Page 5: Pricing decisions
We have seen that Bryant’s pricing decisions are determined by a sophisticated mix involving - more than covering costs, charging a price that reflects the perceived and actual quality of the product, charging more than inferior competing products, charging a price that provides a healthy return on capital invested, etc. We have also seen that Bryant’s buying and selling activities are carefully orchestrated by land buyers, sales managers and estate agents, using a wealth of statistical information about the market and market trends. The most significant factor in pricing is that the final decision will be market driven. House prices in this country reflect market forces.
If the first phase of a Bryant development sells quickly, then it is logical to raise the prices for the second phase in order to increase the gross margin. However, the secret is to raise prices in a way that will not curtail sales. To do this successfully requires a lot of information about the market in which you are operating. You can see how market-oriented a company like Bryant needs to be.
The touchstone - customer response
A key measure of the effectiveness of pricing policy is customer response. In this case study we have seen that Bryant homes are sold at a premium price – up to 10% higher than those of rivals. However, Bryant has no problems in selling its homes on ‘consortium sites’ where the Group competes against a range of other house builders. Indeed research indicates that many customers believe that Bryant gives the best value for money. When people drive to a Bryant development they frequently remark that it feels better and looks better. And, of course, it is customer perception that determines whether sales are made or not. The net result is that Bryant is able to achieve a higher premium per square foot than rivals because its specifications and accommodation have higher perceived value.
Bryant is able to add value for customers by providing plenty of choice. Bryant builds a number of homes of roughly the same size but with totally different layouts on the same development. For example, some homes may have a small utility or no utility area but a much bigger kitchen. Some homes will have a family room attached to the kitchen while others will have a third reception room in another part of the house.