Part 4: Pricing Process

Amount of Movement

Capsule: No traditional movement in price is sacrosanct. Price should move in the increment that suits the Company's objectives

The Company's pricing process determines the amount by which the price should increase or decline. The Company must determine the increment of the price change that is most effective in reaching its objectives. As is the case with the frequency of price movements, the market may impose the amount of a price change on the Company. The Company would prefer that price declines come in small, discrete, increments, while price increases come in large amounts. In practice, the opposite often holds. In a declining price environment, price changes may come in large amounts. In a rising market, price increases seem to come in smaller increments.

Some industries move prices in increments traditional to the industry. These traditional increments are rarely sacrosanct. A Company may violate these pricing traditions to its advantage. In particular, a Company in a falling price environment may reduce its price by less than the industry's traditional amount in order to slow the pace of its average price decline.

Amount of Movement Questions

  • Does the industry move price in traditional amounts? If so, can the Company violate this practice to its advantage?

  • When prices have risen in the past, by how much did they rise at each increase?

  • When prices have fallen in the past, by how much have they fallen at each decrease?

  • Can the Company violate these past practices to its advantage?

The Company may have an opportunity to reduce its costs with customers through some non-price benefits. The next section examines that issue.

Basic Strategy Guide Users Return to: Step 22

Summary Points Next: Non-Price Benefits