Guest Article: Use Suppliers' Pricing Mistakes

This week I am happy to feature a guest article from PPS Board Member Jerold Bernstein.

Use Suppliers’ Pricing Mistakes

Now more than ever, getting the best price from your suppliers is a vital skill. It requires clear knowledge of the markets, good negotiating skills and shrewdness about supplier strengths and weaknesses. Sometime mistakes your suppliers make can work to your advantage. Here are 10 supplier errors that can put dollars in your pocket.

Mistake 1 – Lack of Attention to Pricing

Many process and automation suppliers do not pay enough attention to pricing. They lack the pricing discipline and pricing processes that would enable them to get more money from their customers. Their lack of attention can be your gain.

Mistake 2 – Weak or No Controls on Discounting

Unnecessary discounting is perhaps the largest source of profit loss for a supplier, and one of your biggest opportunities to get a better price. Some suppliers have a discount policy, but these policies are often ignored. Test your suppliers for opportunities. For example, once you have negotiated an initial price with your sales rep and are now placing regular orders, call the customer service or order entry department and tell them you need a better price. If the supplier has little or no oversight, you might the price you want or at least more discount.

Mistake 3 - Poorly Managed Strategic or Partner Accounts

Suppliers work hard to develop strategic or partner accounts. However, for many suppliers, these accounts are not partnerships, but a one-way ticket to a significant loss in profitability. Consequently, it’s unfortunate, but many suppliers do not make an effort to determine if partners are fulfilling their end of this agreement. This lack of oversight can work to your advantage. For example, a partner agreement may have a discount for a certain volume of product. You may be able to order less volume than your agreement requires and still get the better price for high-volume sales. Show your desire to be a strategic or partner account, and see how much faster you can reduce your costs.


Mistake 4 – Suppliers Don’t Know Competitors' Selling Prices

You know more about competitive selling prices than your supplier. Most suppliers have non-existent or woefully inadequate systems to track competitor market share and selling prices. At the same time, many suppliers do not want to lose business on price. Take advantage of your knowledge of competitive pricing to negotiate lower prices.

Mistake 5 – Providing Line-Item Pricing

Some vendors are still providing line-item pricing for large projects and systems. They lose the pricing advantage provided by a lack of transparency. Always insist on line-item pricing. Use this opportunity to challenge every item line by line while nibbling away at the suppliers’ prices.

Mistake 6 – Cost-Up Pricing

The days of cost-up pricing should be over, but fortunately for you, customers can exploit this still common pricing method. Manufacturers view cost-up pricing as low risk and easy to administer. A result is that list prices often have no basis in market reality. The smart customer will identify those products that are over-priced and use these as leverage to drive lower prices across the complete product portfolio.

Mistake 7 – Poorly Executed Price Increases

Challenge every price increase, particularly across-the-board increases. When a vendor puts a price increase in place, it may not need to affect you. Vendors know that only a portion of their price increase will stick. You might be able to get an exception, especially if your vendor perceives you as a valuable strategic or partner account.

Mistake 8 – Poor Negotiation Skills

Suppliers and sales reps don’t want your procurement organization involved in the negotiation and decision-making for your products. In addition, sales reps sometimes have comparatively poor negotiation skills if you have well-trained and motivated procurement department employees. As a result, you should take advantage of your procurement department. Make them your allies. Also, involving your procurement organization is a salesman’s nightmare, but you’ll sleep well knowing that you now have the initiative to get the best price.

Mistake 9 – Worldwide Pricing Inconsistencies

Suppliers have a difficult time understanding and managing worldwide pricing. Local offices may not coordinate account activity. As a result, there’s a wide variability of prices for a supplier’s product or system. This is another opportunity for you to take advantage of a supplier’s lack of attention to detail. Get bids from the widest number of sales offices possible and pick the lowest price. Many companies are plagued by their "rogue" sales office that always offers the lowest prices. Find that rogue office and get a better bottom line on your purchases.

Mistake 10 - Sales Incentive Plans Based on Dollar Volume

Most sales representatives have little or no incentive to boost the profitability of a sale. Many commission plans reward only on the sales dollar volume which is booked. For example, a sales representative bids a price of $50,000. On an incentive plan of 5% commission, the representative earns $2,500. If the representative reduces the price to $45,000 as a no-risk way to make a sale, the commission is reduced to $2,250. The customer just received a 10% discount, and the representative only loses $250. Knowing your suppliers’ compensation policies can work to your advantage. Your sales rep can be your best friend in getting better prices because he has little incentive to do otherwise.

