OnDemand Pricing Webinar - Pricing in Turbulent Times

Pricing strategies webinars are available on demand from the Professional Pricing Society. These webinars provide valuable information from leaders in the pricing industry. This week's feature on-demand webinar is hosted by Pricing Solutions' President Paul Hunt:

Sponsor:
Pricing Solutions

Title:
Pricing During Turbulent Times

Speakers:
Paul Hunt, President

Description:
Companies are experiencing unprecedented challenges with fluctuations in commodities pricing and the exchange rate. In this seminar you will learn how to manage pricing when exchange rates and commodity prices are under-going dramatic changes:

• Best practices in handling pricing turbulence
  
• How to execute price increases
  
• Managing negotiations with customers
  
• Focusing on value instead of costs
  
• Reducing the risks associated with fluctuations in the exchange rate and commodity prices

Download this on-demand webinar now.

Click here for a full listing of PPS on-demand pricing webinars.

Pricing Video Series 4 - Time and Materials Method

Video 4 in the Managerial Accounting Pricing Series:

Commodity Pricing

The current economic turmoil is really creating a highly educational environment for new and experienced pricers to both observe the importance of pricing strategies in different business models and industries as well as to ...

Commodity retailers are looking at their pricing strategy as well. According to this report by the AP, commodity retailers raised prices last year to keep up with the costs of production and distribution materials, but are now having to cut prices again to maintain customer loyalty as an increasing number of consumers are in a financial crisis.

BusinessWeek and the Associated Press recently highlighted the example of Clorox:

"Price hikes on some consumer staples may be hitting their limit.

"Clorox's chief executive said Friday that the company had rescinded most of its planned price increases and that further cuts were possible.

"I think you'll see the industry backing off," CEO Don Knauss said in an interview with The Associated Press. "I think there's very little appetite for increases."

"As prices for oil, gas and plastics rose to unprecedented heights last year, most major consumer products companies raised prices for a range of staples, including pet food, toothpaste and toilet paper. Clorox, maker of its namesake bleach, sells a range of products from Hidden Valley Ranch salad dressing to Brita water filters and Fresh Step kitty litter.

"Now that commodity prices are easing up and consumers face a financial crisis, some companies are cutting prices to attract shoppers."

Read the full article: "CEO: Clorox rolls back prices, more cuts possible"

Retail Pricing - How Retailers Communicate Pricing In-Store

One of our readers left a comment regarding the debate between customer service and pricing as the primary keys to success and customer loyalty in retail product pricing. (View post here).

His firm, RetailNet Group, just published a brief survey of their recent store visits and observations of how retailers are delivering price and value in new and interesting ways in-store. He was kind enough to share the retail pricing survey here. Warmly - EM

Pricing Video Series 3 - Return on Assets Method

Part three in the pricing video series Managerial Accounting - Return on Assets Method:



Again, this is a great series for new pricers who are just starting to learn pricing fundamentals. I hope you are finding this useful. Warmly, EM

Demand Pricing Update - Apple and ITunes

The variable and demand pricing strategies continue: Apple recently announced that it would raise the price of "hit" songs on ITunes - those in high demand - and lower prices for the extensive library of tracks that garner less volume and customer attention:

From the LA Times: "Apple raises prices as music sales slide":

"As for variable pricing, I've weighed in before on the need for record companies to try to make more money by charging less for music. The deal with Apple is a half-step in that direction. But it's also clearly an effort to extract more dollars from those who are already buying tracks, rather than grappling with the bigger problem -- the steady reduction in spending on music."

And from CNNMoney.com: "Apple Changes ITunes Pricing":

"Schiller said iTunes will now offer three price points for songs: 69 cents, 99 cents and $1.29. It will also offer all of the 10 million songs in its library without copy protection, and will allow iPhone users to download songs through 3G wireless networks. In a press release accompanying the announcement, Apple said the pricing of a song will be based on what music labels charge. The labels that have agreed to the pricing include the four biggest - Universal Music Group, Sony BMG, Warner Music Group and EMI. Many in the industry has been critical of Apple's 99-cent pricing, with some executives saying that it cut into profits on hit songs that could sell at a higher price."

Again, great resources are available in the PPS archives, including "Driving Demand Profitability with Pricing."

