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Growth Pricing

Disciplines > Marketing > Pricing > Growth Pricing

Description | Example | Discussion | See also

Description

Price your products in order to maximize growth (typically of market share). In a static market, this means taking market share from competitors. In a growing market, there may be more of a focus on capturing new customers entering the market.

Base your price on your goals and what works. If you want to establish your company as a high quality or luxury brand, price high and seek to grow within your defined high-end market segment. If you want to be a volume supplier, price low enough to tempt many customers.

You will probably also need strong marketing so you will have to work out how you will be able to afford this. Some products will also have cost you significantly in development already, so you must have confidence if you are going to seek to break even in the future rather than try to pay for early costs during a growth period.

Example

A new entrant into a market offers a basic product at below the current minimum market prices.

A company seeks to grow its luxury market. It deliberately prices higher and ensures the product and its packaging is attractive to the high-end customers. It also carefully markets the product as being 'worth it', outspending competitors on

Discussion

Growth pricing is different from profit pricing and may well forgo profit, at least in the shorter term, in order grow. Growth pricing should be used only as long as it achieves growth (this is often forgotten!). If you are not growing then your pricing may be ineffective, your product poorly matched to the market, or brand loyalty within the market is keeping customers from buying your bargains.

Working on growth is of course a lot more than pricing. It needs to include constant research and development of products that meet the changing needs of the growing market. In growth markets when demand outstrips supply, including those that include the latest innovations, the first requirement is to have products to sell, even if they are not perfect. You also need effective marketing and sales

An alternative form of growth pricing is to grow profits by increasing price rather than selling more. This is more relevant in a static market when there is less opportunity to gain new customers. It is also an option when competitors' customers are very loyal or the cost of acquiring them is high.

See also

The Price-Quality Graph and the Fair-Value Line