Elaborate the process to decide right time to change price of product. Do you think leadership pricing strategy is applicable in today's context? Give examples.

The Process of Deciding When to Change Product Prices

Deciding the right time to change a product’s price is a multifaceted process. It requires continuous monitoring and analysis of several key factors:

• Cost Analysis: Changes in input costs (raw materials, labor, transportation) directly impact the cost of production. If costs rise significantly, a price increase may be necessary to maintain profit margins. Conversely, cost reductions can justify price decreases to gain market share.
• Demand Elasticity: Understanding how sensitive demand is to price changes is crucial. Elastic demand means a small price change leads to a large change in demand, while inelastic demand means demand is less responsive to price fluctuations. Price changes should be aligned with demand elasticity.
• Competitive Landscape: Monitoring competitor pricing is essential. If competitors lower prices, a firm may need to respond with price cuts to remain competitive. Conversely, if competitors raise prices, it may create an opportunity to increase prices.
• Economic Conditions: Macroeconomic factors like inflation, recession, and exchange rates can influence pricing decisions. During inflationary periods, prices generally increase. During recessions, firms may need to lower prices to stimulate demand.
• Product Life Cycle: The stage of a product in its life cycle influences pricing. New products often command premium prices, while mature products may require price reductions to maintain sales.
• Seasonal Variations: Demand for some products varies seasonally. Prices may be adjusted to reflect these fluctuations (e.g., higher prices for air travel during peak season).
• Technological Advancements: New technologies can disrupt markets and necessitate price adjustments. For example, the advent of online marketplaces has increased price transparency and competition.

Leadership Pricing Strategy: Applicability in Today’s Context

Leadership pricing, also known as price leadership, is a type of oligopoly where one firm (the leader) sets the price, and other firms (followers) adjust their prices accordingly. This strategy is most effective when:

• The market is dominated by a few large firms.
• The leader has a significant cost advantage or brand reputation.
• Products are relatively homogeneous.
• There is a clear understanding among firms about the leader’s intentions.

However, the applicability of leadership pricing in today’s context is increasingly questionable due to several factors:

• Increased Competition: Globalization and the rise of new entrants have intensified competition in many industries, making it harder for a single firm to maintain price leadership.
• Price Transparency: The internet and e-commerce have increased price transparency, allowing consumers to easily compare prices from different vendors. This reduces the effectiveness of price leadership.
• Dynamic Pricing: Algorithms and data analytics enable firms to implement dynamic pricing, adjusting prices in real-time based on demand, competition, and other factors. This challenges the traditional, static nature of leadership pricing.
• Disruptive Innovation: Disruptive technologies can quickly render existing price structures obsolete.

Examples of Leadership Pricing (and its challenges)

Example 1: Airline Industry (Historically): For many years, major airlines like Delta and American Airlines often initiated fare increases, which were then followed by other airlines. However, the emergence of low-cost carriers like Southwest Airlines and Spirit Airlines disrupted this pattern, forcing airlines to adopt more flexible pricing strategies.

Example 2: Cement Industry in India: Historically, ACC and Ambuja Cement have often acted as price leaders in the Indian cement industry. However, increased competition from regional players and the entry of new large-scale manufacturers have eroded their pricing power.

Example 3: Intel in the Semiconductor Industry: Intel historically held a dominant position and often dictated pricing in the CPU market. However, the rise of AMD and other competitors has significantly challenged Intel’s price leadership.

Strategy	Traditional Leadership Pricing	Modern Dynamic Pricing
Price Setting	Leader sets price, followers adjust	Algorithms adjust prices in real-time
Market Structure	Oligopoly with dominant firm	Highly competitive, fragmented
Information	Limited price transparency	High price transparency
Responsiveness	Slow to react to changes	Rapidly responsive to changes