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This past weekend my wife and I attended a college swim meet, and in the process I found an interesting study in what happens if you do not pay attention to the competition when setting prices. The study of competition revolved around parking. There were examples of customers ignoring competitive alternatives and choosing the high-priced option, as well as declining volume for a parking garage whose pricing strategy did not include adjusting to competitive changes.
In my last blog I wrote about situational pricing. The main point was each situation is different and a customer who is normally price sensitive will not be in some situations and vice versa. This past week I received a clear reminder of that. I have two kids in college, the price of which can take your breath away. I have gotten over the sticker shock of paying for higher education, but the reminder this week came in the form of shipping charges.
My son is a junior studying finance and statistics, and this is interview season for college students looking for summer internships. His first few interviews were all scheduled as telephone interviews, however he had an on-campus interview scheduled Friday. Early Tuesday morning I was talking with him and he mentioned he was having trouble finding the suit he wanted to wear Friday. When I asked if it was possible the suit was at our house, rather than his college home (6 hours away), he said he did not think so, but it was possible. Of course it was at our home, and it needed to be dry cleaned. We quickly concluded our only option was to overnight his suit to his house for Wednesday delivery, so he could get it dry cleaned and pick it up late Thursday. At this point, how sensitive do you think I was to the price of shipping?
Uber’s surge pricing received more attention last week with the large snow storm in the Northeast, when Uber agreed they would not “gouge” consumers. Prices would be higher than normal, but would not be excessive. Conversely, tickets to the Super Bowl on the secondary market were higher than ever. This past weekend, tickets in the upper deck, corner of the end zone were more than $12,000 each. Super Bowl tickets and surge pricing are both good examples of situational pricing strategies – adjusting prices according to the situation. How are you applying situational pricing?
Procurement professionals can be a challenge for anyone trying to sell at reasonable prices, and especially so during periods when suppliers are being squeezed. Can you implement a pricing strategy that reflects the value of your products and services instead of simply giving in to all of Procurement’s demands? The answer is yes. Following are some tips for dealing with them.
As the new year kicks off and you take aim at your 2015 goals, are your incentive plans aligned with your business goals? Best practices ensure that each individial component of your incentive plan support specific high-priority goals of the business. Are there conflicts between plan components, and if so, are those conflicts intentional to drive the appropriate business choices? If your incentive plans are not properly aligned, fix the plans now to ensure you get the sales behavior and results you need.
Year-end discounts are like heroin – they are highly addictive, and they have many negative side effects. I am specifically referring to the practice of abandoning your pricing strategy and increasing discounts in December in order to boost sales and reach certain targets. Once a company starts those discounts, the selling company and their customers get used to them. The customers, like a body craving heroin, start to demand those discounts, and that often results in simply delaying sales from earlier periods to year-end or accelerating sales from the next year. The selling company wants those year-end sales and finds it too hard to resist giving discounts to generate the sales. The heroin and the extra discounts are both habits that are best avoided, but if you are already addicted, what options do you have to kick the habit?
Black Friday was disappointing for retailers this year. Sales were down 11% from last year, ‘Black Friday’ Fades as Weekend Retail Sales Sink, and I expect the retailers to report lower margins when they report earnings in the coming months. This follows a constant bombardment of email boxes and television ads announcing early sales and deeper discounts. Perhaps shoppers just decided that lower prices just were not worth the madness of dealing with the Thanksgiving weekend crowds. These results are a good reminder that relying on price competition can be hazardous, whether you are selling to consumers or other businesses.
I wrote a blog in the spring about the net neutrality debate, saying companies should be allowed to capture the value they deliver. Recently President Obama stated emphatically that he favors regulations that would preserve net neutrality, Obama pressures FCC for strong net neutrality rules; and of course the debates are back on the front pages of the newspapers again. From my perspective, the debate is mischaracterized. It is not a question of whether ISPs will be allowed to discriminate against certain users, but rather a question of whether they will be required to subsidize the huge users of bandwidth, or be allowed to set prices that reflect the value provided.
In the past few weeks I have seen a number of posts on Twitter, Facebook, Google + and an American Express TV commercial urging people to “Shop Small” and support the local community. The obvious interpretation of the Shop Small campaign is it represents an attempt to get shoppers to make stronger emotional connections with their local shops. However Shop Small is also a smart way of communicating to potential customers an additional source of value. There is a lesson for any business that believes they have to compete on price because all the products or competitors are the same — communicate value.
I was having a conversation this weekend about grocery store pricing strategies for Thanksgiving turkey. Although demand for turkeys increases during the holidays, prices typically decrease during that period. Since such a large number of shoppers buy turkeys for Thanksgiving, grocery stores offer aggressive prices on them in order to lure shoppers to their stores. During the conversation, one woman told me there is a certain brand she would not buy, irrespective of price, because they use hormones in their turkeys. When I asked about the implications of using hormones, she told me, “They say hormones in meat are bad for us and can affect the development of young children.” When I asked, “Who is they?” the woman told me she had heard that many times. She also said her daughter had not fed her grandson any meat that had been treated with hormones, and her grandson was smaller than most kids, but also smarter than most kids. (He is 6 years old and taking 3rd-grade math.) In my opinion, that is an anecdote, not evidence. I searched and could not find any medical studies linking hormones in meat to development. We all regularly hear anecdotes cited as evidence in our personal and work lives, but it is important that we be skeptical. Resist the urge to make decisions based on anecdotes. Use the data you have, or get the data you need to make fact-based decisions.