Contact:
Jerold Bernstein
Value Pricing Group
Price Improvement Team LLC
636.386.8064
Bernstein@valuepg.com
www.valuepg.com

Copyright 2009 Control Magazine

Retailers "Fine Tune" Discount Pricing Strategies

U.S. retailers are getting creative in their discount and pricing strategies, according to reports from multiple news outlets this month. In addition to continuing to follow the schedule of sales - preseason, post season, school's out, school's starting, holidays, etc. - retailers are starting to take a more focused approach on how and where they are applying their discounts and price breaks, all the way down to the individual store level. As The Wall Street Journal recently reported:

"At the Banana Republic store in New York's World Financial Center, a white pleated skirt was on sale for $39.99, marked down from $69. The same skirt was discounted to $33.99 at Banana Republic's SoHo store, just two miles away.

"The $6.00 difference wasn't a mistake. It's part of Banana Republic's parent Gap Inc.'s (GPS) very deliberate move to tailor prices to fit local demand and inventory - right down to the individual store level.

"The payoff: Gap's merchandise margins have either matched or topped year-ago levels in each of the past five months through May..."

Smart strategy? Without doubt. Setting prices differently to meet varying demands in diverse geographic areas is an effective strategy if you can properly manage your discounting and accurately predict changing demand patterns.

We have been publishing numerous articles on our blog and in our publications recently that point to this kind of segmentation in numerous industries - strategies all aimed at encouraging consumers to spend their reduced pools of expendable cash. We have seen demand and dynamic pricing strategies at play in air fare, software systems and professional sporting events. One PPS expert recently published an article (which will be in the July 2009 PPS Newsletter) highlighting how further price segmentation could help the ailing concert industry.

Marketwatch goes on to point out that these strategies, in addition to being developed for clearing inventory, are also being put in place to make up for limited expansion capacity in the current economy:

"Gap isn't alone. Other retailers, including Wal-Mart Stores Inc. (WMT 48.11, +0.28, +0.59%) and Home Depot Inc. (HD 23.58, +0.47, +2.03%) , have taken on or expanded some form of "localized markdowns," rather than slash prices the same amount at the same time across all markets. This helps boost profits whenever items selling well in one region offset the need for deeper discounts somewhere else.

"It allows you to be more surgical and dynamic," said No. 1 home-improvement retailer Home Depot Chief Financial Officer Carol Tome in an interview. "Rather than marking down by entire market, you can use your markdown strategy depending on the sell-through in each store."

"As the weak economy forces retailers to close stores or trim expansion plans, they've scrambled for ways to maximize returns from each existing store, analysts said. How much, when and where to slash prices can make a big difference to the bottom line, especially so soon after having to discount merchandise at least 70% off over the holidays to clear excess stock, analysts said."

Many retailers are also looking to implement "market optimization" software systems to further perfect their discounting and segmentation strategies by more closely targeting pricing by market demand(making it a good time for innovative pricing software systems and consulting bodies to make their mark).

Not all companies are slashing prices just yet. Sony is a great example. Despite threats from Activision - the company known for market leading games such as Guitar Hero World Tour - to pull support for the PS3 if Sony refuses to cut prices, Sony CEO Howard Stringer refuses to cut the price below its current level of $399 in order to meet short term capital goals. Another Sony spokesperson further explained the company's position (reported in USAToday):

"We feel that we're sacrificing the short term to pay dividends in the long term. People are having short-term thinking -- the platform is not even three years old. It was $599; it's now $399. The focus on pricing is something we appreciate, but you have to have the conviction and the confidence that you are on the right path for the long term and ultimately you'll get all the consumers you want."

At least some companies feel that they can still hold true to their value proposition instead of engaging in a price war to attract dwindling consumers. More to come. Warmly, EM

Microsoft Windows 7 Pricing Strategy

Microsoft is set to announce its Windows 7 pricing platform any time now. Will they continue with their habit of confusing consumers with multiple levels of segmentation? Or take a simpler approach that will not leave consumers in the dark about what benefits they are actually receiving at each price point? As ZDnet.com reported:

"Any day now, Microsoft should be going public with its long-awaited Windows 7 retail pricing line-up.

"I’m thinking the unveiling should be this week, especially given that the Windows 7 Upgrade program is slated to kick off by week’s end. The Upgrade program will provide consumers and small businesses who buy Vista PCs with a voucher which will entitle them to a copy of Windows 7 once it is generally available, starting October 22.)

"Microsoft is leaving some of the program details — like how much participating PC makers can charge for the “free upgrade to Windows 7″ coupons they are including with Windows Vista machines — up to the OEMs. The length of time during which OEMs and retailers will make the upgrade coupons available is up to their individual discretion, as well."

