And the customers acted accordingly. During the 20% phases, the Practitioner markets were very well attended. And when a Max Bahr market in Hamburg opened under the aegis of Practitioner and applied the same discount principles, it led to a kilometer-long traffic jam on the nearby A7 motorway.

The management learned: massive price reductions work in the market, the customers come. Unfortunately, it is like with other drugs: you have to constantly increase the dose. And in the discount-free times, Practitioner lacked customers.

From a business point of view, a very uneven utilization is not very pleasing. The business model was not viable with this type of selection of price-sensitive customers. If too few customers buy at the “normal” price, the pricing strategy does not work. Practitioner selected the wrong customers from the entire spectrum – a pricing strategy that made the survival of the company impossible.

Selecting the wrong customers: the promotion share as a critical size

Not all companies are as radical as Practitioner. But there are very interesting studies and evaluations by GfK Nuremberg, which show the share of promotion sales (i.e. the share where discounts and special prices are used) for brands on supermarket shelves.

What does a 50% promotion share do?

Strong brands have a low promotion share. And with other brands, the promotion share is close to the 50% limit: customers almost only access when there is a promotional price. Only half of the customers still buy at the normal price on the shelf. It is obvious that brands are attracting a customer base that is extremely price sensitive with this pricing strategy.

The GfK evaluations also show that there are very large differences in the price elasticity of demand for branded goods. A lower price elasticity of demand is associated with a lower promotion share of these brands on the supermarket shelf. Here, habituation effects obviously come into play: with some brands, customers are literally waiting for the next action.

ALDI, EDEKA and REWE: winning attractive new customer groups through the pricing strategy

Much more interesting are examples where the pricing strategy does not lead to only price-sensitive customers being selected, but on the contrary, such customers are (additionally) won who have a higher willingness to pay.

The next time you do the family shopping, use this opportunity for an extensive store check. Companies like ALDI, EDEKA and REWE have been pursuing a pricing strategy for some time that is also intended to appeal to more willing to pay target groups. How can you recognize this?

The best way to reach a willing clientele is within the framework of an overall concept: higher prices go hand in hand with a high-quality store design and an expanded product range. We are talking about a larger price spread. In order not to lose customers who have a more limited budget, the own-brand products “Yes” and “Good and Cheap” are consistently used and even expanded. This also appeals to discount customers. See also our Newsletter No. 36: Why Discount Pricing is sometimes unavoidable.

Customer selection via high-price strategies

High-price strategies naturally presuppose that you have a convincing product and a strong brand. But this also includes a pricing strategy that supports consistent customer selection.

Customer selection at Porsche and Apple

Let’s take the example of Porsche. The statement “We always produce one vehicle less than the market demands” shows that the utilization of capacities is not a size that can determine the price. Accordingly, the discount margins at Porsche are significantly lower than at comparable brands. Day registrations to influence the registration statistics are not common. As a result, a customer portfolio emerges that has different price expectations.

A similar strategy is pursued by Apple. Of course, Apple products create a high desirability among potential customers. But the specific pricing strategy is aimed at addressing only the really willing customers. Apple is by no means the market leader in many market segments in terms of unit numbers, but often generates 90% of the global profits that arise in these segments. Ultimately, this strategy is aimed at the luxury shopper of our LSDC matrix.

Customer selection at Mercedes: the new Källenius strategy

For several decades, Mercedes has implemented a pricing strategy that has expanded the accessible market, namely towards the mass market. The average revenue per vehicle has developed downwards over several decades with the introduction of the A-Class, B-Class, C-Class and the corresponding derivatives. This made Mercedes a volume provider and a competitor to Volkswagen and Toyota in these segments.

If you can believe the words of the new CEO Källenius, this strategy will be corrected in the coming years. The S-Class is to take up a strategically important place again. The model range in the lower segments should rather be reduced. This is a comprehensible strategy of customer selection via the price. The profitability of the brand will benefit from it. This strategic course is currently being clearly rewarded on the stock exchange.

Customer selection in the VW Group via strategic pricing

For the VW Group, a special challenge is to implement a cross-brand pricing strategy. This is, among other things, the task of group pricing. An area that must ensure that SEAT, Skoda, Volkswagen, Audi (and in some segments also Porsche and Bentley) not only differentiate themselves from each other through the products, but also through the price.

In individual cases, the temptation may be great to expand the market share not at the expense of external competitors, but also at the expense of the “internal” competitors. The implementation of a pricing strategy that consistently takes into account the brand positioning then leads to a broad coverage of the payment readiness available in the market.

Customer selection and multi-channel pricing using the example of adidas

The strategic orientation of adidas, from which one can learn a lot, is interesting. As a manufacturer, adidas has understood very well what opportunities the Internet offers brand manufacturers. We call it a “Brands go Retail” strategy (or D2C – Direct to Consumer) in marketing: increasingly bypassing traditional retail and reaching the end customer directly via the online channel.

Currently, the press reports that 80% of adidas’ growth in the coming years is planned in the D2C area, i.e. bypassing retail. The adidas strategy relies on a clear price-strategic division of labor in the sales channels:

• In their own flagship stores and on their own website, they offer the latest and exclusive models as well as the special editions – the customer with the highest willingness to pay can be found here.
• Classic retail (Sport Scheck, Karstadt Sport, Intersport and other chain sports retailers) offers a wide range for a broad target group. Not every product innovation quickly finds its way onto the shelves of sports retailers.
• The adidas outlet stores appeal to the brand and price-conscious customer.

The conclusion: Control of the customer portfolio via the pricing strategy

What is the core message and conclusion of our considerations? The price is a highly effective means of deciding whether a customer fits the company and its products or not. A selection of customers can be made quite easily via the price.

In other words: in the end, everyone gets the customers they deserve. And sometimes it takes courage to say that you will not value some customers in the future.

The next pricing newsletter: Making price negotiations more successful

Finally, again the reference to the topic of the next pricing newsletter: we will give you some tips for successful price negotiations.

With best wishes and until the next pricing newsletter, stay healthy everyone!

Maybe we will see each other soon in one of my Pricing Seminars? The date for the next seminar would be June 25/26, 2021 in Hamburg.

Your Prof. Dr. Hans-Christian Riekhof