Page 128 - Accelerating out of the Great Recession

DEFENSE FIRST

Known for their quality and longevity, Maytag washing
machines sold for a $70 premium (about 20 percent) over com-
petitors in the mid-1970s. But with the cost reductions, Maytag
was able to reduce its prices. Consumers responded well, and
Maytag’s share of washing machine sales increased by 5 percent
between 1969 and 1979. In a stagnant market growing at a
mere 1 percent, Maytag’s increase in market share allowed the
company to hold profits and margins steady.

Employ Strategic Pricing

Pricing is a key strategic lever whatever the state of the econ-
omy. But this lever can be particularly valuable when times are
tough. It is not always necessary to lower the actual price point
on a product; it is often possible to lower the perceived price
point without sacrificing revenue.
One common tactic is to remove features and slim down
products—a move that many food producers have made
recently. Another is to unbundle product and service offerings.
This gives customers the option to buy more or less, or to split
a purchase into two lower-priced elements. A third tactic is to
lock in customers and then sell them additional higher-margin
products and services. A fourth tactic is to increase prices and
discounts. Research shows that consumers are more responsive
to higher prices with greater discounts than to low prices. (In
Chapter 5, we profile IBM’s pricing strategy during the Great
Depression. It encapsulated many of these themes.)
For many companies, these pricing strategies are routine, and
are used regardless of economic trends—think of airlines selling
upgrades to economy-class passengers or technology companies
unbundling hardware and software platforms. But some com-
panies, when facing a crisis or economic downturn, may not

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