Update: I learned today from a boom about Cadbury’s that Nestlé sells 1 billion products worldwide. That is at least one billion prices. That is mind boggling. But the number sounds suspect to me considering their total revenue. Can someone fact check?
In the Nestle 2009 roadshow presentation (PDF) there are three slides that read like a lesson on multi-version pricing. One of the slides is shown in this post (advance thanks to Nestle). The numbers are not exact currency numbers but rather a price index showing relative price position. Nestle says in the transcript of the presentation,
You see here an example of PetCare which has shown and proven also to be a very strong resilient and defensive sector in bad times. And you see how we through the brands are allowing the consumer to have different price points. These are all Purina products. You see it in dog food; you see it in cat food how we have spread over different price points the product portfolio and yet using the Purina brands there rightfully.
Nestle is one of the few companies to report profits this quarter. As I wrote in my previous post, one reason is their price increase. Nestle’s multi-price point strategy seems almost so simple and easy that it will not be a surprise if anyone reading this raised the following questions:
- If it is this simple why not everyone do just this?
- If this works for Nestle why would it disclose this secret to the rest of the world?
- If this is so effective why not have more products at different price points, in fact take it to the extreme and have one price per person?
The answer to the first two question is the the same,
- This works for Nestle only because of the brand equity and the strong brand loyalty of its customers. Neither of these can be build overnight.
- Pricing and multi version products are aligned perfectly with the core strategy. In the case of Nestle its competitive advantage comes from a tight integration of its R&D, product innovations, comprehensive geographic presence and from its people, culture and values.
Multi-price point may seem easy to copy but without getting every strategic component right simply copying it is not going to help a competitor.
So why not take multi-price point to the extreme? This requires much longer discussion and I will write on it in a later post. But if you have your thoughts on this please share.