Much has been written about pricing power, which is the ability to raise prices and have customers continue to buy from you. Disney, Netflix, and Pfizer have recently shown us examples of exercising their pricing power to improve their overall profitability. Last week, I was reminded of Martin Shkreli, an example of an egregious abuse of pricing power. It clarified how important pricing power is to increasing profitability, but also of the need to be judicious in setting or increasing prices.
In a recent conversation with my son, he observed that New York’s MTA charges $2.75 for each subway ride, but the options for card refills are generally not divisible by that amount. In his view, this practice is not very customer-friendly and is likely harmful to the business. I agreed it is not customer-friendly, but I suspect it does improve the MTA’s financials. More importantly, it reminded me of the principles behind non-core pricing, or long-tail pricing.
We have all heard the term “loss leader”, and we have all heard someone say, “We’ll make it up on volume.” Most people don’t think about it much, even when we see advertisements indicating a company is selling below cost. During some recent conversations I was asked when, if ever, it makes sense to sell something at a loss. My quick answer was – rarely, but there are occasions when it is a good idea to sell below your cost.
Apple recently lowered their estimates of Q1 2019 Sales, citing slower iPhone sales among other factors. Since then I heard from several people that Apple’s pricing strategy was wrong, and they had misjudged price elasticity. My response is to quote Aaron Rodgers, QB of the Green Bay Packers, “Relax.” While Apple clearly overshot with pricing in China and India, they must tweak some prices; but they do not have the wrong iPhone pricing strategy.
Many of us make New Year’s resolutions with great intentions, but perhaps miss carrying out some of them. Even if you made great progress this year, we hope you will join us in making and sticking to these resolutions. This is our sixth annual publishing of New Year’s Resolutions for Pricing
The holidays always remind me of a season of possibilities. When I was a little kid, I thought of possible great gifts Santa might bring and things I could do in the new year. Now that I am older, I anticipate my kids coming home to celebrate Christmas with us; and I think of the possibilities for their lives. I realize their possibilities really depend on the choices they make, and their willingness to ask, “What if?” for themselves. The more they can ask that question about their jobs, business problems, societal challenges, and their personal lives, the broader their range of possibilities.
Late last month I presented at the Professional Pricing Society conference, along with several other pricing experts and practitioners. During a break, one of the attendees told me his company wanted to move to dynamic pricing, because they had seen very positive results in other companies who have done that. While learning from other companies and industries is always a great idea, it is important to remember that not all markets or situations are alike. Make sure you select a pricing strategy that supports how you compete in your industry and fits your particular circumstances.
For my daily news, I subscribe to the Wall Street Journal, Miami Herald, New York Times, Washington Post, and the Florida Times-Union. Interestingly, I am likely to cancel the Times-Union soon because it charges the highest price and delivers the lowest quality. It is an excellent example of a business that tries to save itself as markets change by cutting costs and raising prices. However, the Times-Union does not appear to be getting healthier. More likely the paper is circling in a death spiral. The good news is we can all learn what not to do in those situations.
Five, five, five-dollar footlong. Who doesn’t remember that jingle? During the last recession, Subway announced their promotion for footlong subs priced at $5.00. Now, nearly 10 years after they introduced it, Subway has ended $5.00 pricing on the big sandwiches. It is about time! It is also a good reminder that although we want pricing strategies to be durable, individual prices should change with circumstances.