StrategyStreet / Diagnose / Pricing / Price Change Opportunities




Part 3: Price Change Opportunities

Capsule: Most price change opportunities, of course, will mirror those of the broader industry. As industry prices rise, so will those of the Company. As they fall, the Company's prices will tumble as well.

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In almost any market, the Company will have some opportunities to change its price to its benefit, even while swimming against the tide of industry price movements. There are a few attractive opportunities to raise effective prices in Hostile markets and to reduce prices in a rising price environment.

The Company's ability to benefit both from the industry-wide price movement and from the more limited opportunities to move against the market, hinge on competition, both current and potential. The key question with each price movement is how competition is likely to respond. (For more information, please see Diagnose/Pricing/Competition and Their Knowledge, Capacity and Will.)

The likely response of competition defines the patterns of opportunities to change price. There are hidden price change opportunities where the competition has no Knowledge of the Company's initiatives. Where competition faces Capacity constraints, the Company may have opportunities because the competition cannot respond. Finally, the Will the competition demonstrates to protect its current profits defines a separate set of opportunities to move in concert with, or in opposition to, that competitive Will.

The opportunities to change price fall into just a few patterns determined by the likely competitive responses to our decisions. There are six characteristic opportunity patterns to reduce prices to protect or gain sales volume. There are seven common patterns available to raise prices to improve margins. We discuss each of these patterns in the following sections:

  • Price Discount Opportunities
    The Company may discount to gain share where a customer does not use "Last Look," or where it finds a competitor in a Leader's Trap. The preservation of market share drives most price discounts.
  • Price Increase Opportunities
    The Company cannot increase its prices if competitors don't follow, so most price increases begin as short term events, pending competitive reaction. Long-term price increases depend on a unique competitive place or on an unusually un-competitive market.

Basic Strategy Guide Users Return To: Step 21

Summary Points

Next: Price Discount Opportunities