---
title: "How Should Beverage Brands Price 'Smartly'?"
description: "Recently, the topic of 'Haidilao's retaliatory price increase' has sparked widespread public debate. However, unlike Haidilao, which raised and then lowered prices, Heytea quietly managed to increase its prices by 2 yuan. The reason lies in market positioning: Haidilao lacks pricing power despite its fame, while Heytea's brand is less replaceable. This article explores the real factors behind beverage pricing, arguing that market factors, not costs, determine prices, and offers strategies for brands to raise prices effectively."
author: "林川"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2020-06-28"
language: "en"
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# How Should Beverage Brands Price 'Smartly'?

> Recently, the topic of 'Haidilao's retaliatory price increase' has sparked widespread public debate. However, unlike Haidilao, which raised and then lowered prices, Heytea quietly managed to increase its prices by 2 yuan. The reason lies in market positioning: Haidilao lacks pricing power despite its fame, while Heytea's brand is less replaceable. This article explores the real factors behind beverage pricing, arguing that market factors, not costs, determine prices, and offers strategies for brands to raise prices effectively.

Recently, the topic of "Haidilao's retaliatory price increase" has sparked widespread public debate. However, you may have noticed that **unlike Haidilao, which raised and then lowered prices, Heytea quietly managed to increase its prices by 2 yuan.** Why? On the surface, it's because Haidilao is in the spotlight, while Heytea is more low-key. The truth is that **despite Haidilao's higher brand awareness, it does not enjoy pricing power in the industry.** In other words, Haidilao's price increase could easily drive consumers to abandon it for other hotpot restaurants. Heytea is different. Since the leading new tea brands are not easily replaceable, consumers, after complaining, ultimately fall for the "truth" of the product.

However, today's discussion is neither about Haidilao nor Heytea, but about **the 2-yuan, 3-yuan, and 5-yuan beverages on supermarket shelves. Why haven't they raised prices under the pretext of the pandemic? Is it out of righteousness, social responsibility, or other hidden reasons?** Or, what factors primarily determine the pricing of these beverages?

**-01-**
**"Cost-oriented" is a myth; the market is the most critical factor**

In the beverage industry, many brands believe in **"cost-oriented pricing."** Simply put, **the final price is based on the unit cost of the product plus the expected profit.** However, this can easily fall into a trap. Because, according to this pricing principle, **brands will inevitably pursue cost minimization, ultimately deviating from "good quality at a fair price." More importantly, due to extremely thin profit margins, companies may struggle to adapt to market changes, especially competitive dynamics.**

In fact, there are many counterexamples to "cost-oriented pricing." **For instance, Heytea's cost is less than half of its selling price; another example is Nongfu Spring, which is about to enter the capital market, with a gross margin of over 60% for packaged water.** Products like Tea π and Coconut Palm coconut juice have prices almost unrelated to their costs! So, what determines the selling price of beverages? In my view, **the key is market factors, namely the brand's industry position and substitutability!**

Take green tea as an example. In 1998, Uni-President Green Tea was launched in China. A year later, Master Kong Green Tea also appeared. The problem is that both are similar in taste and packaging. Even the target consumer groups are the same. In this context, regardless of Master Kong's cost, its pricing cannot be higher than Uni-President's. Moreover, to better erode Uni-President's market share, Master Kong's pricing must be even lower.

So, can Uni-President raise prices? No! Because once it raises prices, it would essentially hand over market share to competitors! In other words, although Uni-President Green Tea holds a central position in the industry, it cannot ensure that its product is irreplaceable. **As for Uni-President Green Tea's initial pricing, it was determined by the mainstream price range that consumers were willing to accept for bottled beverages at the time.** The same applies to bottled water. This is why, despite the increasing number of bottled water brands, Nongfu Spring's price remains at 2 yuan, neither reduced nor increased. **Because the mainstream price range consumers accept is around 2 yuan!**

**-02-**
**Pricing determines survival; uniform pricing is not easy**

When buying beverages, I believe everyone has this experience: whether you are in Yunnan or Beijing, in the city center or suburban towns, the price of a bottle of water or a beverage is the same. And this is not an easy task!

It mainly tests two capabilities. **First, the brand needs to comprehensively consider cost differences across regions and maintain a similar gross margin as much as possible.** Take Coca-Cola as an example. To control selling prices, Coca-Cola establishes production bases worldwide. However, even with high density, it is difficult to achieve full coverage. That is, it is hard to ensure the same gross margin nationwide. After all, production and logistics costs vary by region, and pricing must accommodate local realities. Therefore, brands must avoid cross-regional channel conflicts! **Second, refined channel management.** Generally, a beverage brand's sales volume depends not only on product awareness but also on channel coverage density. However, channels have levels. **Thus, brands must clarify the relationships between levels, ensure control over terminal channel prices, and avoid price differences across different channel networks.** In other words, pricing is the result of negotiation between brand and channels, and the key is the brand's management capability. It is clear that brand pricing is not determined by a single factor!

**-03-**
**How should beverage brands raise prices correctly?**

As mentioned earlier, product prices are not determined by their value but by the market environment. This means that for beverage brands, although external conditions constrain price increases, the desire to raise prices never changes. Why? Because when costs are relatively stable, raising prices means more market profit. This way, brands can maintain relationships with partners and invest more in R&D.

**So, how should beverage brands raise prices?**

**Essentially, beverage companies need to continuously enhance their brand awareness. Only then will consumers be willing to pay a premium.** However, honestly, this is a long-term strategy. What about the short term? In my view, there are two main ways. **First, upgrade existing products.**

For example, adopt new packaging to make the product look more "high-end and classy"; or upgrade the product itself, highlighting its value through differentiated selling points, so consumers pay for the differentiation. Take Coca-Cola as an example. Through concepts like "sugar-free," "low-sugar," and "fiber+", it successfully raised prices. Of course, consumers are willing to pay for it. **Second, accelerate product iteration by launching new products to shift the pricing range upward.** This is easy to understand: since existing product prices are deeply ingrained, any price increase might offend existing customers. Therefore, brands can only hope to create new products that, without a reference point, subtly push prices up.

Take Nongfu Spring as an example. It's hard to imagine the "classic red" Nongfu Spring bottled water rising to 3 or 4 yuan, but **the clever Nongfu Spring launched "sports cap water" for teenagers and "lithium water" for the elderly.** **The former is priced at 3 yuan per bottle, while the latter is nearly 6 yuan per bottle!** In terms of cost, is there a huge difference? Yet consumers are willing to pay for it.

Source: Brand Head (ID: ceozhiku) Author: Lin Chuan

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