We covered Microsoft's diverse pricing strategies in our June 2009 newsletter (click here to learn how to receive our publications), with an article by Per Sjofors, Founder and Managing Partner at Atenga Inc. The article, entitled "A Tale of Two Pricing Strategies" compares Microsoft's bazaar pricing of Windows Vista with its more profitable and, to most observers, more logical pricing of other services, such as XBox Live:

"Remember when Microsoft launched their new operating system—Windows Vista—two to three years ago? Not only did the public and media complain about how incompatible it was with existing hardware, but they were also befuddled by Microsoft’s decision to have, if my memory serves me right, six different versions of the product with prices ranging from less than $100 all the way up past $350. A quick price check today indicates that the range has widened, as you can now buy versions of Vista from $97 up to $800. Today there is Vista Starter, Vista Home Basic, Vista Home Premium, Vista Business and Vista Ultimate. Then there are versions of these with or without a Service Pack at an array of different prices along with upgrades from older Windows operating systems at another realm of different prices. Basically, what we’re looking at here is a discombobulated pricing mess.

"Now don’t get me wrong, segmenting the market and having different versions of products to meet different levels of customer requirements is paramount in Best Practice Pricing, and it’s a strategy companies follow every day. But, if that’s the case, then you may be wondering why one should complain about what Microsoft is doing.

"The answer is simple. When you segment your market with various versions of your product or service, at different prices, it is crucial that the segmentation make sense for your customers. If it does not, then they will feel they are being nickeled-and-dimed into paying higher prices for something that they do not value."

Read some early speculation on Windows 7 pricing from Engadget here. Will Microsoft change its pricing strategies? Or will they continue to do as they please (regardless of how much sense it makes to anyone else) because of their strong market share?

As Pers' article goes on to point out, Microsoft has implemented some very intelligent pricing and bundling tactics with some of its other products. I would be interested to hear from other pricers on this topic, especially in light of Apple's "aggressive" pricing tactics, which are getting a lot of coverage in the press:

"Apple Inc. (NASDAQ: AAPL) is having more than its share of free press from the World Wide Developers Conference this week. The big new push here seems to be on revamping the iPhone and MacBook. But the pull to go to Mac is where the risks also come into play. As Apple lowers its pricing threshold, its margins at least theoretically will come down as well. And the new pricing is so far being described as "aggressive."

"The good news here is that Apple’s pricing is still far ahead on many items, and it still has demand. If the company decides to start swooping down too far the price chain then it is likely to dilute its brand and will find out firsthand that it needs more and more tech support personnel to serve its customers.

"There is always a challenge in finding an equilibrium where Apple can maintain a premium product pricing (and margins), yet still keep bringing up millions of more new conversion buyers each year. Going solely for market share at lower and lower prices is not what Apple has been successful at doing. But hard times in the economy calls for more aggressive pricing. We won’t bother telling Apple the risks of pricing things too low in too many words. It has shown over and over how they know what they are doing." (Read more here)

PPS Launches Online Pricing Training and Certification Program, Announces 2009 Spring CPP Graduates

News from the Professional Pricing Society:

The Professional Pricing Society announces Online Pricing Training and Online Certified Pricing Professional course delivery for increased access, flexibility and cost-effectiveness

Atlanta, GA (PRWEB) May 6, 2009 -- The Professional Pricing Society (PPS), the world's only professional society dedicated to pricing education and training, has expanded their courses and Certified Pricing Professional (CPP) designation program to an online delivery platform. Through this new delivery method, pricers all over the world will be able to get pricing training and achieve professional pricing certification at their own pace and from any location. The CPP designation is the industry recognized standard for advanced pricing knowledge in the business community.

Until recently, pricers could only attain their pricing training and CPP designation by attending sessions at live PPS events. However, in this challenging economy, PPS identified the need to expand options available to pricers for overcoming tightened travel and training budgets and for pursuing career advancement through continuing education. With the online program, CPP students can access and complete courses in any order, communicate with course instructors via email, participate in review sessions via teleconference, and complete their post-workshop exams online.

PPS also announced their Spring 2009 CPP graduating class, adding seven pricers to the elite group of CPP designees. Graduates earned their designation by successfully earning six CPP credits in PPS approved workshops and passing a four-hour certification exam. The newest class of CPP designees brings the total number of pricing professionals certified through the program to sixty three.

The 2009 Certified Pricing Professional Graduates are:

* Tim Rowlands, President, Edgeworth, Inc.
* Kristy Lingerfelt, Global Pricing Manager PCIBO, Eastman
* Kyle O'Connor, Pricing Analyst, Open Text
* Don Thomas, Director Global Pricing, Baker Petrolite
* Stan Cherry, Director of Pricing, Stock Building Supply
* Colby Imbrie, Pricing Project Manager, Pricing Consultant
* Ron Greenwade, Global Pricing Manager, Baker Oil Tools

Read the full release here.

