It’s business planning season! Right now, many companies are working hard to develop new price lists that will be effective early in January. These firms are analyzing their data to understand their competitive positioning, determine the differences in value between their own products and services vs. competitors, segment their customers, categorize their products, estimate changes in their cost structures, and confirm or revise their pricing strategies. To ensure all that work pays off in the form of improved pricing, it is important to demonstrate the courage to execute those well-developed plans and avoid the hubris that can sometimes cause firms to stick with ineffective pricing strategies.
Earlier this year, my wife and I moved to Florida. With year-round nice weather, palm trees and white sandy beaches, it seems like Paradise. Last week Hurricane Irma came through and reminded us of the true price of paradise. It also reminded me that buyers make trade-offs in every purchase decision, and your pricing strategies should understand and quantify the values of those trade-offs.
Much has been written in the past few weeks about the impact Amazon would have on the grocery industry after acquiring Whole Foods. The Washington Post called it “a clear signal of sweeping changes to come”, and the New York Times cited “the Amazon Effect” after comparing before and after prices on a basket of goods. The stock prices of Kroger and Walmart have dropped in anticipation of the revenue they will lose to Amazon. While I don’t know what Amazon will do, and I believe they will pick up some market share, I don’t think their pricing strategy will result in a price war.