Choose per SKU. The right answer depends on properties that vary line by line: whether a buyer can compare the item quickly, whether the purchase repeats, whether extra volume genuinely lowers your unit cost, and how much of the basket the line carries. A company-wide answer applies one policy to lines that need opposite ones.
Most assortments split into a minority of lines where share is worth buying and a majority where margin is worth defending. The work is deciding which is which, and writing it down so the decision survives the next person in the job.
Why the company-level answer is wrong somewhere
"We compete on price" and "we are the premium supplier" are statements about identity, not about individual lines. A discounter still carries slow-moving specialist items nobody price-checks. A premium supplier still carries three commodity lines every buyer quotes from memory.
The cost of getting it wrong is asymmetric, and it runs in the direction teams underestimate. Pricing a comparable, high-visibility line too high loses volume you can see and can fix. Pricing an obscure line too low loses margin nobody notices, on every unit, for years. In most assortments the second error is the larger one, simply because there are more obscure lines than famous ones.
Four questions that settle it for one SKU
- Can the buyer compare it in under a minute? An identical manufacturer part number in the same pack size, sold by several people, is fully comparable. A configured item, a bundle or an own-brand line is not.
- Does the purchase repeat, and does the first purchase pull the second? Consumables, refills, spare parts and service contracts justify buying share. One-off purchases usually do not.
- Does more volume actually lower your unit cost or improve supplier terms? If you cannot name the tier or the rebate threshold, the answer is no.
- Does the line pull a basket? A thin-margin line that brings four other lines with it is an acquisition cost, not a pricing mistake. Check with order data, not with an assumption.
Three or four yes answers point to share. Three or four no answers point to margin. A mixed result usually means the line needs a different fix: a different pack size, a bundle, or an own-brand version that removes the comparison altogether.
Comparability does most of the work
Comparability decides most cases because it decides whether a price difference is ever observed. Two identical listings, same part number, same delivery window, three clicks apart: the gap is fully visible and every index point matters. Change the pack size and the gap stops being visible, because the buyer now has to do arithmetic to see it.
That is why pack architecture is a pricing tool. A six-pack only you sell is not price-transparent even when the unit inside it is. The gain is real but not free: it costs SKU complexity, forecast accuracy and warehouse slots, so use it where the margin at stake pays for that.
The break-even test, with the working shown
Before you buy share, calculate what you have to win. Take a line at 40 per cent gross margin and cut the price by 4 per cent. Unit margin falls from 40 to 36, measured against the original price. Holding gross profit needs 40 divided by 36, which is 1.111, so 11.1 per cent more units. That is a reasonable bet.
Now a line at 12 per cent margin, common in distribution. The same 4 per cent cut takes unit margin from 12 to 8. Holding gross profit needs 12 divided by 8, which is 1.5, so 50 per cent more units. Identical discount, one sensible bet and one reckless one, and the difference is invisible unless margin is part of the decision.
Run it in reverse for increases. At 12 per cent margin, a 4 per cent increase takes unit margin from 12 to 16, and 12 divided by 16 is 0.75, so you can lose a quarter of the volume and still hold gross profit. Thin-margin lines are far more forgiving of increases than most teams assume.
A segmentation you can build in a spreadsheet this week
- Column A: monthly units, from your own order data.
- Column B: actual gross margin per unit after rebates and freight, not standard cost.
- Column C: how many sellers you can find listing the identical item. Zero, one to two, or three and more.
- Column D: repeat rate, the share of buyers who bought the line again within twelve months.
- Column E: attachment, the average value of orders containing the line divided by your overall average order value.
- Rule: three or more sellers and a high repeat rate goes to share. Zero or one seller and a low repeat rate goes to margin. Everything else goes to a review list with a named owner and a date.
This is not sophisticated and is not meant to be. It replaces a policy currently held in three people's heads with one that can be argued about, corrected and inherited.
What each policy commits you to
A share line commits you to monitoring. If you have chosen to hold a position against a named competitor, you need their price at least as often as they change it, and you have accepted that you will follow them down. Choosing to buy share and then checking prices once a month is the worst of both.
A margin line commits you to justification. Eventually a buyer makes the comparison you assumed nobody would make. The answer has to be ready and it has to be true: delivery window, stock depth, returns handling, technical support, payment terms.
Reviewing without churning
Tie the review to how fast comparability changes, not to the finance calendar. A line becomes comparable the day a large competitor lists the identical part number, which can happen in any week. A line stops being comparable when the manufacturer changes the pack, which happens rarely.
Two rules keep it honest. Move a line between categories only with a written reason and a date. And measure gross profit in currency per line, not margin percentage, because a rising margin percentage on collapsing volume reads as success in a report and is not.