What should your pricing strategy be in this market?

I was reading the business section of the San Jose Mercury today and found two side by side (well they were in a column so technically one was above the other) articles that struck me.

ProcterGamble_logoThe first was titled “Price cuts, new products boost P&G.” The article noted that P&G “sees budget conscious consumers … responding to price cuts and new products to give them more for their money.” P&G reported better than expected 1Q results. They cut prices by about 10% across the board and saw sales fall about 6% thus suggesting an increase in unit sales. Profit was off 1%, but that was better than expected. Their CEO’s stated goal was to win back market share and the increase in unit sales may suggest that is happening.

Colgate-Palmolive_logoThe second article was focused on a P&G competitor, Colgate-Palmolive. The title of the article: “Price increases lift Colgate in Q3.” The article started out noting that “…higher prices have continued to stick helping …[the] company post an 18% higher 3Q profit.” (To be clear the two companies are on different fiscal years but the time period of interest is the same.)

While Colgate may not be able to raise prices further, which company do you think is doing better?

Mitch

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One Response to What should your pricing strategy be in this market?

  1. I read a similar story in WSJ and also read P&G’s earnings release. Despite the price cuts their Gross margin improved. This indicates that they are getting success with with their low cost versions (e.g. Tide Basic) and also may be using package reductions to keep costs low.
    P&G did not do across the board price cuts and it introduced premium versions (brand extensions like Tide Ultra) that bring in high gross margin.

    Regarding who is doing better – both are. If I really have to pick I will go with P&G. This is because of their track record and their willingness to constantly reevaluate brand portfolio – for example their current strategy review to shed low performing brands

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