Why are Pre-Workout Supplements Usually Priced Around $35?
I was recently asked by a sports nutrition industry colleague…
“Why does it seem like all pre-workout supplements are priced around the $35 mark? Is this a special price or is there something that I don’t know?”
The answer to this question is both easy and complex. Regardless, I believe its a worthy topic to explain in an article (and YouTube video) because its likely something we have all worried about leading product categories in consumer packaged goods (CPG) and fast-moving consumer goods (FMCG).
Firstly, its important for us to start at the basics of pricing. This is a concept called “keystone pricing.” Keystone pricing refers to a pricing method of marking merchandise to sell at an amount that is double.
If we continue to use the example of pre-workout supplements, here is a basic keystone pricing model:
- It will cost the brand $9 to make at a contract manufacturer
- It will be sold to a wholesaler for $18 (doubled in price)
- It will be sold for $36 at leading retailers (doubled in price again)
That is all great but why is all pre-workout supplement pricing about the same?
- Though very basic, keystone pricing is also very effective in some CPG categories that lack input variations. For the sports nutrition market, brand manufacturers chose from essentially the same buckets of ingredients, packaging, etc. to create their pre-workouts. That makes the average industry cost of goods (COGs) for a pre-workout similar with taking into consideration normal minimum order quantities (MOQ).
- There is an element of industry price copying or “follow the leader”
The second point brings up another basic pricing method that is commonly known as “competitive pricing.”
Competitive pricing is arguably the most common pricing method. It is used because its simple, low risk, and effective. To use competitive pricing, a market would first need:
- At least two products in the same category, with similar attributes that wouldn’t be easily deciphered by the market
- Both competitors would charge the same price
- The products would compete with the other by advertising why it’s product is better (product marketing)
If this sounds like the pre-workout market, you would be right! This is exactly how the sports nutrition industry currently works because they are mostly product companies, not brands.
Is there a bad side of competitive pricing?
Yes, most companies that deploy a competitive pricing model just “set it and forget it” against the leading products on the market.
To be effective, pricing should be thought of as a fluid process that requires data and attention. You should be auditing your prices against internal factors such as your current product (or brand) lifecycle stage and if you have improved or differentiated your product recently. You should also be looking at external market factors to ensure your pricing and product isn’t stale compared to the competition.
What happens in most cases is this “set and forget it” creates a race to the bottom as the product or brand ages against increased competition. False signals give legacy brands hope though because demand might spike short-term with lower pricing, but maintaining a lower price than your competitors isn’t the best way to attract consumers long-term. This race to the bottom also is sped up when an oversupply happens from mismanaged brands in competitive low barriers of entry market.
Can the sports nutrition market support a pre-workout priced at a premium level?
To answer this question, I think its important to look at a concept called “elasticity of demand.” Elasticity of demand is defined as the responsiveness of quantity demanded to a change in price. You need to look at 3 factors to assess this in a market…
- Is there a necessity? Though we might think so sometimes, a pre-workout is not a necessity
- Is there a time constraint? Traditional pre-workout powders are bought usually monthly, so not really. If we expand this to an single-serving ready-to-drink (RTD) product, you might have a small argument of a passed test.
3. Availability of substitutions?
This is where pre-workouts fail BIG TIME! There are many substitutes in pre-workout category. At last check, there is actually over 5000 listings on Amazon for a search of “pre-workout.” I am not saying that those 5000 listings are “perfect substitutions” but they are substitutions.
When you increase a price with many substitutions, you increase the demand of substitutes.
Regardless of the market fails, can a premium pricing model work with pre-workouts?
One factor needed for premiumization is uniqueness. Is there anything proprietary? With the move of transparency, rarely is anything proprietary or exclusive in the category of CPG/FMCG.
The next question comes down to what does the market consider premium? Is it sensory or performance ingredients?
If we get past the product questions, we still have the issue that in my opinion, not many sports nutrition industry businesses are creating a brand. I mean the type of branding or exclusive experience that yields a consumer desire to have that brand play a special key role in their life.
I am not saying there isn’t any contenders for this “perfect scenario” but then we get to consistency of pricing. This is key! The sports nutrition industry is not the best at supporting price integrity across all channels.
What happens more than likely is the opposite…
Price manipulations are the norm. You have discounting out the gate that grabs attention but the goal to raise prices over time never happens. You also have elements of demand pricing that can affect price integrity if not managed properly.
More times than not, the sports nutrition industry supports an economy pricing level over premium levels. Right now, you have the following factors working in this favor:
- The rise in Food, Drug, Mass, and Convenience (FDMC) “healthier for you” sections — this is causing growth for volume based demand pricing for new brands or line extensions
- Amazon Private Label Expansion — this is the digital “yin” to the physical “yang” in the first factor
Final Thoughts
Will things change in the future? I am optimistic in the maturity in the market to support multiple pricing levels but I also think many commodification factors are in play that will be hard to overcome.
