The task was to work
with highly recognized pop culture artists to create a commemorative
50th anniversary t-shirt that celebrates its role in pop culture for the
Hanes Shirt Company (with sales over $2 billion annually). The
winner was determined by sales and thus the key to success would rest on
marketing, promotions, and pricing. Neither team executed flawlessly,
and in fact the winning team could have won by a greater margin with a
better pricing strategy. I have pulled together some practical pricing
lessons that you can apply to
your business today.
Listen to my brief audio
analysis that exposes why the fired candidate would have been better
served to focus on winning as opposed to banking on someone else's
failure plus some more great practical
tips that just might keep you out of the boardroom.
My father used to tell me, "The price is whatever someone is willing to pay". Which is very true, and when the goal is to optimize sales, the price is whatever will yield the greatest revenues. This is where we get into various pricing strategies, when applied to the right situation, can maximize revenues.
Applying Pricing Strategies
The key is to effective apply the appropriate pricing strategies to maximize sales, profits and return on investment. To do this, you must have absolute clear understanding of your market, your product, your costs and your competition.
Let's have a look at some pricing strategies and try to understand the best strategy in various situations.
Use a high price where there is uniqueness about the product or service. This approach is used where a substantial competitive advantage exists. Higher prices are charged for luxuries such as Lamborghini high performance sports cars.
The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. AOL used this approach in order to attract new online customers.
This is the no-frills low price. The cost of marketing and manufacture are kept to a minimum. Supermarkets often carry generic brands economically priced.
Charge a high price when you have a substantial competitive advantage. However, if the advantage is not sustainable, the high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital calculators used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and calculators were produced at lower unit costs, other marketing strategies and pricing approaches were implemented.
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Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. However there are other important approaches to pricing as follows:
Captive Product Pricing
Where products have complements, companies will charge a premium price when the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades that fit the razor.
Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.
Optional Product Pricing
Companies will attempt to increase the amount customers spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example automobile manufacturers charge for optional extras such as leather seats, sports detailing and high performance tires.
Product Bundle Pricing
Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach.
Product Line Pricing
Companies will use product line pricing where there is a range of product or services the pricing reflect the benefits of parts of the range. Car washes use product line pricing where the basic wash is $4, wash and wax $6, and the whole package $8.
There are many types of promotional pricing strategies; most are typically designed for short-terms sales boosts for a variety of reasons. Some examples of promotional pricing include BOGO (Buy One Get One) and discounting through one day or
white elephant sales.
This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 99 cents is not one dollar.
This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at fast food chains.
--- SIDEBAR ---
Neither team effectively used pricing, Kendra understood the
promotional value of her product by tapping into the artist's collectors
and touting the "limited edition" nature of the shirt,
however, failed to translate that into the appropriate pricing strategy
which would have been a blend between premium, promotional and psychological
understood the premium value of her shirts, in fact might have priced
them a touch too high. However, her failure was more directly
related to poor promotions and marketing.
research indicates "collectable" t-shirts start at $30 and
climb to $50, Magna could have set the shirt price to $38.99 and the
long sleeve to $48.99 to evoke the collectable premium, and the psychological
pricing strategies. Further, I would have used the promotional
strategy to encourage greater sales volume, with a "buy a second
shirt for $10 off" promotion.
promotional strategy would resonate with collectors who understand the
principal behind "limited editions" and would encouraged to
sell out the edition and reap the reward for their investment.
all three strategies, in conjunction with their marketing efforts, its
very conceivable team Magna would have sold slightly fewer shirts, but
would have increased revenues by at least another 25 to 30%.
consequence of not applying appropriate pricing could have meant a trip
to the boardroom, however in your business, could mean thousands of
dollars in profits!
Have you thought through your pricing lately?
Are 20% (or more) of your profits slipping through your fingers?
Consider retaining ALTI's team of specialists who can
objectively review your pricing strategy and make suggestions to improve
pricing to yield greater profit retention. To get started give us a
call or shoot us an e-mail for ONE free hour of complimentary
consultation. (206) 984-9560 or