Initiating Price Changes:
This refers to situations when a company decides to increase or decrease its product prices.
Thank you for reading this post, don't forget to subscribe!- These changes can be caused by internal or external factors such as cost, competition, demand, or company strategy.
1.) Price Increases:
Raising the selling price of a product or service.
Reasons for Price Increases:
- Rising costs (e.g., raw materials, labor, transportation)
- High product demand or limited supply
- Inflation or currency fluctuations
- Improved product quality or features
- Brand repositioning to target premium markets
Example:
A dairy company may increase milk prices due to rising fuel or packaging costs.
Impact:
- Can increase profit margins
- May reduce demand if customers are price-sensitive
- Needs clear communication to justify the price change
2.) Price Decreases:
Lowering the price of a product or service.
Reasons for Price Decreases:
- To match or beat competitors
- To stimulate demand during slow periods
- To clear excess inventory
- To enter a new market or target a price-sensitive segment
- To respond to a decrease in production costs
Example:
A clothing brand may offer end-of-season sales to sell unsold stock.
Impact:
- Can boost sales volume
- May reduce profit margin
- Could affect brand image (seen as low quality if done too often)
Responding to Price Changes:
This involves how a company reacts when a competitor changes prices, either by increasing or lowering them.
1.) If a Competitor Lowers Price:
Possible Responses:
- Match the price to maintain market share
- Improve product quality or add value without lowering price
- Emphasize brand differences (focus on unique benefits)
- Introduce a lower-priced version of the product
- Reduce costs internally to maintain profit at a lower price
Example:
If one mobile network offers lower call rates, competitors may respond with bundle offers or added data.
2.) If a Competitor Raises Price:
Possible Responses:
- Keep your price the same and attract price-sensitive customers
- Raise your price as well if you want to signal quality or avoid price wars
- Highlight your better value at the existing price
- Improve marketing efforts to strengthen customer loyalty
Example:
If a leading airline increases ticket prices, others might maintain their rates and highlight affordability.