dm's New Pricing Strategy: A Surprising Change | UNICconsult Strategieentwicklung

The Lebensmittelzeitung reports (Paywall) that surveys have shown that the price of more than 1000 products has been increased in the past three weeks. This applies especially to the online shop, but adjustments have also been made in some stores. This includes popular products like Balea soap, Kneipp shower gel, and Ariel detergent. The extent of this surprises, writes the Wirtschaftswoche. Although prices at dm have never been static, there have usually only been occasional shifts.

Until now, dm relied on permanently low prices. Now the drugstore market leader is changing course and raising the prices of many of its products. The background is a change in pricing strategy. In an industry dominated by fierce price competition, the price swing is causing surprise, but also irritation.

Unlike competitor Rossmann, who drastically cuts prices on branded products and own brands every week to attract customers to the stores, the drugstore giant operated with “permanently low prices”. Also, to keep other aggressively acting competitors at a distance. Aldi, Lidl and Co. have been poaching in the territory of the drugstore markets for some time and offer well-known products like Nivea, Pril, Pantene and Pampers at discount prices. Online giants like Amazon and Zalando are turning the market upside down – the fiercely contested market is becoming more difficult.

dm goes on the offensive in a fiercely contested market

“With the new pricing policy, dm is moving away from its claim to price leadership”, explains an unnamed trade manager. The decision was made to realign the pricing strategy in-store and online, confirmed CEO Harsch to LZ. The new pricing strategy means different price levels depending on the location of the stores and the competitive situation on site. Depending on which dm store customers shop in or whether consumers order online, they will find different prices in the future. Stores that are close to discounters or other direct competitors are supposed to offer lower prices than stores that have little competition. The individual markets should decide independently about the pricing in the regional environment.

Uniform prices are not always the optimal strategy

For pricing expert Professor Hans-Christian Riekhof, this is not really a surprising step. “That uniform (and thus undifferentiated) prices are economically anything but optimal, readers of our Pricing Newsletter have known for a long time. Some may also remember their own business studies, where a long time ago there might have been talk of price differentiation.

If the drugstore chain dm now moves away from the strategy of uniform prices, then obviously the realization has prevailed that the willingness to pay of customers is obviously not always the same. “Regional differences in purchasing power, temporally different preferences or even superficial product modifications can be used to implement price differentiations”, says Riekhof. “But what should be kept in mind: the increasing complexity of pricing must be reflected in internal processes and systems. Complexity to the outside is ok, to the inside rather not.”

Photo: Kettler Communication