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Pricing Strategies That Appease Customers and Stock Investors Simultaneously (Part 2)

16 February 2008 - Features - Editor

Pricing Strategies That Appease Customers and Stock Investors Simultaneously (Part 1)

Price Points Protect Stocks from Market Losses

Pricing gets more involved the deeper you delve! There is no getting away from the process however, whether you buy and sell stocks, run a corporation, or work in a mom-and-pop store. Pricing affects all of us, whether customers, and makers of things, or providers of services. Incomplete information is a major stumbling block in pricing, regardless of where you may stand. Customers are never going to say that they would love price increases! The demand elasticity of price (market share loss to a price increase) is a subjective matter for the best executives.

Long distance airlines hedge their pricing bets very well. They attack First and Business Class ticket prices at every opportunity, but are cagey in Coach! It is the same with automobiles: put together a basic platform of engine, drive train, and other essentials. Then add leather, incredible music systems, and a host of other non-essential add-ons! You could even reach deep in to some pockets with limited editions. Price points keep everyone happy! Unilever has spent more than a century selling everything from basic carboxylic bars, to scented magic that will transform your skin to celebrity status! What you lose at one end of the market, you make up through volume growth in other segments.

How Should Stock Investors Evaluate Corporate Pricing Strategy

Stock investors have no legal or affordable recourse to study formal company documents on pricing. Executives have legitimate privacy concerns, and individuals cannot afford expensive Market Research. Small business owners are in nearly the same positions: what should they do if they fear customer losses due to price increases? You do not have worries if Gross Margins are well over 50%, but it starts to hurt once a business falls below 25%. The situation is even more serious in countries with interest rates in double figures. Gross Margin decline is like high blood pressure or sugar: a first and sure sign that business health is slipping!

Benchmarking is the most reliable and convenient tool for stock investors to check whether pricing is in order. Gross Margins below sector and industry averages are signs of danger. This is even more so if a stock grows faster than competitors on the top-line. Gross Margins are easily compared from stock market data. A company can still have poor net profits though Gross Margins are fine, but let us leave that riddle for another day! Write to us instead, about how you analyze Gross Margins. It is easy to join our forum, and we would love to hear from you. We have started work on the next article in this series entitled “Pricing Issues for World Stocks”. It will be published shortly. Please bookmark this web site to continue a dialog with our community on pricing and other Business Management, stock investment, and small business ownership matters.

 


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