And, don't forget to save the date for The Most Comprehensive Pricing Conference in 25 Years!

Announcing the PPS 20th Annual Fall Pricing Workshops & Conference

When:
Pricing Workshops: October 21, 2009
Fall Conference: October 22-23, 2009

Where:
The Hyatt Regency Grand Cypress, One Grand Cypress Boulevard, Orlando, FL 32836

Click here for more information on this exciting event!

Pricing for Product Managers

This economy is presenting both unprecedented challenges and exciting opportunities for pricers.

For those pricing professionals who can embrace the challenge, apply ingenuity and sound pricing strategies, and be agile enough to benefit for opportunities despite the obstacles that the business community as a whole is facing, they can build a foundation of success now that will catapult them ahead of the competition when the economy rebounds.

The Accidental Product Manager blog wrote a very interesting article covering this piece from the product manager perspective, citing the Wall Street Journal's recent coverage of how businesses are coping with the downturn:

"One thing that they’ve discovered is that when the economy tanks, this is a great time to prepare for the future by getting your customers to trade up. This sounds rather backwards right? I mean when times get tough, people tend to trade down. Even though the margins on your stripped down products are skinner, most product managers think that SOME sales are better than none.

"In emerging markets, product mangers have realized something much deeper. They get their customers to trade UP to premium products even though corporate budgets may be tight.

"The key to doing this successfully is to be very, very careful about how you set the prices for the different tiers of your product offerings. You can’t make the price differences between basics and premium products too much or else your budget constrained customers will get turned off.

"Instead, what you need to do is to accept a lower profit margin on your premium products - in fact, lower than most companies are normally willing to accept. However, we are not currently living in normal times. You want to signal to your buyers that your premium products are a good value.

"If you can signal to your customers that your premium brand is offering them more value for the money, then they will be both more willing to trade up to it as well as to stick with it during hard times."

The Wall Street Journal expands the perspective even further, examining how companies can learn survival strategies from companies in emerging markets who, despite the fact the current economic slump is global in scale, are taking the offensive as opposed to hunkering down and hoping the storm will pass.

"As Western companies struggle to navigate the worst economy in generations, here’s one piece of advice: Look at places where volatility is business as usual—emerging markets.

"In these countries, companies have learned they can’t just hunker down when bad times strike. They have to go on the offensive. In Eastern Europe, South Africa and Latin America, managers look at tumultuous times as a chance to implement bold, creative ideas, outflank rivals and boost their business.

"That means coming up with new ways to price their products. Or scrapping old marketing approaches. Or focusing on figuring out where the economy is heading next—and how to use that information to grab market share."

The article gives four tips for businesses seeking ways to survive and thrive in the current downturn:

1. When the economy is down, get customers to trade up.
2. Increase product and service visibility.
3. Rethink what customers value.
4. Look at new metrics.

Read the full article: "Surviving the Downturn: Lessons From Emerging Markets."

Don't Just Cut Prices

Here is another great example of price cutting vs. staying true to your value proposition and developing innovative competition strategies that promote your strengths, not bend to market and pricing pressures. Best Buy is implementing a new customer retention strategy aimed at fighting Wal Mart's impossible to be price cutting without engaging in a price cutting war.

"Best Buy is preparing to fend off Wal-Mart's brutal price competition by giving consumers stores that are more interactive, Miguel Bustillo reports. Instead of being wowed simply by low prices, customers will be able to step into the world of a new videogame or see their faces captured by a high-definition video camera.

"The effort will be lead by current COO Brian Dunn, who takes over as CEO in June. A onetime Best Buy stereo salesman, he still believes that the best retail innovations come from front-line workers, and he has embarked on a tour of stores in search of inspiration for remodeling plans that he sees as a way to differentiate the retailer from competitors. "We want our stores to morph into a series of experiences," he says.

"Dunn says he intends to win customers by matching Wal-Mart on prices, and to build on Best Buy's existing strategy of helping customers navigate increasingly complicated technology. The key will be making the most of Best Buy's tech-savvy sales force, he feels."

Read the full article here.

Pricing Human Life

The New York Times ran an article last month entitled "Pricing Human Life," which uses pricing models and economics to explain the functioning of the nation's health system. This article is part of an interesting column called Economix, which is designed to educate people in "the science of everyday life."

I thought I would share as it is another unique example of how pricing principles are applied. The article also gives examples of cost effectiveness modeling in the healthcare industry.

"From an economic perspective, a nation’s health system can be thought of as a giant bazaar that presents the rest of society with a price list for wrestling from nature better health, or longer life, or both, through a variety of medical interventions.

"If one arrayed this price list from low to high, one might end up with a supply curve such as the hypothetical one shown in the graph below. It shows that each additional step toward better health will rise in cost by increasing increments.