In a related story, rapidly increasing competition is forcing Ticketmaster to reduce their prices as well: "Ticketmaster Chief Moriarty Sees Lower Ticket Prices."

Pricing is getting a lot of major media attention as many companies are again focusing on foundational, critical business strategies. This is a great time for expert pricers to demonstrate their skills and expertise. Warmly, EM

Retail Pricing - Customer Satisfaction Still Critical

Here is an interesting article from a retail industry blogger arguing that low prices are not the only key to retailer success and customer loyalty:

"While the retail industry has been hyperfocused on pricing, the retailers who have continued to focus on customer satisfaction, like Amazon and Apple, have emerged as the winners in a losing holiday season.

"The link between customer satisfaction and sales is not breaking news. The confirmation that overall customer satisfaction still matters in a price-conscious economy is definitely headline worthy. According to the "2008 Holiday Top 40 Online Retail Satisfaction Index" report from Foresee Results, the most satisfied customers still spend more, make more repeat purchases, and make recommendations to friends.

"...Retailers in all channels would do well to heed the warning. While pricing seems to be the main consideration for fearful consumers, it is still not the only consideration. A hyperfocus on pricing to the exclusion of other aspects of good retailing will result in a diminshed customer experience, decreased satisfaction, and eventually, the loss of reputation, the devaluation of brand, broken loyalties, and, as we will observe repeatedly in 2009, complete business failure."

PPS experts have been covering this aspect of pricing strategy for years and from all angles, and the recent economic hardships are doing a good job of bringing this fundamental principle of pricing back into focus.

At the end of the day, this principle applies across all businesses - low prices cannot make up for bad business practices or bad products. Smart pricers apply customer relationship strategies as part of their overall pricing strategies instead of using pricing as a stand alone - or in many cases this year - a last breath strategy.

Several more articles on this subject are available in the PPS archive, including "Applying Customer Relationship Valuation to Strategic Pricing Optimization," "Customer Value Driven Pricing to Enhance the Bottom Line," and much more.

In tough economic times, returning to foundational pricing principles is your best bet. Warmly, EM

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Pricing Strategies for Retail Recovery

Retailers have been trying to weather the storm through strategic pricing and inventory management, and strategies are continuing into 2009 following a historic low holiday volume. This report provides and interesting insight into how strategic pricing plays a critical role in overall business sustainability and stability strategies.

From CNN Money.com:

"...research shows that holiday sales performance this year and competitive performance in 2009 will decide the tipping point for 'retail recovery' as 80% of companies are challenged by historically higher levels of cost of goods sold and low consumer confidence.

"The last six months leading up to the recent holiday season indicates a shift in value chain priorities and IT investments when compared to the beginning of 2008. Aberdeen's research data shows that during the last 2 quarters of 2008, technology and process spending was geared towards accelerated product campaigns, door busters, and promotions -- in terms of price discounts and frequency, customer loyalty programs, precision merchandizing, and lean inventory management.

"The objective over the last six months within key retail sub-segments such as department stores, fashion, apparel, specialty, and consumer electronics has centered on customer-pull strategies and lean inventory techniques," states Sahir Anand, senior analyst and chief author of the report. "The obvious reason for this strategic shift is to pull through the current tough environment with minimal business risks such as store closings, working capital squeeze, depleted customer satisfaction due to staff cuts, and low margin attainment."

Any insights from pricers in the retail space? What kind of pricing strategies are you implementing to weather the current economic storm? Warmly, EM

Pricing Series Video Two - Gross Margin Method

Here is part two of the seven part pricing series - Material Variances



More to come - EM

Pricing Video Series 1 - Managerial Accounting

Here is something I found that I thought would be useful to our readers. It is a good basic series of video classes by a managerial accounting teacher. It is best described as an excellent starter series on pricing from a managerial accounting perspective and a good refresher for the professional pricer.

But its greatest value to the viewer is that it is a great primer series for business owners and entrepreneurs looking for a pricing framework to start pricing a product or service where cost analyses are essential to the price creation.

