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1 minute read
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Imagine two competitors: A and B
Competitor A knows the willingness-to-pay of its consumers for the products (Optimum price at R$15 for the product and competitor’s one with optimum price at R$12).
Competitor B does not know this information and simply follows Competitor A's prices with a 15% discount.
Product costs have increased by 10% and this seems like a good opportunity for A to increase its current price (R$13) by 15% to R$14.95 just before the price level of a sharp drop in demand.
Competitor B with the original price of R$11.00 decides that it will repeat the percentage increase of its rival A and raise its price to R$12.65.
But...
What follows is a sudden drop in sales, leaving competitor B confused. They can't understand why their rival, after increasing prices by 15%, is selling more, while they, after doing the same, experienced a significant decline in sales—much worse than the 15% price increase.
Below are some mistakes and doubts from competitor B:
- Does not know the relative value perception of consumers for the products sold
- Follows a constant and dumb price indexing vs. his main rival
Qu: What should you do with a drop in sales?
a) Cancel the price increase and accept the 10% cost increase
b) Reduce the price increase to 10%, maintaining the original margin and creating a price difference with competitor A of 20%, violating the 15% index in force for many years.
c) Do nothing in the expectation that sales will recover subsequently?
Leave your answer in the comments!
If you've ever felt like you're in competitor B's shoes, talk to PriceBeam and we'll make you feel like you're in competitor A's shoes 👞.
How do we do this?
PriceBeam provides a structured and effective method for conducting WtP studies, giving businesses the data and recommendations needed to optimize pricing strategies. By utilizing these insights, businesses can boost profitability, strengthen customer relationships, and maintain a competitive edge.
