Price has always been a roller coaster ride for brand marketers. A modest increase in price can boost operating profit. On the other hand, a slight decrease can shrink profit dramatically. Given the competitive marketplace nowadays, there are times when both changes in pricing make sense. Either way, the goal is what consultant Mike Sherman calls "pricing excellence."
But what one company calls pricing excellence can be called silly -- or worse -- by another company. Let's take Procter & Gamble, which has been called just about everything by everybody at one time or another. A few years ago, P&G's "value pricing" plan stirred up the industry. By most accounts, it has been successful. What once seemed like a radical idea ultimately became a bold strategic move by a visionary industry leader. "What they've done is gone to a pricing plan to the retailer that encourages them to spend the money on real volume-building activities vs. building margins through [forward buying and diverting]," said Sherman. (See story, Page 4.) A parade of marketers didn't follow P&G with their own versions of value pricing. P&G could succeed because it has more brand equity than most others and its sales force is much more sophisticated. It's risky to meddle with a major source of profit for retailers. Brian Sharoff, president of the Private Label Manufacturers Association, New York, also believes that value pricing wasn't for everybody. "It was fairly obvious from the beginning that only one or two companies were going to pursue it, and the others weren't able to," said Sharoff. (See story, Page 4.) What's also obvious to Sharoff is a new pricing strategy by some national brand marketers to blunt the growth of private label. All this has to do with consumer perception of value. If good-quality store brands coupled with an attractive price equal value, then surely good-quality national brands coupled with a more attractive price equal more of a value, right? "They're going to use price. They're going to use their ability to spend money to combat private label," said Sharoff, who doesn't believe that every company can pursue this strategy, or that it will work over the long haul. A strong private-label program has been called a key to survival for supermarket retailers facing stiff competition from alternative formats. Such a program would give a strong gross margin mix with which to discount national brands to prices cheaper than the competition, according to securities analyst Mark Husson. "Supermarkets have to find a way of getting down on price near where alternative formats are without killing the gross margin," said Husson. "And the best way of enriching the gross margin while creating a value impression? Private brands," he said. (See story, Page 17). Ultimately, value has a price.