Brand Price Changes and Impact on Sales
Merck, Apple, Procter & Gamble, Anheuser-Busch (AB) InBev, Acuity Brands, and Linde are brands that lowered or increased their prices with varying implications on sales. Target customers and costs are factors to keep in mind when developing a pricing strategy for a luxury brand. A detailed presentation of the companies and the factors is presented below.
Brands that Lowered their Prices
- The pharmaceutical company reduced the prices of some of its drugs in July 2018 as a way of dealing with mounting criticism against the industry over high cost of drugs. The company reduced the price of the hepatitis C drug, Zepatier, by 60%.
- Following the reduction, Merck recorded some conflicting sales numbers of the product.
- On the one hand, sales of the drug increased significantly in the U.S. market from $8 million in 2018 to $118 million in 2019. On the other hand, the overall sales for the drug in all markets declined from $455 million to $370 million within the same period.
- Apple reduced the price of the iPhone XR in China by 450RMB. Following the price cut, the high-end smartphone retailed at 5900RMB, thus reducing the price difference with other alternative smartphone brands, such as Huawei Mate 20 Pro.
- With the price decrease for the iPhone XR, Apple experienced a surge in product demand and sales. The XR sales rose by 20 million units after the price cut.
Procter & Gamble
- Procter & Gamble reduced the price of one of its trademark products, Gillette Razors, by an average of 12% in 2017. The reduction was a strategy of regaining market share after a period of market shrinkage due to competition.
- Despite the price cut, organic sales for the Gillette product segment dropped by a 3% margin to $6.6 billion in the following financial year.
Brands that Increased their Prices
Anheuser-Busch (AB) InBev
- The transnational beverage company increased the price of all beer brands in the UK by 3.9% in February 2018. Some of the beer brands affected by the price increase included Corona, Stella Artois, Budweiser, Fosters, and Becks.
- Following the price increase, the company realized a growth in sales volumes. According to the company’s annual report for the financial year 2019, Anheuser-Busch (AB) InBev’s sales volume had increased by 11% from the previous year. Moreover, this marked the third year of growth in sales volumes.
- A combination of the price increases and stronger sales for the company’s premium brands drove organic revenue growth by 4.7%. Beer volumes increased by 2.1% between April and June in 2019 compared to the same period in 2018.
- The company implemented a price increase on all traditional lighting technologies and multiple LED products starting June 2018. The average price increase was 6%, although the increase was higher for some selected products containing higher metal materials.
- The price increase resulted in reduced net sales for the company. According to the financial records, the net sales reported on the fourth quarter of 2019 were $938.1 million against $1,061.2 million the previous year.
- The industrial giant introduced price increases for a range of its products including oxygen and nitrogen (15%), equipment rentals (15%), and hydrogen, argon, and carbon dioxide (20%). The price increases took effect in December 2019.
- Following the increases for the mentioned products, Linde’s sales grew significantly. For the fourth quarter, the company’s sales grew by about 2% across all geographic segments.
Factors to Consider when Developing the Pricing Strategy for a Luxury Brand
- Understanding the target customers with regard to what they need or expect from a luxury product is an important factor when developing a pricing strategy. In the luxury products' category, customers will usually have unique needs and expectations in terms of class, high quality, and exclusivity, among others.
- Customers will be willing to pay very high prices to acquire a luxurious product that enhances their social status, reputation, and feeling of exclusivity.
- The luxurious watch brand, Rolex, exemplifies the importance of understanding the target customers when developing a pricing strategy. The brand targets the wealthy customers and understands what they expect from their luxurious watches. For example, Rolex makes watches that enhance the sense of self-actualization for its customers.
- Rolex watches can be described as status symbols that appeal to the wealthy and affluent customers through the high prices that create the impression of higher value and opulence.
- Another factor to consider when developing the pricing strategy for a luxury product is the cost. Usually, every product will have its cost, including the fixed and variable costs.
- Usually, the pricing strategy should ensure the set price covers these costs at the bare minimum to avoid making losses.
- In the luxury watches' product category, the Louis Vuitton brand of luxury watches takes into account the product costs as a factor in setting prices. The cost of production is one of the main factors that the brand will consider when setting prices for its luxury watches.