Should Your Prices be on Your Website?

Hardly a month goes by without a client asking me, or someone posting the question in an online forum. It’s one of the biggest questions many Leading Companies have to confront. Do I put my prices on my website?

Several years ago, Canadian National confronted this very question and made a very courageous decision. Not only did they publish their freight cartage rates on their website, they also removed all rebates, discounts and hidden charges, and simplified complex upgrade formulae for different types of rail cars and proportional payload calculations, amongst other pricing related initiatives.

But wait, there’s more. The company also published a pricing calendar on their website, which listed the months in which shipping rates would be reviewed on an annual basis.

There are a couple of benefits associated with this level of pricing transparency. Firstly, it should reduce customers’ price sensitivity or, conversely, confidentiality drives greater price sensitivity. Secondly, pricing cannot be treated as confidential. It’s ‘out there’, and customers and competitors have the hard facts. Thirdly, transparency should reduce customer power. As long as the policy is adhered to, there should be less demand for cheaper prices. Finally, there should be less time spent negotiating prices and resolving invoicing disputes.

Perhaps an even more interesting example is provided by the website HumbleBundle.com. What’s interesting about this business though is that it doesn't have list prices: its sells bundles of digital products (games, eBooks, etc.) using a Pay-What-You-Want pricing model.

But the site makes amazing use of lessons from Behavioural Economics and Gamification: by displaying the average price paid for the bundle, and incentivising customers to pay more than the going average (by rewarding them with two additional products), the average price keeps rising. No wonder the site has generated $23mill in sales.

However, neither of these two businesses have truly direct competition. They both have indirect competition, road transport in the case of Canadian National, and sites like iTunes in the case of HumbleBundle. And competition seems to be one of the biggest factors in deciding whether to publish prices online. You are only as smart as your dumbest competitor in the world of pricing, and if one or more competitors publishes their prices, and customers value such pricing transparency, then it may become an ‘industry norm’.

In other cases, pricing transparency may promote brand awareness or a competitive advantage. That doesn’t necessarily mean publishing actual prices though: just the pricing methodology might suffice. The home page of PodLegal.com.au promotes the fact that this law firm charges fixed prices, not by the hour, differentiating the company form others in the industry, without specifically mentioned prices.

The only answer to the question “should we publish our prices on our website?” is “it all depends”. It depends on what your customers, your competitors and your industry wants or is accustomed to, versus what you want to do.

Should You Tell Customers the Cost of Running Your Business?

Last week I was asked to critique a piece of pricing communication. The one page document was designed to be printed and placed on the front desk of a professional services company to inform clients of the expenses involved in running the practice. Is this a good idea?

The one-page, A4 document contained words roughly along the lines of the following:

To operate at our best, and provide you with the best possible service:

Ø  We stock a wide variety of drugs, preventatives and nutritional products;

Ø  We keep our medical records software up to date;

Ø  We also have the latest laboratory & diagnostic equipment;

Ø  Our facility incurs rent or mortgage payments, utility costs and property maintenance, as well as repairs fro time to time, and;

Ø  Our staff receive on-going professional training and development

While there is no doubting these are legitimate expenses that may be incurred in running a medical practice, there are a number of things I don’t like about this approach.

Firstly, it is specifically designed to take away the need to have a conversation with the customer about pricing. I come from the opposite school of thought: that professional service firms should talk to customers about their pricing as early as possible.

Get the pain out of the way early, and remove the risk of buyers remorse, invoice shock or any last minute umm-ing and argh-ing about “what’s all this going to cost me?” It's the opposite of what hotels do: spread the pleasure (during your stay) and concentrate the pain (of the invoice, when you check out).

Secondly, the document is designed to justify a price increase, which is being attributed to increased costs associated with running the business. The natural response from the customer to this is “well, that's your problem. I don’t care about your costs”

Finally, this is a one-off piece of pricing communications which, when the dust has settled on the price increase, will no doubt be assigned to the rubbish bin. If however, it was a value communication strategy, it would continue all year round, because value-based pricing is a process, not a project.

In critiquing this pricing communication, I drew an analogy with Coca-Cola. Does Coca-Cola try and tell you what the cost of the can is, what the cost of the syrup and other ingredients is, or how many standard minutes of a person’s time was spent on creating a can of Diet / Zero / Cherry Coke?

No…because no one cares about costs. They tell you it’s the most refreshing drink on the planet, because refreshment is the value it provides. 

Pay-to-Browse will succeed…one day

In 2011, it was Netflix. In 2012, it was JC Penney. And in 2013, could it be Celiac Supplies? What does Brisbane’s only gluten-free and wheat-free retailer have in common with these two US companies?

All three companies have executed pricing strategies that have divided the pricing community, the media and their customers.