Represented on the horizontal axis of this graph are so-called "quality-adjusted life-years," or QALYs.

QALYs are a metric widely used now in cost-effectiveness research. They are meant to adjust for the fact that not all years added to people’s lives are equal. A medical intervention yielding a given number of additional life-years in perfect health makes a greater contribution to human well-being than an intervention that yields the same number of life-years in less-than-perfect health. QALYs are used to adjust for that difference in a patient’s quality of life.

Read the full article here: "Pricing Human Life." Warmly, Eric

Toys R' Us Prices for Kids, Competes Against "Dollar Stores"

Toys R' Us is implementing a new (and I think very intelligent) pricing strategy that will both increase the company's competitiveness against "dollar stores" and other low cost merchandisers, but that will also tap into a new (and loyal) market - kids.

Starting this week, Toys R' Us is displaying roughly 100 items right inside the front doors priced from $1-$3 to meet the budget of kids allowances:

"It's the world's biggest toy store's answer to popular dollar stores as shoppers have traded down to lower-price outlets.

"Karen Dodge, chief merchandising officer of Toys R Us in the United States, said the new shop is a natural extension of the company's broad range of toy prices, frequent discounts and promotions.

"Featured toys will be refreshed periodically. Toys R Us is also promoting its Geoffrey's Birthday Club freebies and adding new diaper and formula rewards to its Rewards R Us loyalty program."

This is a great example of an innovative approach to the current consumer spending downturn. In the professional soccer arena, MLS team the New York Red Bulls have decided not to raise ticket prices when they move into their newly finished stadium next year. This is an opposite strategy to some teams who have decided to raise prices on the basis of the "value" their sporting organizations bring to the local economy. The Red Bulls move shows confidence in the loyalty of their fan base:

"SECAUCUS, N.J. (AP) — The New York Red Bulls say they will not charge higher prices to current season ticket holders when they move into the new Red Bull Arena in Harrison next year.

"As a thank you to our most loyal fans for their continued support, we have decided to freeze pricing for the first season in Red Bull Arena," managing director Erik Stover said. "We have a very loyal fan base that has waited a long time for Red Bull Arena to be built. Not only will they be the first in line for seats, they will also receive this additional price freeze."

Read the full article here. Also in pricing news this week, the New York Times reported that movie goers are "demanding" higher prices because of the fact that Monsters and Aliens in 3-D topped the box office this week. The 3-D theaters average $3 more in admission fees than regular movies. Is it really that consumers are demanding higher prices and more 3-D films, or that once again family friendly movies are dominating the box office, as has been the case for several years with movies from Disney and Pixar? Food for thought. Warmly, EM
Read the full article here.

Starbucks Challenge - Maintain Brand Standards while Reversing "High Price Point" Image

This is a great pricing case study: Starbucks is working to counteract dwindling sales by adding new product offerings, including a new line of breakfast items that are priced below $4. They are also restructuring their menus to promote their iced coffees and other specialty drinks that are below $3. These tactics are meant to change the widespread opinion that Starbucks is priced higher than competitors and only offers high price point items. However, while Starbucks wants to reach out to a new customer base, they don't want to alienate the brand or the value conscious customers that made their brand a success.

Starbucks marketing execs argue that people appreciate good quality and ingredients and will pay for that value, but are also trying to keep the customers who are starting to cut everyday luxuries. So here is the pricing challenge - diversify pricing options and consumer conception without losing the strength of the products or the brands. The New York Times reports:

"When Starbucks begins serving a new line of breakfasts early Tuesday morning, the coffee shop chain is hoping its egg sandwiches achieve more than just the perfect balance of smoky bacon and salty parmesan cheese."

"Starbucks is also trying to pull off another balancing act: the meals must be inexpensive enough to draw in frugal customers, yet fancy enough to appeal to those who care more about quality than price."

"The $3.95 breakfasts — coffee and an egg sandwich, cup of oatmeal or coffee cake — represent Starbucks’ latest effort to recast itself as an affordable brand."

The article goes on to highlight the company's dilemma between price competitiveness and brand identity:

"Executives struggling to reverse the company’s recent revenue decline also play down the difficulty of the balancing act between value and prestige. “If we are a premium brand, it doesn’t mean we can’t provide value," said Howard Schultz, the chief executive. "We believe when we come out of this, we will be stronger because we maintained our core customers and, through providing value, will bring on new customers."

I think that Starbucks will maintain a strong following with its customers who appreciate the product for its uniqueness and value. However, the company is smart to try and modify its image to keep in touch with consumers with less and less expendable income. I am going to follow this story as it progresses. Warmly, EM

Apps Pricing Follow Up: Set a Sustainable Price

The verdict is in on the IPhone App pricing experiment. In an earlier post here we talked about iPhone application firm App Cubby's experiments with a "pay-what-you-want" pricing model to encourage shrinking sales.

