Small Business – Big On Price Management

Effective Price Management – Nestle is doing it, P&G is doing it, Victoria Secret is doing it and these are definitely not small businesses. Now, smart small businesses, despite facing recession and decreasing customer demands, are adopting effective price management.  Here are two businesses featured in WSJ Insights Entrepreneur Roundtable and their pricing strategy and tactics:

Versioning: If one price is good, two prices are better. Versioning is about understanding that your customer segments and delivering them a version that adds value at a price point they are willing to pay and profitable to you. Bud Konheim, founder and CEO of Nicole Kim, says:

In July of 2007, I saw what was going on and I had a choice: lower the prices and compete that way, or go back to the philosophy that we have, which is design, design, design. You know, competing by price, the winner gets zero. We didn’t want to do that. But we are known for special-occasion dresses, so I introduced a new category called Daytime Dresses, which was a cover for making lower-price stuff. So I had two of these things going, a lower price and a higher price.

Using cost signals for price increases: This is a pricing tactic that helps address fairness concerns when a marketer wants to increase prices. Lida Orzeck, CEO of Hanky Panky Ltd, says

On June 1, 2004, we raised the price to $18; I think maybe it was $17 earlier. And then five years had passed and near the end of ’08, we had a plan to increase the price. We let everybody know and explained why—all of our prices have gone up, for materials, labor and so on.

Further reading:

  1. five steps to effective price management for small businesses,
  2. Price increases when demand shrinks
  3. Bottled water prices

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