One of my
favourite pricing cartoons is that of a schoolgirl selling lemonade for $500, with the
caption reading “I just want to sell one
and call it a summer”.
The cartoon epitomises one of
the most commonly asked questions in pricing which, on first appearances, could
appear to be a rhetorical one: do I price high and come down if I have to, or do
I price low and raise prices when demand takes off? Most Leading Companies
would adopt the former strategy, but does starting high always make sense?
Starting with a high price is
of course the “pricing textbook” answer, and there are a couple legitimate
reasons for this. It is always easier to lower the price of lemonade from $500
than it is to try and raise it, and if you want to position yourself at the top
end of the lemonade market, that price is going to be an indicator of quality
for you.
T-Glass (not their real name) is
not a cartoon strip, nor is it selling lemonade. It is an Australian-based
beverage company who last week, asked the panel of pricing experts on
PricingProphets.com if they should ‘low-ball’ or ‘high-ball’ the launch price
of their latest locally-grown beverage. The response from one of the experts
was very thought provoking, and not exactly “textbook pricing”.
In the case of this beverage,
as with many other products, a launch objective is often to build product
trail, penetration, and thus market share. Starting with a high price, which
doesn't stick and subsequently has to be lowered, means starting that trial and
penetration exercise all over again.
In this situation, starting with
a low(er) price may help to achieve that trial, penetration and establish the
product in the consumers’ repertoire. That leaves us with the question of how
do you raise prices in the future?
In the case of a beverage that
is made from seasonal, agricultural products, look no further than the wine
industry: let the customer know that this particular harvest or season is
exceptionally good, include that message in the pricing communications strategy
and price accordingly.
This approach also enables you
to avoid hard-to-defend cost-plus –based price increases, and set prices
according to the value you deliver.
We’ll check in with the
beverage company in a couple of months and see how they’re going.
[This post also appears on LeadingCompany, 7th June 2012]
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