Brand Price Changes and Impact on Sales

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Brand Price Changes and Impact on Sales

Gillette and Warby Parker are two examples of retail brands (B2C/DTC) that lowered their prices. Gillette reduced the price of its razors by 20% leading to a decline in its grooming segment and global market share. Further details are presented below.

Gillette

  • Gillette lowered the price of its razors by 20%.
  • For example, the cost of Gillette's 5-count Mach3 Turbo replacement blades is between $12.99 and $18.99, from a prior price range of $17.99 to $21.99.
  • The company's global grooming net sales in fiscal 2017 decreased 3% to $6.6 billion partly due to price reductions in the United States.
  • As a result of the reduction in prices, the company's "grooming segment was the worst-performing unit" according to its 2018 fiscal Q2 earnings report.
  • The company's organic sales saw a 3% decline despite its total organic sales gain of 2%.
  • Procter & Gamble (P&G), Gillette's parent company, reported that its global grooming product market share declined due to its price reductions in the United States.

Warby Parker


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Brand Price Changes and Impact on Sales 2

Two B2C companies that raised their prices in the United States market with varying impact on their sales and revenue are the Coca-Cola Company and Netflix. Presented below is a brief description of the price increase, the reasons, and the impact on sales and revenue.

The Coca-Cola Company

  • The Atlanta-based multinational beverage company increased the price of its trademark product Coca-Cola and other carbonated soft drinks in its product range in July 2018. The company took this step following the Trump administration's decision to impose a 10% tariff on all aluminum imports to the United States effective March 2018.
  • The company's CEO James Quincey in an interview with the Wall Street Journal in July 2018, said that besides the rising aluminum cost, the rising costs of freight and labor led to the price hike of Coca-Cola's products.
  • The Coca-Cola Company did not release any list of new prices of their carbonated drinks in the United States since the prices varied from one retailer to another within the country. These retailers passed on the price hike to their customers.
  • As a result of the price increase, the Coca-Cola Company reported reduced net sales and losses in its annual report for the fiscal year ending December 31, 2018. The net operating revenue reduced by 10% to $31,856 million in 2018 from $35,410 million in 2017. The company's net operating income in North America went down by 5% to $2,453 million in 2018 from $2,591 million in 2017. Also, the company reported a 1% sales drop in its sparkling soft drinks' category in North America in Q4 of 2018.

Netflix

  • In January 2019, Netflix announced a price increase in all its subscription packages for its subscribers in the United States. Netflix's CEO Reed Hastings said that the reasons to increase the subscription rates were to cover the expenses incurred by Netflix in creating more original series, licensing popular content, and expanding its exclusive digital library.
  • The price increase was in the range of 13-18%, depending on the subscription plan. Thus, the monthly basic service plan increased from $8 to $9. The company's most popular plan, which allows customers to stream HD content on two different devices simultaneously, increased from $11 to $13 per month. Netflix's most expensive plan, which allows 4K streaming on four different devices simultaneously, increased from $14 to $16 per month.
  • Netflix's price hike impacted its new subscribers in the United States immediately. Its existing subscribers experienced the hike within the next three months.
  • Netflix's decision to increase its subscription rates cost the company 126,000 subscribers in the United States. These customers canceled their subscription with Netflix. However, this price increase in the United States coupled with an increase in the number of paid international subscribers improved Netflix's revenue to $4.92 billion in Q2 of 2019 from $4.52 billion in Q1 of 2019, an increase of 8.85%.

Research Strategy

We started our research by trying to find companies that increased the price of their products recently, i.e., 2018 and 2019, in the United States. We found examples of two popular B2C companies: the Coca-Cola Company and Netflix. These companies have increased the price of their products in the United States market for different reasons and have suffered some losses in the form of reduced sales or the number of customers. While the exact price hike in Netflix's subscription plans could be found, the Coca-Cola Company did not release any data or percentage of the hike in the price of its products. The Coca-Cola Company lets its retailers decide the price hike that they intend to pass on to their customers.

The annual reports of these two companies do not focus exclusively on the United States market, but rather, they cover their operations around the world. Hence, we could not get hard data on the exact sales losses in US$ that these companies suffered in the United States market alone due to the increased prices of their products. However, we have included all relevant information in the above research that is available in the public domain.
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Sources