Reacting to user complaints about App Store's lack of a try-before-you-buy feature, App Cubby reduced its prices across the board to $0.99 and created a donation page where satisfied users were urged to donate the difference between the $0.99 and the actual value of the software. The company set up a donation page where users could download apps for their phones and set their own price points. Developers were encouraged to submit apps and gain a strong following with the customers. After only a few months, the experiment has been ruled a failure:

"During the week App Cubby ran the experiment, the company received a grand total of $75 in donations. Yes, the sales volume of the company's re-priced offerings did increase, but not enough to offset the lack of donations and increased support responsibilities.

"In a blog post titled "The Experiment," CEO David Barnard lays out the cold, harsh facts about App Store development. It's a lot easier to charge too little on the App Store than you might think.

"In the rush to win the App Store lottery, developers have been pushing their prices to the bottom in order to get noticed and earn a place on the top 100 rankings lists. The problem is that revenues from an underpriced application simply will not let the developer sustain a business over the long term. Even if you can pull in more users to try the app, you aren't generating enough revenue to cover the real costs of doing business."

Read the full article, "App Store Lessons: Set a sustainable price." This is a great example of the kinds of considerations that need to go into a pricing strategy: are you going to fight for market share by cutting prices or are you going to focus on the value of your brand? In this instance, we can see that consumers are fickle with software and apps, especially with all of the open source options available online, and cutting prices to nil will mostly get you nil.

The company has returned to a $10 price point across the board and is offering lite versions so that consumers will still have the opportunity to try before they by, thus developing a middle ground solution that addresses customer concerns and also drives a profit. Cheers to App Cubby for trying creative approaches and for not letting the experiment run for to long. Warmly, EM

Pricing to Fight Alcoholism?

This is an interesting pricing application that we haven't focused on too much but that has interesting implications. How does the government set, control or use pricing to instigate social behaviors? Should they be allowed to do it?

There is an interesting debate around this subject going on in the UK. Legislators in Scotland are trying to pass minimum prices on alcohol to curb the country's drinking problem:

"Radical measures aimed at breaking Scotland's “unacceptable” relationship with alcohol were set out yesterday by the Scottish government.

Announcing the “bold strategy” to introduce a minimum price at which alcohol can be sold, Nicola Sturgeon, the Health Secretary, said the measures were an attempt to prevent strong drink being sold for “pocketmoney prices”.

Scotland would be the first country in Europe to introduce minimum pricing and there would also be a ban on “irresponsible” offers, including buy-one-get-one-free and the sale of drink as a loss leader.

Ms Sturgeon described Scotland's position as the eighth worst in the world for alcohol consumption as “simply unacceptable”, adding that the government was determined to show bold leadership over the issue.

Critics attacked the proposals as unworkable, saying that they raised the prospect of people crossing the border into England to buy cheaper alcohol, or purchasing it over the internet."

Read the full article: "Minimum price plan to curb Scotland's drink problem." At the same time, legislators in England have rejected a similar minimum price proposal, saying that they would not want to "punish the masses" especially during an economic recession. These proposed price increases are the results of studies in England, Wales and Scotland outlining the negative effects that drinking is having on the country. Opponents of the bill say that punishing people who are already having trouble making enough money in the current slump is not going to stop them from getting drunk:

"But there was also strong opposition to the idea from those who argue that responsible drinkers would be punished for the misbehaviour of a few.

"David Poley, the chief executive of the Portman Group, set up by drinks manufacturers to promote sensible drinking, said: "This would hit the pockets of hard-working families who are already struggling to make ends meet, and it would not deter those people who drink to get drunk."

"Jeremy Beadles, chief executive of the Wine and Spirit Trade Association, which represents wine and spirits producers and wholesalers, said: "It is worrying that in the midst of a recession when sales and consumption of alcohol are falling that the government should be talking about raising prices for all consumers at a time when many are already struggling to make ends meet."

Read the full article: "Government to reject proposals to set minimum prices for alcohol." On the other hand, football fans in England will get a break next year as five of the major English Premier League clubs announced reduced ticket prices in the coming season ("Fans to benefit from price cuts").

"Thousands of supporters will pay less to watch Premier League football next season after five clubs decided to cut their season-ticket prices.

Everton, Sunderland, Manchester City, Newcastle and Portsmouth are leading the way with a variety of reductions to help fans through the recession.

Five others, Aston Villa, Tottenham, Chelsea, Hull City and Arsenal have announced a price freeze.The remaining 10 top-flight clubs are yet to reveal their pricing structures."

