![]() This important move, together with increasing investment in king-size and lunchbox formats, catapulted Oreo into one of the great brand growth stories of the last 10 years. Offering both small and large pack sizes helped unleash a wave of new growth at higher prices. ![]() Brand growth and pricing power stayed relatively anemic until the Oreo team realized that its base pack offering was simply the wrong size: It was too small for large households and too big (and expensive) for small ones. Innovations were aimed at creating retail news but failed to attract new households. Making that assessment allows them to design new offerings targeted at untapped households.įor years, Oreo cookies introduced a variety of flavors-everything from Double Stuf to Birthday Cake Oreos-but almost always in a relatively consistent family-sized package. The basic pricing architecture question is this: What will boost incremental household penetration in my category? Having considered the strategic decision to move average portfolio or brand prices up or down, consumer goods companies must also determine if there are too many products competing within a price band or if there are crucial price bands or pack sizes that are underserved. Pricing architecture: When a family pack limits growth Moreover, its competitors quickly followed, limiting share erosion and expanding the pie for all players. By raising prices, the company was able to dramatically boost its investments in these true contributors to household penetration. So, increases in household penetration would come only from breakthroughs in innovation, the in-store experience and heavy advertising. Mass consumers were willing to trade up only if they found a product that was dramatically better for them. But after a rigorous market analysis, it determined that flat prices were unlikely to attract new households in most markets. For years, the company held its premium prices flat, fearing the price premium (three to four times higher than mass products) was simply too high to attract new consumers. The reason: Profits in premium categories are twice those of returns in discount categories (see the Bain Brief “ High road–low road, revisited” and Figure 2).Ĭonsider a leading global cosmetics company. In fact, our groundbreaking research on category profitability determined more than two decades ago-and reconfirmed by follow-up analysis in 2011-the value of gaining share in a category that’s trending premium. Competitors have a much harder time following world-class innovation and marketing than they do lowering prices. Extending reach requires innovation and marketing-and you need higher prices to fuel investment in both. Yet pricing up is almost always better than pricing down in the long run. The fundamental pricing strategy question is: To maximize household penetration, should I take my average portfolio or brand price up or down? Many believe microeconomic theory dictates that the only way to increase reach is to lower prices. ![]() And Finance works to increase total dollar margin to reinvest in reach marketing.Īlthough the tactics may vary across brand portfolios and companies, successful companies typically tackle pricing across four dimensions: Sales looks to maximize household reach across channel customers, not share within a particular channel. They take a unified approach: Marketing aims to constantly recruit new households, not just those who seem loyal today. ![]() What do they do differently? Our research and experience working with hundreds of clients have helped us see how winners rely on pricing to extend household reach, not narrow it. In fact, a Bain & Company study found that only 12% of consumer brands have winning price strategies (see Figure 1).īut while many companies struggle with pricing, some are getting it right, systematically relying on price as a tool to increase household penetration and growth. With almost zero alignment on the ultimate pricing objective, it’s no wonder so few executives are satisfied with their pricing efforts. Marketing wants to rely on prices to build brand loyalty, tap into new occasions or fuel marketing investment. Sales wants to win share through discounting to retailers. Finance wants to increase prices to boost top-line growth or profits-and to cover costs and stay ahead of inflation. At many companies, the key constituents involved in price decisions rarely share a common view of pricing’s role. When executives look internally, they often find an organization that seems to be working against itself.
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