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Procter & Gamble's Pricing Strategies During the Great Recession

Task:

Procter and Gamble Co. (P&G), like most businesses, had to adjust its pricing strategies during the Great Recession between 2007 and 2009. Unlike most companies, however, P&G responded to the recession and decreased demand for its higher end products by raising prices. This seems counter-intuitive, but after strategically analyzing their consumer's spending behavior, they recognized that their premium brands like Tide and Pampers saw a decrease in sales. In contrast, their less expensive versions like Gain and Luvs saw increases. Many of P&G's product lines are considered necessities. Things like diapers, laundry detergent, and body and hair care items are key products in P&G's extensive product lines. It is most likely the case that the prices of these products are inelastic or unit elastic. For inelastic products, when the product's price goes up, the company's total revenue also goes up, and for unit elastic products, when the price of the product goes up, there is no change in revenue. Because many of their products are inelastic, P&G was able to prices products in a way that allowed them to control their revenue. When it comes to necessary items like laundry detergent and diapers, there is a lot of competition. Still, there is no clear substitute product that would replace the need for laundry detergent or diapers. Therefore, consumers must buy whichever of these items they can that best meet their needs and budget. On the other hand, some consumers have specific tastes for some household essentials and are unwilling to compromise. As a result, they are willing to save money in other areas to afford these essentials that may not be the lowest price option. For example, customers may perceive bargain laundry detergent as watered down and that it doesn't meet their needs for cleaning power, so they may opt to spend more for what they consider is a better laundry detergent.

I hypothesize that P&G recognized the "necessity factor" of its products and used it to their advantage during the great recession to increase prices to keep revenue loss at a minimum. Price increasing worked for P&G, and as a result of this strategy, total sales increased by 7%. (Byron, 2009 ) This is proved successful from a business perspective. Still, from a consumer perspective, the practice of increasing pricing during difficult economic times could have backfired if consumers felt taken advantage of by P&G specifically. After the price increasing strategies that were used during the recession, in 2010, P&G began "cutting prices, accelerating product launches and spending more on advertising in an effort to win over shoppers slowly reawakening from their recession-induced coma." (Byron, 2010) In other words, P&G relied heavily on marketing and reducing its prices to increase demand and profits after the recession was over. These strategies are much more standard to increase revenue and are much better received by customers. As a result of these efforts, P&G saw a significant increase in revenue.

Factors Affecting Consumer Responsiveness to Price Changes

Proctor and Gamble (P&G) is a consumer goods corporation that specialized in a wide range of personal and personal health, personal care and hygiene products. This very popular corporation houses various household brand names such as Tide, Vicks, Gillette, Crest toothpaste and more. In our assignment this week, we take a deeper look into how P&G made its adjustments to their company operations and strategies during the Great recession. Upon reading the two articles, one thing that stood out drastically was how the company’s pricing policies has a lot to do with how consumers responded to the price challenges. In the initial article, it is clear that not only P&G, but also Coalgate, were doing their best to avoid lowering their prices to compete with rivals and independent companies. Instead, to counter the customers choosing the cheaper options, P&G began to raise their prices “to protect the structural economics of our business.” (Byron, 2009). It was interesting to see how the company would ignore the pressures put on them by retailers to lower prices and blamed their low sales on the inventory cuts implemented by these same retailers. P&G also attempted to counter the negative responses to their higher prices by developing new and improved products; but, this too did not receive a positive reaction.

There are different factors that affect the consumer responsiveness to the price changes of companies. One factor that I feel is closely related to the situation that P&G has found themselves is price elasticity. The demand for a product becomes price elastic when “consumers are very sensitive to the price change of a product—that is, they buy more of it at low prices and less of it at high prices.” (). This is because during a recession, like the one included, consumers are more intentional with their spending habits because money and income is so scarce during this time. To increase profitability during a trying time like this, I have identified two strategies in the second article that are used by P&G. One strategy the company has implemented is lowering the prices of nearly all product categories. This strategy is not only implemented to boost sales but to also cater to the buyer mood of “I won’t buy it unless it is on sale”. Another strategy the company implemented was increasing their focus and money into increasing marketing and advertising. This is put in place as an effort to increase brand awareness to compete with competition.

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