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How price increases led to whopping revenue growth for Kraft

January 16, 2012 by Dale Furtwengler — President, Furtwengler & Associates, P.C.

A November 2, 2011 Barron's article reports that Kraft Foods' third quarter net revenues grew 11.5 percent in part due to a 7 percent price increase.

That means that Kraft's revenues grew a whopping 64 percent more than the price increase. For many business leaders that seems impossible. After all, conventional wisdom says that buyers tend to find alternatives when prices go up, right? In reality customers have greater confidence in a product or service when its price reflects the value they'll receive.

What does this mean for you? That you, too, can enjoy the results Kraft experienced. Here are the keys:

• A reputation for quality
• Knowing who values that quality
• Pricing that reflects that value

Let's continue with the Kraft example to see how these apply.

Reputation

Kraft has a reputation for quality that's spanned more than a century. The good news is that you don't have to be around that long to develop a reputation for quality. But consistent delivery of quality, however you and your customers define it, is essential to having revenues grow faster than your price increases.

Knowing Your Customer

Kraft knows that its customers have discerning tastes and are willing to pay a premium to get that taste. Their customers also value consistency in the product. In addition, their customers have an intuitive sense that Kraft has their best interests at heart — that Kraft wouldn't take risks in the manufacturing of their products that might cause the consumer problems.

Pricing

Kraft's premium pricing adds further assurance of the quality, consistency and concern for their customers. Higher prices affirm customers' beliefs and attract even more buyers to Kraft's products. That's how Kraft can enjoy 11.5 percent revenue growth with a 7 percent price increase.

As you can see, there's nothing magical about what Kraft has done. This approach will work for any business, of any size, in any industry. It's up to you to employ these keys so that you, too, can enjoy the success Kraft has.

About Dale Furtwengler

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