Imagine you are a decision maker in Unilever or P&G, what kind of strategy would you take to prevent significant fall off in volumes or revenues when you price the product? (Hint: What would happen when you increase price? what strategy would help you to generate additional revenues but not compromising earnings?)
The pricing strategy that P&G should take to prevent significant fall off in volumes or revenues when raising the price of Pampers, is strategic pricing strategy- setting the price based on the customer’s perceptions of the value of the product or market offering. In doing this, we will have to consider the features that create value for the customer, customer segments that realize the most value and the metrics that best align the price with the value created. The unique features that justify a higher price for Pampers is its core design, which has a new gel, plus green layer that quickly absorbs and help to improve the baby’s skin through a better dryness performance. P&G pampers price should be fixed in line with product benefit to the customer. The customer segments that purchase Pampers are families with babies.
Strategic pricing will allow the price of Pampers to be based on its value (better dryness performance to the baby) to the customers or on competitive strategy as opposed to the cost of production. By analyzing these values about Pampers will allow P&G to adjust its price according to value calculated and might suggest that the competitors have to chance of matching Pampers distinctiveness. P&G competitors usually produce the same products as almost the same price and hence the best method of ensuring an increase in revenue is through strategic pricing. P&G should compare its prices with competitors and seek to align them with those of the competitors. Pricing P&G product strategically is a key to avoiding price wars among P&G and the competitors because P&G doesn’t have to raise or lower its products when the competitors do so.
If we focus on the unique features and values of Pampers demand for Pampers will be elastic because the customers will not be price sensitive but value sensitive. The customers will not change the purchase quantity of Pampers they buy even when the price in increased. They will pay a higher price to get the quantity needed to ensure that their babies have the best diaper quality. There are many substitutes in the market but since value is important than price when it comes to diapers, even if P&G increases Pampers’ price, sales volume would not fall. The total revenue of P&G would increase as price is increased because demand is inelastic. Only by using strategic pricing, P&G will be able to reach market equilibrium, where the amount of products sought by the buyers (demand) will equal the quantity produced.