Netflix decided to replace one bundled (DVD and online streaming) subscription, with two separate subscriptions for each service, resulting in, amongst other results, 84,000 hostile comments on its Facebook page within a week.

JC Penney decided to do away with its frequent sales and its couponing strategy, replacing it with everyday “fair and square” pricing…and turning customers off in the process. As I write this, the instigator of this strategy, CEO Ron Johnson, has just been replaced by former chief, Mike Ullman.

And as has been widely reported around the world (a quick search of Google News finds stories appearing in Alaska, Indonesia, Greece, Hungary, France and China, to name a few), Celiac Supplies recently decided to charge customers $5 to browse its store. This initiative was in response to the practice of “showrooming”, where customers browse in-store but then go and buy online, often at cheaper prices.

People from many walks of life think this is a really bad move that will hurt Celiac’s business. How can a retailer possibly charge a customer for something that has previously been provided for free? But I believe this initiative might be “one step backwards for Celiac, and two steps forward for retailers”.

Any student of marketing knows that products have a lifecycle. Pricing models, strategies and tactics have life cycles too. They evolve over time, as they move through a series of iterations before being perfected. Pay-to-Browse is one early iteration and component on the road to a new retail model. A similar process is currently underway with online pay walls, but it has already happened in other industries.

Remember Bryan Grey and Compass Mark I? The airline charged every single passenger on a flight the same price, a lesson that was learned by subsequent low cost airlines. Similarly, airline frequent flyer programs have been refined over the years, overcoming previous shortcoming (no recognition of contingent liabilities) to the point where some airlines’ frequent flyer programs are more valuable than the airlines themselves.

Pay-as-You-Drive (PAYD) car insurance is a pricing strategy that is also getting its kinks ironed out. Norwich Union in the UK removed their offering in 2008, but the AA launched a policy in 2012 that over came its limitations.

I like the courage Celiac has taken. After all, Lemmings don’t innovate. Celiac Supplies’ Pay-to-Browse fee may fail: such a charge will stick when retailers have real value to monetise, and do so from Day 1. It is always difficult to charge for something that has previously been provided for free. But people do pay to drive on roads that were previously “free”, and banks do charge for their product, rather than relying on making their margin on the difference between borrowing and lending rates of interest. One day, paying to browse may also succeed.

Establishing the Pricing Organization

This is a guest post by Eric R. Robles. This article originally appeared on his blog, http://www.priceworkshop.wordpress.com/, and appeared in the March 2013 edition of “The Pricing Advisor”

Situation:

The General Manager of a mid-sized company just got informed that despite the high volume (units) the company produced this year, sales units and revenues are dropping compared to previous years. Last year, external forecasts predicted business challenges for the following year due to the economy’s volatility.  During a general meeting the marketing department reported that market share has dropped significantly in all four quarters for the first time in five years. Historically the company has enjoyed double-digit growth year-on-year since it was established in the region. 

And as expected existing competitors and new entrants are gaining ground due to their lower prices and growing presence in the market. Meanwhile the finance department also furnished their report, and the same undesirable performance reaches the General Manager. That profit margins are leaking away particularly with the top products being sold by the company. Reviewing on the financial data it was found out that discounts and rebates was not properly administered due to hesitations of losing volume further. Customers have now become more hesitant when responding to the company’s prices. And to complicate the situation, the sales organization was not only short of its sales targets but also the quality of profit margins gained on a per unit sold was not healthy – and on frequent occasions even losing. 

             

The General Manager has now decided that it is high-time to stop the bleeding, shift-gears and make a move to change how prices is managed. But how will he start the change? 

The succeeding are ten essential elements required to establish an effective ‘pricing organization’ and achieve pricing excellence.

