Successful Pricing Management

At the recent 2002 GfK Annual Conference, Professor Dr. Hermann Diller, marketing expert and holder of the Chair of Economics at the Friedrich-Alexander-University of Erlangen-Nürnberg, spoke on intelligent pricing management.

According to Professor Diller,'Instead of just thinking about price-conscious consumers, attention should be paid to consumers who are prepared to pay extra for something special'. That is exactly what companies are doing, which operate a successful pricing strategy. Price champions succeed in keeping the prices of their branded products high, or even in increasing them, without losing market share.

In Prof. Diller's opinion, pricing is one of the most important tools of marketing strategy, even if it is not often effectively used. It includes simple price setting, and also variations in prices and products, packaging strategy and bonus programs. According to Prof. Diller, a successful pricing policy requires pricing intelligence; that means a database to facilitate decision-taking, which comprises knowledge of customer price awareness and also of competitors' pricing.

According to the results of a survey carried out in association with the GfK Group in March and April this year, Prof. Diller demonstrated that among consumers there are different types and strengths of price awareness, There were for instance big differences among consumers in how high prices could go, even within the same product groups. Additionally there were differences in price thresholds - that is the price points at which there were significant changes in the way prices were regarded. In Prof. Diller's opinion, these variations offer huge scope for intelligent pricing concepts.

Prof. Diller also sees many opportunities for intelligent pricing management, as a large proportion of consumers are willing to pay extra if that allows access to contemporary brands and services with appropriate quality guarantees, innovative products, together with upmarket and other useful features.

Additionally traditional concepts such as 'special offers' and other special price-based promotions are important. This is because, Prof. Diller thinks, there are many consumers who like such offers and utilise opportunities to make unplanned purchases.

Bonus programs, which have recently been becoming steadily more common, may in Prof. Diller's opinion in future form innovative and promising tools for generating customer loyalty. Many customers like them. Also a large proportion of customers, although admittedly only in certain product groups, like the opportunity to haggle on prices in the shops.

In Prof. Diller's view, successful pricing management can take a large variety of forms. For instance, it is possible to be present in all price groups and price segments, in order to exploit fully the price sensitivity of a large variety of consumer groups. A further option would be to attract new customers by a strategy of continuous product innovation. Packaging, for instance multi-packs or increasing pack quantities, also provides an opportunity to increase prices, and even to aim for increased sales.
Many regional operators, according to Prof. Diller's comments have also found success by expanding into higher-priced markets. Manufacturers of brands based in the territory of what used to be East Germany have for example taken this route. Other price champions have achieved their present position by giving priority to existing customers and to customer loyalty, with the objective of reducing price awareness. Others have been particularly successful as a result of working closely with the retail trade and have sometimes succeeded in increasing market share despite increasing prices.

All articles 2006-22 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.

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