P&G practically created the teeth whitening white Strips category. Introduced under the powerful Crest brand it helped create new revenue stream after all it is not easy to grow 10% YoY when each brand bring in $1 billion revenue. The part that interests and impresses me the most is their multi-version pricing for the White Strips category. While I expressed concern about P&G’s other brand Downy’s horizontal product line extensions, Crest White Strips serve as an example of effective pricing strategy, tactics and execution.
Take a look at the Crest White Strips page from P&G and here are some insights on their versioning strategy:
Side bar – Value Tag: For brand managers from Colgate-Palmolive and Unilever this article is worth $9999 to you.
- If one price is good two are better and four are even better if designed and positioned correctly. Crest offers four different versions of the product, offering increasing benefits from low to high end version. This is vertical product line extension.
- Versions are designed in such a way that customers self-select themselves to the right one (Second degree price discrimination).
- The lowest priced version is the Classic at $24.99 and the super premium version ($44.99) is the Crest Advanced Seal, introduced in early 2009. That is a $20 price differential between the lowest and highest product creating great profit opportunity from up-selling.
- The price jump is non linear and reflects customer’s diminishing utility. From Classic to Premium it is a $10 jump indicating customers assign most value in this upgrade. Between other versions it is $5 jump indicating customer utility flattens out or grows slowly as they move up the versions.
- Note that the listings are benefits and not product features. Customers care about benefits and not about the features – compare this to many of the technology offerings that simply list feature differences across versions.
- Look at the images showing the packages. These are designed to visibly show that not only are these versions different but also help “tangibilize the intangible” (Ted Levitt).
- In behavioral economics, the effect of presence of high priced versions has been extensively studied. The netof those findings is that while these may not sell much, the presence of high priced versions help improve customer willingness to pay for the other versions. But that is not the case with Crest Advanced Seal. I make this claim based on the number of reviews and rating for this product.
Versions Reviews Rating (on a scale of 5) Classic 58 4 Premium 34 3.75 Pro Effects 17 3.5 Advanced Seal 77 4
If we use the number of reviews as a stand-in for the market share, Advanced Seal, despite being the super premium version, is their most popular seller. The ratings also indicate that customers are happier with their super premium version. At $20 price premium and arguably not much cost difference this is a big contribution to their profits.
- Their Pro Effects, scored the least both in terms of number of reviews and rating. Until P&G introduced Advanced Seal an year ago, this was their most expensive version. We can hypothesize that it served then as the expensive decoy but did not add as much value to the customers and hence did not get market share. Going forward we should expect to see P&G allocating fewer marketing resources to this version and keeping its price levels.
- All their prices end in 99, as seen again in behavioral pricing literature this is a good tactic. It is easy for everyone to have prices end with 99 but it takes marketing strategy and a clear understanding of customers to maximize profits.
Overall Crest White Strips serve as a great example of marketing strategy, versioning and pricing for profit maximization done right!