"I think everybody's acutely aware of the economic circumstances that the country is in and the difficulties that individuals find themselves in, and money is tighter," Dan Johnson of the Premier League told BBC News.

"I think the clubs are sensitive to that and one very real way they can helps fans is reducing ticket prices."

Steve Powell of the Football Supporters' Federation said: "It's much welcome relief."

Online Pricing Training Now Available

We know the economy is tough and you can't come to us, so we are bringing pricing training to you because we know how critical pricing training and CPP certifications are to today's pricers.

We are glad to announce ANOTHER NEW PPS Online Training Workshop presented by Tim Smith, Ph.D., Managing Principal, Wiglaf Pricing. We are also offering:

Avoid the Commodity Trap: Pricing Services in a Recession, Reed Holden, Founder of Holden Advisors

The Psychology of Buying at Higher Prices in a Down Market, Scott Sorrell, CEO, Sales Adrenaline

Bundling's Impact on Profits, Tim Smith, Ph.D., Managing Principal, Wiglaf Pricing

Now getting pricing training is easier and more affordable than ever! In the comfort of your home or office settings, you can attend virtually to a LIVE session or learn at your own pace with the RECORDED Sessions.

LIVE Sessions and RECORDED Sessions Prices are:

For Non Members: $695 and you gain 1 CPP Credit for each Workshop
For PPS Members $495 and you gain 1 CPP Credit for each Workshop

RECORDED SESSIONS are ALSO AVAILABLE:

1.You can get your Pricing Workshop at anytime, from anywhere in the world

2.Speakers will be available to answer your questions via e-mail

3.Post Workshop quiz will be sent via e-mail after the user completes the workshop

4.All participants of Live and Recorded Workshops will receive one (1) CPP Credit towards the Certified Pricing Professional Designation after successfully completing the quiz.

For a full schedule or to register, click here!

Pricing Advice in Two Sentences

We have a great discussion going on in the Professional Pricing Society LinkedIn group. I wanted to re-print some of the discussion here, because I thought it would be beneficial to many of our readers. One of our members posted the following question:

"If you had only two sentences to share your most valuable pricing advice, what would those two sentences be ?"

We have had a great deal of response from pricers:

- "Always know who your profitable customers are, what they value and are willing to pay for better than your competition. Voting in favor of less government will always give America the best opportunity for the full benefits of freedom."
- "Be aware of how your customers want to buy, as well as how they need to buy. And remember that pricing serves strategy, not the other way around."
- "My succinct advice: Understand what your customer needs and values (not what your product can do) and Know your competition."
- "Regarding pricing: 1) When possible, price based on your unique value relative to the competition, not on cost. 2) to quote McKinsey & Co's line from the PPS Conference back in 2007, "a 1% increase in price results in 12% increase in bottom line."
- "Customers don't appreciate the value of anything given away for free."
- "Based on my own researches about pricing, managing prices is about managing value, costs and competition information to take the best decision and optimize sales and profitability."
- "Start high & Don't forget time value of money. Sell the Value to your customer."
- "1) Price should be a projection of a broad (not narrow) point of view.
2) Brand Value (Recognition) and Marketing Power (Muscle) significantly influence buyer’s decision (perception) and the final selling price."
- "Make sure that you know where and who you are, where and who you want to go and be, and what do you need to. All along the way, ask you on your own frequently the same question, and if the answer change, consider seriously to change yourself."
- "1) Keep away from pricing by exception 2) Get the right training and performance incentives for your sales people."
- "1) Don't oversell and don't sell anything which will not bring value to your customer. 2) Built trust relation with the customers, if you succeed then you will "deliver" instead of "selling"."
- "1) Knowing the right price is worthless if you cant execute. 2) Your customers know what you are doing with a value survey. 20 years of focus on cost reduction and buyer training has ensured that. Actions are hard to hide."
- "1.) Price with confidence 2.) Discount with a purpose."


And that's just the start! Any other pricers want to weigh in? Comment here or, to see the entire discussion, join our group on LinkedIn!

Guest Insight: Price discrimination is economically efficient

Pricers, here is a great article that was submitted to us by author Leigh Caldwell whose blog covers economics, modeling behaviors and trends, and several other fascinating subjects. This article, "Price Discrimination is Economically Efficient", argues that price discrimination - if it can be maintained in a competitive environment - enables companies to sell products to more people and thus generate more consumer surplus:

"In case you made the mistake of thinking cutthroat price competition is always efficient, I have a small demonstration for you.