1. Pricing Road Map.  Begin to diagnose and map the organization’s current pricing policies and practices. Evaluate existing challenges and opportunities – identify what is relevant and what is not. What needs to be challenged, what needs to be changed, and what needs to remain. Assess the current pricing operations, processes, systems, tools, capabilities and alignments within the organization.  Identify the key departments, business units and ‘champions’ that will contribute significantly with nurturing and realizing both short-term and long-term pricing goals. Establish a common purpose and road map for pricing.
2. Pricing Body (Leadership). An effective pricing organization should not be built in isolation (silo) rather a collaborative function; therefore it is paramount to have a high level of coordination with departments or business units that will have the most impact to overall pricing strategy. For instance Finance, Marketing, Sales, and Demand Planning department are some of the organizations that their individual performances have a direct impact to pricing. However, this will depend to the organization’s structure and nature of business. The bottom line, buy-ins is critical when making pricing decisions, thus the presence of a pricing body or committee is a must when establishing the pricing organization. Organize a body or leadership committee composed of representatives from functional level management and top management to champion the pricing organization.
3. Pricing Champion. The person for this role will champion the discipline of pricing in the organization. And will bring-in leadership, best practices, innovation and strategic ideas to help establish the pricing road map. Another significant role will be to effectively reconcile data and information from other departments and conclude with actionable analysis and recommendations. One critical role is to act as ‘ambassador’ who can effectively communicate from different business perspectives and successfully align commitments from stakeholders. Resistance from within the organization (in the initial stages of the implementation) is expected thus it takes effective communications and good interpersonal and negotiation skills in order to bridge different business perspectives and align it to pricing decisions. The pricing champion shall perceive pricing as both a science and an art – hence, deep commercial awareness, knowledge of the market, numbers crunching, creativity / innovation, and good business acumen is an ideal requirement. However it is important to note the role and responsibilities of the pricing champion may still differ according to the purpose, objectives set and organization.
4. Change Management. Employ change management program to prepare the organization for the transition and to realize the desired change. This will lay the foundation for the pricing road map. Friction and resistance from employees is expected especially that old processes and routine will re-organized and re-established. Partnership with the Human Resource department is ideal to reinforce the transition and change. Other support endeavors like leveraging on branding and marketing principles to communicate the pricing strategy will not only strengthen ‘change management’ but it will also institutionalize a strong ‘pricing culture’ within the organization.
5. Key Performance Indicators. Develop and employ well-defined performance metrics / KPIs aligning departmental objectives to support short-term and long-term pricing goals. The objective is to align and enforce commitments and resources. One effective way is to seek buy-in from stakeholders and co-develop performance metrics. It is imperative the each organization within the company clearly understands how their individual performance will impact prices and eventually revenue 
6. Pricing Policy and Guidance. It is substantial that a pricing policy and guidance be put in place both in the (a) regional level in order to align and reinforce local level pricing and discounting policies, and (b) country level to give the organization flexibility to meet market demand requirements, respond to competitive moves and to make the most out of short-term business opportunities. A good policy and guidance will clearly communicate the company’s pricing objectives and set guidance on how prices and discounts will be set and implemented.
7. Price Exemptions and Discounting. A comprehensive and well-defined price exemption and discounting policy and process should be implemented in order to properly administer and police discounting and rebates. Discounting and rebates should be designed and planned in a way that will drive both sales units and profits, and as well protect the product’s brand position.
8. Sales Incentives. Formulate and put in place well-defined sales reward programs and incentive schemes to help administer prices effectively and purposely. This is also a good way to align sales KPIs to short and long-term business objectives. Create control mechanisms and integrate it to the sales rewards and incentive program. For instance, (a) sales rewards and incentive KPIs should be anchored to the extent of discounts the sales man will give to customers. Another way, (b) sales rewards and incentive KPIs should be tied to the quality of revenue a sales man will bring in to the company – e.g. “..is the large percentage of the revenue driven by high profit products, or is it driven by low profit products?” It is foremost to understand that the sales organization is the last element in the ‘price value chain’ responsible for implementing the prices and realizing the strategy. Any inefficiencies in this level will increase the chances of a failed price strategy.
9. Reporting. Providing the right information to stakeholders through regular weekly, monthly or quarterly reports are crucial to keep track of outcomes of pricing decisions made. This is not only good practice to achieve transparency but as well it strengthens accountability of each department. Numbers are measurable and remains to be the best indicators to track strategy realization.
10. Milestones. Celebrate and communicate pricing milestones to the organization. Communications is of great significance in sustaining the pricing strategy in the long run. Economic benefits gained during a business period such as increased sales units, market share, profit margins, and revenue are good examples of milestones. Milestones are clear indicators of the organization’s achievement, performance and progression in the pricing road map. 

Given that these fundamental elements are vital to the transition and change, the design of the pricing organization may still change or vary in accordance to the organization’s structure, business objectives, competitive landscape and long term directions. Whether it is a start-up, medium size or large scale enterprise – a good pricing endeavor begins with pursuing and establishing a well-defined pricing organization.

There are two approaches to this, one is top-down approach of establishing the pricing organization - that is the initiative, push and sponsorship will come from the very top of the company’s leadership – in most cases it is the call of the Chief Executive Officer. Therefore strong support and commitment is expected to be extended from all levels of the leadership and equally from all business organizations operating within the company. This approach is characterized by a more formal, progressive and sustained approach to implementing the pricing organization. 

While the bottom-up approach would be more challenging and difficult since it usually starts as a breakthrough business case or best practice. The challenge in this second approach to implementing the pricing organization is that there is a need to sell the benefits (first), get buy-in from the leadership and business divisions where pricing have influence with their output and performance.

Key Takeaway:

Introducing changes to the way pricing is done in the organization is not a short term commitment of time, redirection of resources and realignment of commitments - rather it is a long term endeavor that is both progressive and sustained. And changes implemented to the organization are paramount in order to attain pricing excellence.