Considering Other Pricing Strategies

April 13, 2006

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In addition to the primary goal of making money, a company can have many different pricing objectives and strategies. Larger companies may utilize product pricing in a predatory or defensive fashion, to attack or defend against a competitor.

Maxwell House Coffee introduced a second, low-priced brand into their own dominant eastern United States markets during the 1970s to slow and confuse the introduction of Folger's Coffee into their markets. This new product was packaged and designed to resemble Folger's familiar red can, with pricing set below Folger's Coffee. The new temporary product clogged grocer shelves and made it more difficult and expensive for Folger's to introduce their coffee into new eastern markets.

If you have a premium-quality product, with premium packaging, graphics, and unique features and benefits, perhaps a premium price is necessary to reinforce the premium brand image. Higher margins than normal may be one benefit. High prices confirm perceptions of high value in consumer minds.

A good pricing strategy will also indicate guidelines for action in the case of price increases or decreases. For example, "We will price at or near the share leader's pricing on a per unit basis. We will increase prices to follow a share leader price increase, but only to preserve margin objectives."

Strategically, you may want to consider temporarily delaying necessary price increases driven by supplier and ingredient price increases. Take affordable, smaller profit margins if your category segment is price elastic. If competitors are increasing prices and your company decides not to, this could be a temporary advantage for your company since sales volume may increase.

Reminder! Be sure to consider variations that may come up to affect your pricing. You may wish to use discounting for prompt cash payment or for quantity purchases. Seasonal items may warrant special pricing from time to time. How about senior citizen and student discounts? And promotional incentives may motivate your dealers. These are but a few of many variables you'll want to consider when you formulate your pricing strategy.