Recently, I have been speaking to lead marketers about growth — how they define it and what they are doing to achieve it. Through 13 interviews, not one lead marketer has mentioned pricing as a way to increase revenue or profits. Is price no longer a marketing function in corporations?
According to a McKinsey study, a 1% increase in realized price delivers the greatest improvement – a healthy 10% increase in operating profits. This is exactly why marketers need to be thinking about pricing strategies and price management disciplines. As an example, one industry that is ripe for a price increase is the aftermarket auto parts business like Carquest and Autozone. With sales of new cars at all time lows, people are trying to extend the life of the car they have. I recently spent $95 dollars to replace the battery on my car and would have easily paid another $5. It is these types of small increases that drop all of that incremental $5 to the bottom line.
Other price strategies exists, such as bundling or understanding “basket of goods”. When my wife and I go into Target we can not, for some reason, leave without spending ~$50. That is no accident. Are they the cheapest on everything? No, but we continue to pay because my wife believes certain categories of products are price competitively and we just can’t help ourselves buying other products due to convenience.
The Bottom Line:
Price is a big lever! Learn how to employ it and manage it. For further justification in how this works even in a down market please read my friend Sid’s post.