From one price to two prices

If one price is good, two are better.

Or written in more rigorous  way, that the tweet worthy catchy way, that statement would read (try tweeting that)

In most situations, when demand is validated with one price, it is highly likely a second price point will yield more profit than just one price.  As a corollary, any demand and value perception is not homogenous.

If one price is good it does not mean it was the profit maximizing price. It can simply be marginally good in delivering profit, enabling a venture to sell a product a price more than it costs them to make and sell. There is likely more room for improvement in either setting the price point or discarding the current iteration of the product and replacing it in its entirety another product (or version) with different feature set and price point.

Introducing the second price does not mean the first price point is the right one to use in the presence of second price. That  is the previous single price point that was good may become bad when it coexists with the second price. To say it is bad means here it drains profit in one of two ways.

  1. If the previous single price is lower than the newer second price, the lower price may not be low enough or too low.
  2. If the previous single price is higher than the newer second price, the higher price may not be high enough or may seem too high.

So two prices are likely going to be better but when yo started with one price and introduced the second you need to revisit the first price in the context of second price.

That is what we see happened with Tide Plus price increase. You can read that in detail in this deck. http://www.haikudeck.com/p/Rd9lNNK61e/price-realization Here is a summary for those who do not click on links.

P&G was selling Tide Plus at premium price. But as economy took downturn and people thought twice about paying the higher prices it saw a fall in demand. So they introduced Tide Basic at lower price (the second lower price). They did not stop at that but revisited the price of Tide Plus and increased its price.

That is effective pricing.

If one price is good, two prices are better (if set right).

 

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