In many product categories, having a somewhat higher price
is part of establishing a quality image in the minds of
those who buy and use the product. Companies which price
their products based on costs will often miss this point,
and hurt sales volume by having prices that are too low.
How can you use price and non-price methods to enhance the
sales and profits of your offerings?
In the 1970s, Kentucky Fried Chicken usually offered two
kinds of chicken, one produced according to Colonel
Sanders' original recipe and the other made like the
typical "crispy" fried chicken found throughout the
southern United States. Since the crispy chicken had been
offered, both products had been priced the same. The
thought behind this was that the company's competitors
usually sold their crispy products at lower prices, and the
less attention on the price differential the better.
The costs of the two products were such that the original
recipe was actually less expensive to make than the crispy
product. Colonel Sanders had done his homework. He had
designed the product to taste better and to be easier to
prepare. Some people in the company had been considering
cutting the price on original recipe. This would lessen the
price disparity with competitors.
The market research results showed something quite
different. Customers felt that the original recipe product
was a better offering, and thought that it was worth a
premium price. They reported being confused by why crispy
and original recipe were priced the same. They also had
some doubts about the quality of the crispy product, which
created doubts about the quality of original recipe if it
was sold at the same price.
A test was made of charging a five percent premium for
original recipe, along with putting a blue ribbon on the
containers. Volume both increased for original recipe and
for KFC. Consumers reported that the original recipe
quality rose. And it may well have. Knowing that customers
had to pay more for it, the cooks may have paid more
attention. This successful program ran for many years
before parity pricing between the two products was
reintroduced by a new management team.
Introducing a premium-priced brand can make a similar
positive impact on adding profitable market share. Black &
Decker found this out when it added the more expensive
DeWalt line of portable power tools. While many people who
do home-improvements want the least expensive product that
will get the job done, others take pride in their work and
enjoy having the feel and look of top quality tools while
they are working. And those tool lovers will happily pay a
hefty price premium for that sense of being well-tooled.
By offering both brands, Black & Decker can be more
competitive on price with those who care about that feature
of a product offering while being more competitive on image
and quality for those who are more sensitive about those
factors. As a result, the company was able to gain market
share and expand profits even faster.
Where can you use price changes to reinforce a quality
perception?
Copyright 2008 Donald W. Mitchell, All Rights Reserved
----------------------------------------------------
Donald Mitchell is chairman of Mitchell and Company, a
strategy and financial consulting firm in Weston, MA. He is
coauthor of seven books including Adventures of an
Optimist, The 2,000 Percent Solution, and The Ultimate
Competitive Advantage. You can find free tips for
accomplishing 20 times more by registering at:
====> http://www.fastforward400.com .
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