Read this week’s required article: How Companies Can Get Smart About Raising Prices . Retrieved from the Ashford University Library.

In a three- to four-page paper (not including the title and reference pages):

Explain how to successfully get customers to pay more for your products. Reference the article in support of your response.
Explain how a specific pricing strategy will allow you to raise the price on your product successfully.

You must use at least three scholarly sources from the Ashford University Library, one of which must be peer reviewed, in addition to the textbook. Your paper must be formatted according to APA style as outlined in the Ashford Writing
Center.

This is the article that is referenced:

How Companies Can Get Smart About Raising Prices; Marketers too often do precisely the wrong things, alienating customers and getting little return. Here’s how they can do it right.
Ailawadi, Kusum LView Profile. Wall Street Journal (Online) [New York, N.Y] 21 July 2013: n/a.
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For one thing, most of the cost of a typical packaged good is tied up in packaging, transportation and other aspects of production–not in the product itself. []lowering the quantity is unlikely to preserve a company’s margins.

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How do you get customers to pay more for your products?

It’s a question no company wants to face. Raise prices in the middle of a sluggish economy, and they risk alienating customers they can’t afford to lose and leave themselves vulnerable to competitors.

Yet they have little choice but to ratchet up. The cost of making consumer goods and getting them to stores has been rising for some time. And a lot of the old strategies for shaving overhead, such as outsourcing, are getting less effective in economic terms and more unpopular in humanitarian terms.

Passing along costs while keeping customers happy is a tough balancing act–but it can be done. Companies should resist the urge to cut promotions or camouflage price increases, which often backfire. Instead, they should focus on minimizing the pain for shoppers who are the most sensitive to price increase, by targeting discounts at them and offering different versions of their product at different price levels.

Here’s a look at some things companies shouldn’t do–but often do anyway–along with some smarter alternatives for raising prices.

On the surface, it seems like a good idea. A higher price tag is obvious as soon as somebody picks up a product in a store. So, why not keep the price the same, and make a move that may not be noticed at all: pull back on coupons, special offers and other deals?

The trouble is, customers do pay attention. Our research shows that shoppers put much more weight on coupons, markdowns and other offers than even sophisticated companies realize.

In the early ’90s, Procter & Gamble Co. cut promotions and coupons significantly. Our research showed this experiment misfired, and after a few years of share losses, the company restored promotions. More recently, there’s J.C. Penney Co.’s failed strategy of cutting back on the frequency of sales; the company lost nearly $1 billion in 2012. (P&G and J.C. Penney declined to comment.)

No, people often don’t know the exact price they paid for something. But they have a very strong perception of whether something is a good value. And they base this judgment on how often a brand or store offers markdowns, promotions and coupons. Promotions also let companies hold on to customers who are on tight budgets and need the deals the most.

Let’s say a food maker raises the price on a cereal but offers a coupon at the same time. Only people who are watching their pennies will take the trouble to clip the coupon and redeem it, while many others will simply pay the higher price.

So, the company is raising the average price consumers pay for their product–without driving away customers who might otherwise seek out a cheaper brand.

Along those lines, there’s also an important psychological component to promotions. It takes a lot of work for people to clip coupons and mail in proofs of purchase. The effort involved makes deal-prone consumers feel like smart shoppers–and smart shoppers are happy shoppers.

Sometimes companies try to cut costs by lowering the quality of their main product line. Or they keep quality high for their main brand and introduce a lower-price, lower-quality extension–called a fighter brand–to satisfy shoppers on the tightest budgets. Think Bounty Basic and Charmin Basic, which were rolled out a few years ago. Or, for a bit of ancient history, recall Kodak Funtime film.

But the move is likely to backfire. People may just buy the cheap brand instead, so sales of the regular brand will end up suffering.

Or the company may not make it clear that the fighter brand is a budget offering that doesn’t have the same quality as the main brand. People may buy it, be disappointed and turn away from the whole product line.

Another move that usually backfires: cutting how much product people get in a similar-looking package while charging them the old price. A bottle of soda might shrink by a couple of ounces, or you might get four fewer cookies in a pack–so the price tag doesn’t go up, but the price per unit goes up.

Why doesn’t this approach work? For one thing, most of the cost of a typical packaged good is tied up in packaging, transportation and other aspects of production–not in the product itself. As a result, lowering the quantity is unlikely to preserve a company’s margins.

Plus, when consumers discover that, say, the chocolate bar they just bought is smaller but the price is the same, the backlash can be costly and visible. People who feel that they’re being cheated or tricked can be very angry customers–and these days, social media give them an easy way to publicly voice their anger.

Less can be more, but only if companies can position small packs as a virtue and charge a premium for them. Think 100-calorie Oreos or Marlboro Shorts, for instance.

So, what’s a more effective way to raise prices? Start off with basic considerations.

First off, unless you’re an airline, you can’t raise prices every day. So, when companies do make the move, they should cover not only the higher costs that they’ve incurred up to that point, but also costs they anticipate down the road.

Companies should also spell out, as much as possible, what’s behind the increase. They should tell customers why the price is going up, whether it’s higher costs for ingredients or soaring transportation costs.

Research shows that consumers respond not just to the price level but to how fair they think it is. If they think that a price increase is tied to profit-taking or to other hidden motives, they’ll consider it unfair. They are more likely to accept the increase if it’s tied to higher costs, such as a fuel-price surcharge.

It’s also important to consider which products get a price increase. Think about this: If a food company has vegetables and ice cream in its stable of products, which one should get a price increase?

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