Pricing in a Duopoly: Penny Wise, Pound Foolish

A Fortune-50 Retailer CEO was facing slowing store growth and a declining economy, and was accelerating price increases across the store that were growing the bottom line.  “What’s the value of being in a duopoly if it’s not pricing power?” he asked.  And after all, his pricing analytics team continued to show generally inelastic price elasticity, indicating he could continue to raise prices.  Yet after much debate he backed off his wholesale price increases over time- why?

Because it doesn’t stay a duopoly.   The fatter your margins, the stronger your barriers need to be.   One only needs to look to razorblades, which have purportedly attained a markup of over 4000% through marketing and dubious innovation.  The extraordinary (and well-deserved) popularity of Dollar Shave Club is likely to have serious impacts on the volume of the big brands.

And while we’re big on analytics, we often see our clients wrestling with the balance between immediate and historical analytical results and the long-term strategic impacts of their decisions.  For more on when to ignore your analytics, see an earlier blog post here.