"Imagine a market where there are three consumers of sausages, A, B and C. A derives £5 of benefit from a sausage; B gets £10 and C £15. Suppose now there is a single butcher in town, and he has to charge a fixed price. The variable cost of producing a sausage is £4 and the fixed cost for the period is £5.If the butcher prices his sausages at £15 he'll sell one unit at a cost of £9 and make a profit of £6. If he prices at £10 he'll sell two units at a cost of £13 and make a profit of £7. If he prices at £5 he sells three units at a cost of £16 and makes a loss of £1. Naturally then, the butcher will set the price to £10, make £7 profit and generate consumer surplus of £5 (all of which goes to lucky C).

"However, imagine that he develops the ability to price-discriminate and charge a different amount to each consumer. If he can charge £5 to A, £10 to B and £15 to C he sells three units at a cost of £16 and makes £14 profit. He can even offer some extra incentives to the customers, by setting prices to £4.50, £8 and £12 - still making £8.50 profit but now with £5.50 of consumer surplus. Better for everyone (except C, but she still does better than either A or B so we shouldn't feel too sorry for her).

"Incidentally, competition between firms does not change this result much. The exact results depend on the nature of the fixed costs under competition, but price discrimination - if it can be maintained in a competitive environment - still enables the companies to sell product to more people and thus generate more consumer surplus.

"The point is that there is no single price point which allows all three consumers to buy the good and the producer to stay in business. Thus price discrimination is the only way to achieve an outcome that's stable and beneficial for all parties - as well as maximising total welfare.

"Good ways to achieve price discrimination include structured pricing, value pricing and various other mechanisms. We've also created a capability within our CVM software which manages price discrimination to maximise revenue (consumer surplus, though not a short-term concern of most suppliers, is worth maintaining in the long term - the theory of repeated games again)."

Thanks Leigh for bringing this article to our attention. Read the full article or more from Leigh's blog Knowing and Making here.

Retailer Backlash over Prices

The tension is mounting between suppliers and retailers. People are spending less, yet retailers are forced to raise prices to compensate for the lost profit of the suppliers. One great recent example is the price of milk - suppliers lost an average of .05 a gallon last month to stop the rapidly increasing price per gallon that had been passed on to consumers. Now, however, suppliers are in jeopardy, and the situation has become enough a problem to gain attention by state legislators and regulatory agencies, which is garnering backlash from grocers' associations:

"What's next? Are we going to do apples? Are we going to bread? Where do you draw the line?" he said. "This is America. This is not some dictatorship from Montpelier that says we know how to run private business and we know what's best for you and your customers." (see article here)

Here is another example from the Wall Street Journal:

" A big grocery chain has removed from its Belgian stores about 300 Unilever products that it says are priced too high, a sign of mounting tension between retailers and suppliers as the recession grinds on.

"The move by Brussels-based Delhaize SA, which operates the Food Lion chain and other grocery stores in the U.S., comes just days after Unilever reported strong fourth-quarter profit that was driven in large part by its ability to command big price increases despite the ailing economy. (Big Grocer Pulls Unilever Items Over Pricing)"

The problem has become so bad that grocery stores are even being downgraded by investors, which no doubt does nothing but exacerbate the issue. On an interesting counterpoint: one retailer is going against the flow and refusing to change its prices.

"Sales down by 19 per cent but Abercrombie & Fitch eschews inelegant option of cutting prices to suit its cloth

Abercrombie & Fitch appeared to have it all – a glossy catalogue filled with beautiful young men and women, glamorously photographed by Bruce Weber; gorgeous assistants in carefully lit stores that seem more like nightclubs than retail outlets; and fashionable garments emblazoned with the A&F logo, appealing to the upwardly mobile youth of America.

But when the economic downturn caused shoppers to think twice about their spending, A&F refused to reduce its prices – as much as £60 for a polo shirt – in an attempt to protect the brand.

Its reluctance to wield the red sticker has seen bargain-hunting shoppers desert in significant numbers, allowing rivals such as American Eagle and Aéropostale to steal market share with their cheaper products. Yesterday, A&F reported a 19 per cent decline in sales across its chains for the three months to January 31 to $998 million (£688 million), with like-for-like sales at A&F-branded stores down 25 per cent. Net profit also fell sharply to $68.4 million, down from $216.8 million a year earlier.

Mike Jeffries, chairman and chief executive, said: "The fourth quarter proved to be a catastrophe for the retail industry – a nightmare that included unprecedented promotional activity by other retailers in the malls and consumers who continued to show reluctance to spend, especially for premium brands."

However, he claimed that the company was "satisfied" with its results for the quarter, adding: "We will . . . continue to protect and position our brands for more promising times."

Read the full article: "Abercrombie & Fitch refuses to reduce prices". How long can this possibly last? We will see if their customer base is as loyal as they think they are, or if they can continue to pay premium prices for their teens' new clothes. If they do succeed, it will be an interesting case study for retailers examining their pricing strategy. More soon! Warmly, EM