I read an interesting comment in an Associated Press story this morning:
Inflation a no-show in July, likely to stay muted
By MARTIN CRUTSINGER (AP) – 18 hours ago
WASHINGTON — Inflation was a no-show in July and likely will stay away for months to come, giving the Federal Reserve room to keep invigorating the economy with record-low interest rates.
That was the message economists took from a report Tuesday that wholesale prices fell over the past 12 months by the sharpest amount in 62 years of record-keeping — the latest sign that inflation is posing no threat.
"In this economy, there really is no pricing power at all," said Brian Bethune, chief U.S. financial economist at IHS Global Insight.
These sentiments were echoed in Bloomberg:
U.S. Consumer Prices Unchanged, Matching Forecasts
By Timothy R. Homan
Aug. 14 (Bloomberg) -- The cost of living in the U.S. was unchanged in July, and dropped by the most since 1950 from a year ago, as the recession sapped companies’ pricing power.
Do companies truly have no pricing power in the current economy? Perhaps not in the traditional sense, as the ability to increase prices is at present severely limited by both a reduction of consumer expendible income as well as a general consumer spending anxiety. But that does not mean pricers have no control over their destinies or bottom lines when it comes to pricing strategy. (The upcoming Q3 PPS Journal presents a timely, in-depth article from Hermann Simon, chairman emeritus of Simon-Kucher & Partners, which highlights several strategies pricers can implement to mute the effects of the current economy. I know you will enjoy it!)
Many companies are turning to price reductions and steep discounting as tactics for attracting penny pinching consumers. Rumor has it that Sony is finally letting go and dropping the price of the Play Station 3 to $299.00, making it a more accessible purchase to a wider audience than before. CNNMoney.com recently stated:
"Wal-Mart has won market share during the recession by relentlessly lowering prices -- a strategy echoed in its advertising slogan, "Save Money. Live Better." Obviously companies as large as Wal Mart have an increased ability to withstand economic downturn than others. However, pricing is one of the most powerful tools companies can employ - especially in a down economy - to maintain liquidity, profitability and long-term sustainability.
Some companies still aren't afraid to raise their prices, as the
Wall Street Journal recently highlighted:
"NEW YORK (Dow Jones)--Walt Disney Co. (DIS) raised admission prices between 2.5% and 5.3% at its largest theme park in Orlando, Fla., over the weekend, even as it offers other deals to spur demand from consumers cutting back spending on vacations amid the recession.
The uptick in admissions prices at Walt Disney World was smaller than similar increases the company has made in recent years, but the move still reflects confidence that Americans will continue to come to Florida in search of Disney magic even as job losses mount."
Disney's brand power is strong enough to give the company flexibility to price as they need. In response, Universal has raised their daily ticket prices as well. Pricing power? Seems a yes to me. What do other pricers think? Warmly, EM
