My Analogy about Pricing

I have very strong feelings about the role of price in the marketing mix. I once worked for a snack food company that nearly priced its way out of business. We frequently offered trade promotions and other price-related incentives to retailers and distributors. We had little trouble selling products when we lowered the price. The problem was we made little or no money. It took a change of Marketing VPs to put an end to the insanity of giving away profits with heavy discounting.

The analogy I use with my students about price is to equate its use as a marketing strategy with a tree limb. A limb that falls from a tree can become many things for a creative child: a gun, light saber, baseball bat, or many other possibilities. So it is with the marketing mix- it is the most adaptable of the 4Ps of the marketing mix. Pricing can be adjusted downward to respond to competitive situations or raised to address cost increases or maximize revenues.

There is a downside to pricing, though. It can be very dangerous, as was the case for the snack food company I mentioned. A reckless use of pricing can seriously damage gross margins, overall profits, and brand equity. Just like a limb can potentially cause injury if not handled properly, unwise use of pricing as a marketing strategy can lead do damage to profits and a brand's well being.