I will post the series in full over the next couple of weeks. Best, EM

Banking Pricing Wars

Businesses are not the only ones engaging in pricing wars to claim their part of the dwindling consumer and profit pies. Here are two very interesting and recently developing stories from the banking world:

"As Deposit War Heats Up Smart Pricing Is Vital" - US Banker:

"Banks are falling in love all over again with consumer deposits; add to this newfound affection the industry's new entrants Goldman Sachs, Morgan Stanley and American Express - and what you have is an exceptionally competitive environment for deposits at the same time that consumers are more predisposed than ever to switch banks, thanks to the high-profile bank failures during the last year.

"The winners of this deposit war are likely to be those banks that can incorporate pricing-and-profitability techniques, analysts say. At a very basic level, pricing and profitability optimization is understanding at a very granular, segmented level, what the price elasticity and demand is for different types of deposit products in different parts of the market, says Frank Rohde, vp of product development and chief marketing officer for San Bruno, CA-based vendor Nomis Solutions.

"Banks are generally unwilling to talk about results of their pricing optimization efforts, though Rohde says that banks can generate five-to-ten basis points of incremental yield, or 10-to-15 percent increase in balance growth, while paying the same rate as before."

And in the mortgage side of the finance industry: "Perfecting Loan Portfolio Pricing":

"With GSes mandated to shrink, it is unlikely that other buyers will take their place until the risks of purchasing packaged loans on the secondary market are better known. This means that for now at least, a far greater number of mortgages will remain held in bank portfolios, a phenomenon we have not seen in decades. There will consequently be a far greater emphasis by banks placed on due diligence and optimizing value.

"Keeping mortgages within their own portfolios will present banks with enormous challenges, either in managing underperforming loans themselves or in pricing the portfolios for a more sophisticated secondary market. Optimization technology is emerging as a compelling way to price distressed loan portfolios."

It is interesting to me how many industries are responding to this current economic situation by turning their focus to pricing strategy, research and technology. What do other pricers think about all of these recent reports on pricing trends and tactics? - EM

Airline and Performing Arts Pursue Demand Pricing

As promised, more updates on new airline pricing models: "Frontier debuts new a la carte pricing model":

(Dec 22) "Late last week, Frontier Airlines became the first U.S. airline to unveil a new “menu-pricing” fare structure, in which passengers can choose from among three different pricing levels: Classic Plus, Classic, and Economy. Each ticket level comes with a certain number of amenities—the more you pay, the better services you get."

"...Air Canada has had a similar price structure for years, and other U.S. airlines are rumored to be thinking about moving in this direction, including American Airlines. For Air Canada, menu pricing has not only proven to be a money-maker, it’s also relatively popular among passengers. If passengers are willing to forgo all the extras, they can actually save money on their flight."

Other industries are starting to follow suit, believing this new pricing structure to be a sound profit model. I pointed out the stirring of this pricing in the NFL a few weeks ago. Some college teams seem to be dipping their toes in to test the waters, as well as the performing arts industry: "Performing arts charging more for premium seats":

"Just like airlines, many performing arts venues are beginning to charge more for ticket-holders to stretch out their legs."

"..."Demand pricing" is taking hold, said Alice Kornhauser, marketing director of the Portland Symphony Orchestra. "If people are willing to pay more for an aisle seat, then it's pretty irresponsible from a business standpoint not to charge," Kornhauser said."

"It should not be a surprise that arts organizations use sound business principles to have a more substantial financial foundation," Steller said. After all, other businesses including airlines and hotels have based their pricing on demand for years, she said."

Demand pricing is a very profitable strategy in some industries, although as I pointed out in a recent post, price increases can backfire if not thought through completely. We we keep a close eye on these industries as 2009 progresses, as this trend seems to be spreading quickly.

One of our PPS archive articles, "Pricing In Highly Competitive Markets", has this to say about these types of pricing strategies:

"Unbundle Everything You Can - In a price competitive market place it is important not to offer anything that customers don't value. One way of doing so is by making sure that every element of the product or service is sold individually. This approach lets customers choose which features and benefits they want to pay for and which ones they don't need.

"You gain because you no longer have to provide those features and benefits where they are not warranted and get revenue when they are. Remember - just because your competitor offers these features or benefits doesn't mean they will get the deal. If the customer is truly a price buyer, they will give the business to the company with the lowest price, provided that the minimum standards for quality and service are met."

