Competitive Price Moves: Choose and Execute Best Move

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Del curso dictado por University of Virginia

Pricing Strategy in Practice

72 calificaciones

University of Virginia

Pricing Strategy in Practice

72 calificaciones

Curso 4 de 4 en SpecializationPricing Strategy Optimization

In this project-centered course, Darden's Ron Wilcox and BCG's Thomas Kohler will walk you through a real-world case, from problem statement to detailed analyses. You'll use all three lenses (cost, customer value, and competition) to recommend an optimal price—and then adjust to market disruptions. Utilizing the concepts, tools and techniques taught in previous Specialization courses—from basic techniques of economics to knowledge of customer segments, willingness to pay, and customer decision making to analysis of market prices, share, and industry dynamics—you will practice setting profit maximizing prices to improve price realization. You'll finish the course with a portfolio-building project that demonstrates your pricing prowess.

De la lección

Curveball

This week, you will respond to new developments in the LED light bulb market: a new competitor and new regulations. Just like in real life, you'll need to adjust your strategy when the competitive landscape changes and new regulations emerge and reconsider the retail marketplace and reevaluate the B2B market. You'll also head out into your own "real world" and do some detective work about the LED bulb market in your area and relate those finding to the case. We'll finish the course with BCG pricing experts sharing their insights into what makes pricing such a rewarding field.

Signaling Games4:24

Extensive Form Signaling Games7:26

Gas Wars and Takeaways4:37

Competitor Pricing Models3:13

Competitive Price Moves: Understand Competitive Dynamics9:11

Competitive Price Moves: Assess Your Options6:15

Competitive Price Moves: Choose and Execute Best Move4:11

Conoce a los instructores

Jean Manuel Izaret
Senior Partner and Managing Director, Leader of BCG’s Global Pricing Practice
Ronald T. Wilcox
NewMarket Corporation Professor of Business Administration & Senior Associate Dean for Degree Programs
Marketing
Thomas Kohler
Associate Director, Pricing
Marketing, Sales & Pricing Practice

Finishing up the competitive price moves.

Now it's about choosing and executing the best move.

Talking about step five, choosing the possible move to achieve your goal.

In this example,

we are trying to maximize the revenue for a seven piece dining room set.

And there are three steps to it.

There is first of all you try to find the best move in unconstrained,

meaning before any competitor responses.

Then you do the war gaming where you explicitly consider what

your competitor might do.

And finally you have all the pieces together to pick the best price.

So, in our dining room example,

you know that the competitors are priced at around $500.

And now if you go up.

It does send a certain signal to the market and

going up is usually not seen as a price threat.

Going down however is and the steeper you go,

the more serious it is seen as a threat.

You need to calculate the likely outcome for your business for those scenarios.

So it's indexed, meaning it's indexed to the highest level, so

the most profit is made if the price were at 500.

And the highest sales, what we're solving for,

would be at this $50 price reduction.

But now it gets interesting because you have to think about what price signal

are you sending to the market, therefore what will your competitors likely do?

And as such, what are the implications for you ultimately?

And if we threat the competitors strongly,

we have to expect in this example, a 10% price cut.

Now we can calculate what this 10% price cut does to our profit and our sales.

If we find the price that is somewhere in between the $500 and $450 that is less

threatening, we also can expect a milder price response by the competitors.

And here we expecting a 5% price cut if

we are just in the middle between 500 and 450.

And lastly, and that's more like the optimistic case,

that there's no price response at all from the competitor.

So, now we're trying to maximize sales and in those three examples here, the.

Sales price where we have a mild price response from the competitor,

leads to the best outcome.

The steep price with a strong price response by competitors,

is actually never the best option, nor for profit, nor for sales.

And having a non-threatening price signal with no response

leads to better profits but it's not solving for our goal of lowering sales.

Let's finish this up and talk about the execution of the price and

monitoring the outcomes.

And I've said already, most of the things so just as a reminder here.

After you do the move, you want to update your market map and

check, did anything change here in terms of shift share?

Are the castles still all the same?

Did anything change around the type of the fields?

And lastly, verify that the competitors actually did what you were trying to do.

So here we anticipated a mild price response but was this actually true?

If it was, then you're on a good track,

if it was not, maybe you have learned something to tweak your future modelling.

So let's wrap this up.

There are a couple of table stakes.

You have to know your own business and want to be clear what you want to achieve.

But you also have to know your competitors as well as you can.

For the war gaming, you have to think through the possible price moves, and

what your competitor's response might be, and how they might be treated.

And select the option with the best end outcome.

And lastly, don't forget to follow through,

monitor your competitors carefully and adjust your strategy as needed.

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