A few lessons from pricing strategy analyses completed in the past few months..

1. Price Leadership requires desirable ‘price followership’ to work, however, the price leader must demonstrate commitment to maintain value-driven pricing and invest in the growing the market to increase its overall profitability
2. Companies should be vigilant of threats arising not only from direct competitors but also indirect competitors who might shrink the market or even destroy it. These threats can either be attacked directly, or the threat can be leveraged in a way to grow the target market by in-your-face advertising and presenting the defecting customers with a better alternative bundled as a “loss”
3. Also part of good Price Leadership is to know when the time is right and how best to move prices higher to raise the “level of the sea”[1] and contribute to increased industry profitability. A way to do this is to increase advertising in a market to protect it from ceding ground to an alternative product that performs a similar function but differently.
4. Pricing strategically is essential to success of the product as well as the market for the product. It requires an understanding of how products and services create value for customers, alter competitive dynamics and other relevant players in the industry
5. Segmenting our customers is vital – not all customers are desirable and it is vital to know how our value drivers map to our target customer segment needs
6. Generally, it is always better to align price with value delivered – value based pricing – rather than just following a cost plus pricing methodology
7. Price elasticity increases as companies capture more and more of the customer surplus for themselves. This knowledge is critical to implementing phased price increases so as not to increase prices to a point where demand drops to undesirable levels
8. Excessive product variety tends to reduce the Social Surplus in a variety of ways: causes customer confusion, increases manufacturing complexity and causes market decline over time because resources are not diverted to developing other market categories
9. Fences can be an effective way to create a price structure to align price with value and cost to serve
10. Creating versions of our product and sometimes even introducing flankers can be an effective profit generation and market growth strategy
11. Price setting, and more generally Price Leadership, are powerful signaling tools to our competitors
12. The Pricing problem is a “framing” problem. Buyers can frame transactions in ways the marketers of the product never intended, so it is imperative for Marketing managers to think about how customers frame their “gains” and “losses” so that the product can be positioned as an opportunity cost, or “gain” in certain situations and as a “loss” such as a volume discount, in other situations
13. A ‘price leader’ can often times benefit from ‘letting’ the competitor lead, relinquish the leadership role and become a good Price Follower– one way to solve the prisoner’s dilemma

[1] “The Price Advantage”, Marn, Roegner, Zawada by Wiley Finance: Pages 79.