Sunday, July 29, 2007

The price of Moscow

Here’s an interesting article from The Moscow Times on the cost of dying, which is possibly an example of poor pricing, poor economics, poor journalism, or possibly all three.

In the second paragraph, the article mentions that the costs of a new grave in Moscow is currently 4,400 rubles, but the state provides 5,700 rubles towards the cost of burials, suggesting that the municipally-owed burial service, Ritual, would be 1,300 rubles ahead on each burial. Could this be what makes Russia one of the world’s most dangerous places?

The other interesting comment is the sentence “One reason for changes in prices is that the number of burials of low-income individuals as increased”. Does this mean that the price increase will lead to more high-income burials?


Friday, July 27, 2007

Segmenting the Market for Digital Products

Market segmentation is a critical component of any pricing strategy. When it comes to digital products, market segmentation often goes by the moniker of “versioning”. To give just two examples, digital product may be versioned by dimensions such as timeliness (delayed data is cheaper than recent data) or speed (versions of software that run at faster speeds are more expensive than those that run at a slower speed).

This story on a free wi-fi network along a 22km stretch of the Thames River in London is an example of versioning at work. The service is free at download speeds of up to 256kbps to users who agree to watch a 15-30sec advertisement every 15mins or so (that’s versioning by annoyance), while anyone who wants to pay for the service will not only avoid the commitment to watch an advertisement, they’ll also get faster download speeds.

By the way, further information on versioning can be found in “Information Rules: A Strategic Guide to the Network Economy”, by Carl Shapiro and Hal Varian can be found here.

Wednesday, July 18, 2007

Pricing & Web 2.0

There are a number of industries that are currently facing what I call “disruptive business models”. Some examples include:

  • Traditional recorded music formats, such as CD’s, which were first challenged by peer-to-peer file sharing networks like Napster (Mk I), and now by the likes of iTunes;
  • “Analogue” (paper and chemical –based) photography, which is under attack from digital photography;
  • Print newspapers, and particularly their advertising revenue base, which is under attack from not only the internet (news and classified sites), but also from free commuter newspapers such as The London Paper, City AM, Metro (all in London), and MX, here in Melbourne;
  • Traditional telephony is under attack from the likes of VoIP service providers such as Skype, and;
  • Finally there is the 200 year old Encyclopaedia Britannica that is facing stiff competition from Wikipedia.

    It is now becoming fairly clear in my mind that the Web 2.0 movement is also becoming another “disruptive business model”, and like the ones mentioned above, potentially damaging to the pricing and revenue management practices of the industries or businesses they are disrupting.

    Let’s say you run a petrol station in Dublin. You service is far superior to that of any of your competitors: you clean drivers’ windscreens, you check their oil and water, your forecourt is immaculately landscaped, and you charge 5 euro cents more than the competition as a result. Along comes a site like where users can not only see how much you’re charging, they can see your pricing history and that of your competitors. All of a sudden, that premium you’ve been able to command is under pressure.

    In my posting of 8th December 2006 titled “2006: The Pricing Year in Review” , I commented about a website called which predicts whether airfares will rise, fall or remain stable over a given (US) city-pair. Farecast will tell you things like (a) whether to buy an airfare now or later, (b) when in the future it will be cheaper to travel or (c) if you’ve got $150 to spare, where you could go to with that amount of money. I challenge any reader of this blog to find an airline website that provides all that functionality.

    For many years, the travelling public’s perception of revenue/yield management is that it’s a black box that the airlines use (that other black box, the flight data recorder, is actually orange), and only they know how it works. Farecast is putting these revenue management capabilities into the hands of consumers. Not only that, it is also putting its money where its mouth is. Farecast’s forecasts are 74.5% accurate, and for $9.95 consumers can buy insurance against prices decreases that are valid for a week. The owners have also indicated an intention to not only expand coverage of the site beyond the USA, but also to expand into a host of other industries such as car rentals, hotels and the like.

    As EyeforTravel reported on 17th July 2007, the MSN travel Channel will now offer Farecast prediction and planning tools to its users . Could this be the start of the democratisation of revenue management?

Saturday, July 14, 2007

Pay-for-Performance....for Pharma

One of the toughest jobs in pricing has got to be in the pharmaceutical industry. This is no simple B2B or B2C pricing challenge. To cut a long story short, it goes something like this…

- The Government is the major purchaser, but it is not a provider. The question it has to ask itself is “Should I reimburse payment for this product?”

- The providers (clinicians) act as agents for the patients, and bear little if any of the financial responsibility for the purchase of the treatment (drugs). The question they face is “Should I prescribe this drug?”

- And then there is the patients, who don’t have adequate knowledge about their health care needs and treatment (for most, it is a ‘credence product’). The question they have to grapple with is “Should I accept this prescription?”

In many parts of the world, “Big Pharma” is thought of as “Big Price Gouger”, but the costs of finding and bringing to market are astronomical (anywhere between $US500mill - $US2bill).

So is there an alternative pricing paradigm for the pharmaceutical industry? Well, according to Andrew Pollock, writing in the New York Times this Bastille Day, yes there is. Its called pay-for-performance pricing and you can read the story here.
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Sunday, July 08, 2007

Every now and then, a book comes along which remedies a neglected or misunderstood topic with its clear, concise and commonsense approach. The Shredder Test is one of these books. Although it can be read in a few hours, it is equally likely to sit on the bookshelf of anyone involved in writing proposals as a handy reference for years to come. I will certainly be adopting many of the books recommendations immediately.

One of the advantages of spending 24hrs on a flight from Australia to the UK (or the other way round) is that you can catch up on some long overdue reading. On one recent such flight, I had the pleasure of reading Robyn Haydon’s book The Shredder Test.

This book presents a methodological approach to putting together proposals to win you business, either in a tendering or a negotiation environment. Combine Robyn’s approach with some successful B2B pricing strategies, and you should have a winning formula.

You can find more information on Robyn and her book at