Even Blockbuster, who has been fighting an uphill battle ever since the on-demand services and tiered pricing strategies introduced by Netflix ripped the carpet out from under them, have moved towards a tiered pricing structure:

"Blockbuster tests new tiered pricing":

"Blockbuster is testing a pricing scheme in the Metroplex that lowers prices for older movies but brings back per-day late charges.

"Under Blockbuster’s "Any Way You Want It" program introduced this month, customers pay a daily or weekly rate to rent DVDs and Blu-ray discs. There’s a charge for each additional day they keep the item without returning it, and there is no grace period before those charges kick in.

"The Dallas-based company hopes that the new pricing structure will make the rental pricing easier to understand and help keep popular movies and new releases available for renters."

More to come - EM

Small Business Pricing Q&A

I found this surfing recent pricing news: a small business pricing Q&A in the Houston Chronicle. It touched on a concept that PPS has focused on for many years, and that deserves revisiting in the current economy - one in which small businesses can most certainly thrive if they play their cards right:

"Finding the right balance among all the factors involved is more art than science. A common misstep, especially in the early stages of a business, is pricing too low to attract customers.

"While special deals can work in some cases to start the ball rolling, going low is not always the best path. Low prices can draw customers interested only in price. They are the ones most likely to abandon you the moment they find something lower. Selecting excessively low pricing levels to attract clients is even more dangerous for service businesses. You only have so many hours to sell. Your business can’t make it up in volume like a retailer who still profits from lower prices if volume is high enough.

"Pricing is partly psychological. You will want to set your levels according to the perception of your product or service "brand."

Many of our favorite expert articles from the PPS pricing articles archive, cover this subject in depth, such as this excerpt:

"Deciding what prices to charge represents one of the more visible decision variables confronting managers. Product prices send clear messages about customer value and company objectives. Few business decision areas can have a more rapid or dramatic impact on profitability than improved price management. And yet pricing has historically been one of the least emphasized of strategic issues, one that managers are hesitant to critique or discuss."

Read the full article: "Pricing as an Entrepreneurial Behavior"

More excerpts from the pricing archive upcoming - EM

SaaS Pricing, Google Style

An update on SaaS (software as a service) pricing, according to one of the leaders in SaaS, Google.

"Google App Engine Gets System Management, Quota Dashboards and ... Pricing!"

Google's latest app product provides and environment for programmers to develop, buy and sell their software and programs online. Following an AdWords pricing model, Google is setting itself up for the next great competition with Microsoft, who is planning to launch a similar platform, called Windows Azure.

I would love to get some feedback from pricers in the software world. Warmly, EM

Intuit's Pricing Gone Wrong

Although everyone is scrambling to find ways to increase profits in 2009 through creative marketing and pricing strategies, not all strategies are finding success.

From the Washington Post: "Intuit Finds Customer Complaints Too Taxing to Endure"

"I'd like to think that nobody's worrying about doing their 2008 taxes yet. But a lot of people do pay attention to that task this early--so many that their protests forced tax-prep-software vendor Intuit to back down from a controversial pricing change last week.

"The story began in November, when Intuit announced that the next release of its TurboTax software would charge an extra $9.95 for each return prepared after the first. Users noticed this change and were not amused."

Would Intuit have been smarter to develop a different strategy? After all, businesses are not the only ones experiencing difficult financial times. Consumers are becoming increasingly sensitive to prices, as I have been pointing out in recent posts, and an increase in price would be glaringly obvious when associated with something as distasteful and disturbing to many consumers as filing taxes.

The article goes on to say:

"For a while, Intuit seemed content to ride out the criticism. One Intuit publicist scoffed at Block's marketing strategy, Twittering that "Brands use price when they have nothing else.

"By Thursday, though, Intuit had evidently had enough. It said it would make additional returns free and refund any fees customers had already paid. The company has since released additional details about the change, explaining that an upcoming software update to TurboTax will remove any mention of the $9.95 additional-return fee."

Although pricing is a powerful tool for increasing profits, product penetration and overall success, sound pricing principles and market research need to be applied to any change in strategies, especially in uncertain economic times.

What do our pricing readers think about Intuit's strategies? What other strategies would you have recommended? Do you think Intuit will recover enough of its past users to turn a profit this year? It is going to be an interesting year for pricing! More to come. Warmly, EM