OnDemand WTP Pricing Research

Pricing Strategies Should Endure, Individual Prices Should Not | Strategic Pricing Solutions

Five, five, five-dollar footlong.  Who doesn’t remember that jingle?  During the last recession, Subway announced their promotion for footlong subs priced at $5.00.  Now, nearly 10 years after they introduced it, Subway has ended $5.00 pricing on the big sandwiches.  It is about time!  It is also a good reminder that although we want pricing strategies to be durable, individual prices should change with circumstances.

During the last recession, many restaurant chains modified their pricing strategies and lowered prices in attempts to win back customers who had stopped eating out.  Unfortunately, as I wrote in When Size Matters, most restaurants found that lower prices simply lowered their profits even more.  Subway did not change their strategy and fared better.

Subway’s pricing strategy had always been moderately low prices on quick made-to-order sandwiches.  Convenience and quick service were bigger components of their strategy than pricing.  Rather than changing their pricing strategy and lowering prices broadly during the recession, Subway targeted a specific price-sensitive segment with low prices only on certain large sandwiches. Other prices remained unchanged.  Subway’s customer traffic and profits increased.

Conditions have changed substantially in the past 10 years.  Raw material costs, including labor have increased.  Unemployment is down, and average income is up, reducing some of the price sensitivity.  Customer food preferences have changed, and competitor offerings have also changed.  In response, Subway has added new menu items.  They also have raised the prices on footlong subs (finally), but they still compete with quick, efficient, moderately priced sandwiches.  Their pricing strategy has not changed.

Read complete article here:

Pricing Strategies Should Endure, Individual Prices Should Not.

Post a Comment

WP-SpamFree by Pole Position Marketing