I was having a conversation this weekend about grocery store pricing strategies for Thanksgiving turkey. Although demand for turkeys increases during the holidays, prices typically decrease during that period. Since such a large number of shoppers buy turkeys for Thanksgiving, grocery stores offer aggressive prices on them in order to lure shoppers to their stores. During the conversation, one woman told me there is a certain brand she would not buy, irrespective of price, because they use hormones in their turkeys. When I asked about the implications of using hormones, she told me, “They say hormones in meat are bad for us and can affect the development of young children.” When I asked, “Who is they?” the woman told me she had heard that many times. She also said her daughter had not fed her grandson any meat that had been treated with hormones, and her grandson was smaller than most kids, but also smarter than most kids. (He is 6 years old and taking 3rd-grade math.) In my opinion, that is an anecdote, not evidence. I searched and could not find any medical studies linking hormones in meat to development. We all regularly hear anecdotes cited as evidence in our personal and work lives, but it is important that we be skeptical. Resist the urge to make decisions based on anecdotes. Use the data you have, or get the data you need to make fact-based decisions.
In the pricing world, we often hear anecdotes about competitors winning business based on price, and pleas from Sales to protect business with lower prices. Stories are told of competitors slashing prices so low it is hard to imagine they are making any money. And usually a particular account will be cited as evidence. But when we, Strategic Pricing Solutions, are engaged with clients we are skeptical, and we ask to see all of the data, not just a few anecdotes. We inevitably find a wide range of prices for any given product or basket of products. So then we ask, “Was there no competition on these deals with higher prices?” Of course there was nearly always competition in those deals. So what then are the differences in the low-price examples that were cited? We find they can be from several categories:
- An un-disciplined sales person at the competitor who only has the confidence to offer lower prices
- Competitors protecting business that our client tried to take away with lower prices
- The competitors interpret our clients’ efforts as a sign that our client is competing on price and they fight back
- Competitors offering de-scoped products or services to customers who did not want or need full value
- Customers or prospects who found it easier to tell the sales person the business was lost on price, when the real issue was service quality
- Competitors who have low market share in a particular area, trying to take some share with lower prices
The way to respond to anecdotes of low-price competitors varies significantly. If there is real evidence showing the competitor is indeed trying to win market share in a particular area based on price, it is important to defend that market share. That does not necessarily mean beating the low price, but it means making sure the combination of price you offer and value you provide is at least as good as the competitor’s offer. If the anecdote cited really belongs in one of the other categories, changing your pricing strategy to broadly lower prices to battle with a perception of an aggressive competitor will lower your profitability and may push you into a price war.
Don’t lower your profits and push yourself into a price war based on anecdotes. Get the data, find real evidence, and act accordingly.
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