certain product, it doesn’t matter that margins are razor-thin. (Think of this as the Walmart strategy, in which the goal is to sell the highest volume possible at the lowest price possible)

Finally, you will need to recognize when your product’s price needs to be adjusted, based on the factors of supply and demand. If consumer demand for a particular product is skyrocketing, and demand is far outpacing supply, that’s when you can adjust your selling price upwards. And vice versa – if a product is languishing on your shelves (and on the shelves of competitors) for months at a time, then it is probably a good time to consider a price markdown.

Other factors to consider while pricing

The real appeal of white-label products is that there is no “manufacturer’s suggested retail price” (MSRP). In other words, once you have obtained the shipment of the product, it is up to you to establish the right price for this product based on your own financial goals. It helps, of course, if you have a portfolio of different white-label products. This way, you can vary prices on items as needed, all while keeping in mind the overall profitability of your portfolio. This is the reason why some supermarkets that sell white-label products are able to offer such spectacular prices on some products, but not on others. At the checkout aisle, you’ll often find incredible prices on products that are just too good to pass up.

Finally, don’t forget about consumer psychology. Ever wondered why products are priced at $0.99 and not $1? Or why big-ticket items like TVs retail for $499 and not $500? It all has to do with the psychology of the buyer. Thus, if your pricing model has produced a final suggested price of $15 for a white-label cannabis product, why not consider pricing it at $14.99 or $14.95? Just a few pennies difference in pricing might be all you need to get customers to reach for your product on your shelves.

Pricing white-label cannabis products do not have to be a complex process – but you should always start with a strong understanding of what the market price of a product is, and what factors can influence that price. From there, you can settle on a “value” or “premium” strategy, and then adjust all of your branding, marketing and merchandising efforts around that strategy. If you have priced your product correctly, you will be in the sweet spot of any seller – you are optimizing both revenue and profitability, while simultaneously surprising and delighting your customers.