Knowledge Is Power

Your Competitor is Shrinking?

Great, you think. The organization must be having financial problems. Not so fast as the Boston Globe pointed out in an article on the shrinking size of most major league ballparks. (April 20, 2006). We Bostonians have been hearing the Red Sox management crying for years about the pathetically small Fenway ball park. Turns out less is more; less capacity is more money.

“Since 1995, average seating capacity at major league parks has fallen 11 percent, from 51,106 to 45,395. At the same time, average per-game attendance has jumped 22 percent, to 30,936. And as tickets have gotten scarcer, the prices have more than doubled, to an average ticket price this year of $22.21, according to Team Marketing Report.”

The perception of scarcer tickets drives season ticket sales, leaving fewer seats for individual games, which drives season ticket sales, and so forth. While a ball park in California does not compete directly with Boston’s Fenway Park, the principle is the same.

Has your competitor altered its capacity because of a change in pricing strategy, or because of a slowdown? Check it out since your competitive response will vary greatly depending upon the answer.

Mystery Shopping Becomes More Mysterious

The vast majority of my pricing research has been in the B2B sector, not consumer.  It’s been easy to hire mystery shoppers to visit retail outlets and check prices.  Not any more!

A recent study done by the Annenberg Public Policy Center of the University of Pennsylvania titled “Open to Exploitation” shows how much more variable consumer pricing has become.  (Copy of study available at www.annenbergpublicpolicycenter.org.)  We have all seen the signs in the grocery stores with two different prices; one for store card holders and one for non-holders.  Now the study hints at the extent to which online pricing varies by individual characteristics and behavior.

Researcher Joseph Turow cited examples in an article on CNN.com June 1 “Study:  Shoppers naïve about retail prices online.”  “First-time buyers at a retailer could see higher prices than a firm's repeat customers, and retailers may not offer discounts to consumers who buy the same brands regularly without even looking at alternative products on the same site.” And  “Turow found a retail photography Web site charging different prices for the same digital cameras and related equipment depending on whether shoppers had previously visited popular price-comparison sites.”

He points out that “Changing prices is generally lawful unless doing so discriminates against a consumer's race or gender or violates antitrust or price-fixing laws.”  And the study showed that “… 87 percent of people strongly objected to the practice of online stores charging people different prices for the same products based on information collected about their shopping habits.”

So not only should the buyer beware, but the competitors should too!

Pricing Should Be CI Priority

Why?  Because prioritizing pricing CI brings higher returns.  According to a McKinsey study completed two years ago, the average Standard & Poor 500 firm would leverage a one percent rise in prices into an eight percent increase in operating profit while the benefits from a one percent decrease in operating expenses were 50% lower.

Pricing is actually quite complex and a price increase is not necessarily an across-the-board rise in listed prices.  Other factors included in pricing for the ultimate buyer are shipping expenses, payment terms, return policies, volume breaks, promotional or trade allowances, segmentation pricing (as in fares requiring a Saturday night stay over vs. mid-week round trips), delivery times, and support such customization or installation.

The article “Top-Line Impact” in the

May 9, 2005

issue of InformationWeek discusses these issues while focusing on the question of purchasing and installing a six-figure pricing analysis package.  One in-page head line said “Find good data which to make price decisions can be hard.”  And the article only once mentions competitive information.  The discussion centered on internal sources of pricing data.  Even without a software package (which can very valuable), organizations should have a good understanding of how their pricing philosophy and structure compares to the competitions’.  Pricing research can be done legally—it just needs to be done carefully to avoid any appearance of illegal price collusion.