The Importance of Pricing Strategy

A local article today about Brown-Forman's increased profits had the following interesting passage.

The company sold more of its top brand, Jack Daniel's, at higher prices. Brown-Forman has made Jack Daniel's more expensive so it didn't look cheap next to the super-premium brands, CEO Paul Varga said in a conference call with investors yesterday.

It will take a little more time to be certain that the higher prices were the cause for the increased sales, but it does tie in well with buyer psychology. Seth Godin also has a post on pricing where he tells an old story.

Twenty years ago, I participated in some pricing meetings on my new line of computer games. In the room were two Stanford MBAs, two Harvard MBAs and someone from Kellogg, I think. How did we decide between $24.95, $29.95 or $34.95?

We flipped a coin.

But we were scientific about it. A single elimination ladder, best of three.

I would say that in the last business I owned, it pricing was our second biggest challenge. A price can send many different messages, and you want to be sure you present the message you intended.