Product pricing is one of the critical factor for any organization to achieve their long term goals. Various external and internal factors affect the pricing consideration and approaches. There are three main pricing approaches namely cost-based pricing, value-based pricing and competition-based pricing. All these approaches can successfully use to attain revenue of the Organization above the break even point to earn profits. (Kotler 2016)
Here we will focus on how Woolworths the chain of supermarket is using the value-based pricing approach to optimize their business.
Value based pricing generally uses buyers’ perception of values which means what buyers are willing to pay for rather than seller’s cost for setting the price. Measuring the buyer percept value is sometimes difficult because it includes customer’s attitude towards quality and price of the product. Resolving competing objectives, understanding customer segmentation, knowledge of price negotiation and threats are key factors for implementing value based pricing. (Userweb 2016)
Coles and Aldi are two giant competitors for Woolworths fighting the continuous price battle. To keep themselves on top Woolworths uses a very systematic approach in pricing all their products. Firstly, Woolworths tries to recognize their consumer’s second best option, if their customers lose their interest in specific product or service then which alternative they choose? Secondly, they determine the price of 2nd best product or service available in the market. Next they list out all the offerings which are far superior than the 2nd best option available and evaluate its impact on their consumers. Next step is exactly opposite and in this Woolworths evaluates all the ways that the second best offerings are better than their own. They honestly note down all the negatives in their offerings in order to make them better in near future. To compute the best price Woolworths takes the price of the second best option then they add the value of their benefits and then they subtract the value of the 2nd best option’s benefits. i.e. (Marketing Donut 2016)
Best price = 2nd step + 3rd step – 4th step
Business-to-business organizations pursues to preserve pricing power in order to sell maximum amount of goods. In most of the retail markets like Coles and Aldi they use Everyday Low Pricing (EDLP) or high-low pricing to increase their revenue. To some extent Woolworths also use same strategies but during the last decade consumers’ attitude towards product quality and price changed drastically. Just to overcome this, Woolworths introduced their own products which can replace the established brands with low prices commonly known as Home-brand products. Surprisingly Home-brand was complete success with the total revenue of US $1.4 Billion in the year 2014-15. In this way Woolworths introduced low priced products with the best possible quality, including the quality of the product and its appearance. To make the best out of better, this year Woolworths will discontinue their label Home-brand and will start a new range under the tag “Essentials” which promised to deliver even grater quality and value for money. (NewsComAu 2016)
Sometimes retail shops changes price of their products due to some external factors such as environment or market demand. For example, in rainy season price of umbrella will increase and as its demand in market is high. Similarly, while in summers retailers will reduce its price to clear goods from their inventory. (Sydney Morning Herald 2014)
Comparing all the pricing approaches, we can easily state that Value-based pricing approach is the best method to estimate best price for all kind of products or services. Value-based pricing approach certainly had a huge impact on Woolworths’ annual revenue as they are selling heaps of possibly best quality products in the low price range.
Name: Anuj Shashikant Bhogle
Student ID: 215232377
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