OnDemand WTP Pricing Research

Is Price Erosion a Natural Law? | PROS

Today many companies struggle with creating and maintaining a consistent pricing strategy for their products’ lifecycles. Unfortunately an undisciplined price-setting approach can lead to price erosion. But price erosion doesn’t happen to individual companies; it typically affects entire industries. What is price erosion and how is it caused?

In general, price erosion is a negative price realization in the market. For example, price erosion can be measured on similar products or services in two comparable periods of time where the price is continually lowered.

This typically happens with products or services that are similarly equal, without much differentiation. Customers are only willing to pay a premium if their perceived value of the product or service is higher, which occurs when companies haven’t clearly differentiated their products.

Additionally, other “me too” products lead to more and more competitors in the same market, with price wars as the common reaction to increase market share and revenue – at the expense of good pricing strategy. Offering discounts and lowering prices is the easiest solution – and continually improving products and driving innovation is considerably more difficult. This is the only way to counteract price erosion and exploit the competitive advantage, at least until cheaper “me too” products are pushed into the marketplace.

Read complete blog here:

Is Price Erosion a Natural Law?.

Post a Comment

WP-SpamFree by Pole Position Marketing