Examples of Price Increase Opportunities

Example 1:

In 1987, Huggies followed P&G's price-raising and raised prices on super-absorbent diapers 7%. Both companies had higher profits.

Explanation: Kimberly-Clark, operating in a market with limited competitors, followed P&G price increase to increase its profits. The Company was following a generally accepted way of doing business in the industry.

Example 2:

In 1992, Johnson was charging $1,250 to $1,500 for a year's supply of Ergamisol (levamisole). That was a hundred-fold higher than the $14 price tag on an older veterinary version of the drug. J&J said it was compensating for R&D costs over the years to allow use in humans.

Explanation: There is no other competitor for this proprietary drug. The Company is exploiting its unique Function in the market.

Example 3:

Responding to continually hard times, newspapers are cutting costs and boosting prices for 1991. Among other things, 1991 budgets call for aggressively higher prices for readers and advertisers.

Explanation: Newspapers have limited competition . They take advantage of the opportunity to raise prices to increase or maintain their margins despite declining demand. In the short term, the industry can raise these prices. In the long term, it must watch for further consumer resistance and the emergence of lower cost substitute products.

Example 4:

In 1990, before the Florida freeze, Brazil cut orange juice prices, hoping to increase its market share and dispose of its huge crop. But after the freeze, it suspended export permits, hoping to force up the price of futures contracts for juice concentrate.

Explanation: The original price cut suggests that competition would not have matched Brazil's price cut. So the industry was operating without a "Last Look" approach. After the Florida freeze, Brazil saw that the industry would be operating at very high utilization and took the opportunity to raise prices. The industry took advantage of constraints on competitor capacity.

Example 5:

Early in 1997, Ben & Jerry's raised the price of its top ice creams by about 3%, bringing them to $3 a pint at retail and on par with Haagen-Dazs.

Explanation: Ben & Jerry's raised its price to follow the pricing of its primary competitor. This is an industry with relatively few well known brand names at the high end. Competitors are following one another in pricing . Until the industry reaches consumer resistance or invites new competition, it has the opportunity to raise prices to increase profits.

Example 6:

YEAR	SIC	EXAMPLE
2001	3711	Hyundai's full-size sedan, the XG300, cost $10M more than the Company's previous high-end entry, the Sonata. The new car is as big as the Toyota Avalon and larger than the Nissan Maxima.

Explanation: The Company is adding a new Performance Leader Price Point to its product line in order to increase its average margins.

Example 7:

YEAR	SIC	EXAMPLE
1995	4813	AT&T increases the price of operating-assisted calls in the U.S. by 9%.

Explanation: The Company is raising the price on optional-related Functions used with the main long distance telephone service product. This increase in the price of an ancillary benefit raises the overall profitability of the Company without changing the Primary product's price.

Example 8:

YEAR	SIC	EXAMPLE
1991	7384	Fox Photo has a VIP club. For $15.99 you get your choice of a free second set of prints, a free album or 10% off processing of the first set of prints at the time of developing all full-priced rolls.

Explanation: This Company introduced ancillary benefits for a higher price in order to improve the average profitability of its photo processing business. The price of the main product, developing prints, did not increase, but the ancillary benefits of the VIP club brought more revenue and margin to the Company.

Example 9:

YEAR	SIC	EXAMPLE
1994	2840	Clorox and SC Johnson & Son launched plumbing maintenance products that include micro-organisms guaranteed to clear drains better. These products pushed the average price of drain cleaners up by nearly 15% and sales in the category rose 20%.

Explanation: This joint venture introduced a new Performance Leader Price Point to the marketplace, which increased both sales volume and margins in the category.