This Week's Pricing Wrap

There were a couple of interesting pricing stories that caught my attention this week. You may recall my posting on the 20th August which talked about a couple of UK supermarkets possibly being a bit too demanding on their suppliers during a price war earlier this year.

Well, the UK supermarkets are under the spotlight again, this time for (apparently) fixing dairy prices. The BBC carried the story on their website here, while The Independent’s story may be accessed from here. An accompanying piece carried by The Independent asks “The Big Questions: Have supermarkets become just too powerful in Britain?" Good question, the article presents both sides of the argument, but at the end of the day, I think the customer will decide.

The other big story of the week came from The Guardian that reported that Rupert Murdoch is (still) considering the possibility of making the content of wsj.com (The Wall Street Journal) available for free. In my opinion, wsj.com is perhaps the best monetised site on the web, however, as the article points out, the trend is in the opposite direction:

- The LA Times has recently dropped fees, and

- The New York Times has also recently stopped charging for TimesSelect (its archive and influential columnists), which has over 200,000 subscribers.

I wonder whether these developments will be digested by the folks at the Australian Financial Review, who on Friday admitted that they had got their site wrong (www.afr.com.au) (too much Flash, little free content). The site will go through its second overhaul this year in the next couple of weeks – it will be interesting to see if pricing is part of that overhaul.

Professor Sir Clive Grainger

Last Wednesday night (12th September 2003), I went along to a free lecture given by one of the winners of the 2003 Nobel prize for Economics, the author of 12 books (one of which I used in my under-graduate degree) and over 250 articles and, a person who, by some accounts, is a bigger Welsh hero that King Arthur (I didn’t even know King Arthur was Welsh!).

The man in question is Prof. Sir Clive Granger, and the topic of his presentation on Wednesday night was "trends" (particularly in time series data), although there was quite a bit of discussion about forecasting as well. Trends and forecasting are both related to the art and science of pricing, so I thought I’d use this posting to talk about some of the key message I got out of the lecture…

Firstly, apparently no one has ever defined what a “trend” is, a term that first came into use in 1901. Interestingly, the word “trending” has been used since the 16th or 17th century. One commonly used definition is that “one end is different to the other end”, which would suggest that a flat line is not a trend;

There can be trends in levels (i.e. an upward trend), but there can also be trends in volatility – worth keeping in mind;

You can’t judge a trend – you need to know what’s going on behind it, what’s causing it. Prof. Granger suggested that the trend of Shanghai A-share index between 2002 – 2007 is a bubble, caused by the psychology of the investors

You can’t effectively forecast the economy more than three years in advance

What’s easy to forecast…things like population trends

What’s hard to forecast…exchange rates, stock market indices, anything related to an industry where policy issues matter, commodity prices and anything in a speculative market

What are we getting better at forecasting…demand for electricity (apparently)

One year

A couple of years ago, the online travel portal, Expedia, posted a price of $2 - $4 per night for a stay at the Tokyo or Osaka Hilton. Unfortunately for the person who booked a one year stay at one of the properties, the error was not honoured.

But here's an interesting story from The Daily Telegraph of a couple who have been living in Travelodge properties for the last 22 years. Turns out their move has been cheaper than aged care.

Having stayed in many Travelodge properties on my travels through the UK, I wouldn't say 22 years was my kettle of fish. But the Davidson's obviously don't mind it...

''It doesn't get much better than that does it? We only have to walk across the car park for meals as there is a Little Chef here too.''

''Our room looks out to the car park and a busy slip road where lorries pass by throughout the night.''

Good luck to them. What the pricing moral of this story? Be aware of who your competitors are, event the indirect competitors and substitues, as well as their prices.

Pop Economics

I’m a little bit behind in my reading at the moment, so I apologise if this posting sparks an interest in an edition of a publication that is no longer available in print on the newsstands.

I’m very interested in the role of pricing and disruptive technologies, such as Skypes’ impact on traditional telco’s pricing models, or digital photography’s impact on ‘analogue’ photography. Pop Economics, written by Robert Sandall and published in the August 2006 edition of Prospect Magazine is one of the best articles I’ve read on the economics of the music industry.

The articles opens with the story of a band that stops selling their $10 CD’s at concerts because it was cannibalising sales of its $20 t-shirts. I’ve previously spoken about rock ‘n’ roll t-shirt pricing here.

Why did Prince give everyone attending his shows at London’s O2 arena in August, and readers of The Mail on Sunday, a free copy of his Planet Earth CD? The reason is perhaps best summed up by the guitarist from Anthrax, who say “their album are the menu, the concert is the meal”.

In effect, recorded music is becoming a loss leader….but how did the industry get there? Well, apparently it’s partly got itself to blame. Free-to-air radio commenced in the 1930’s. 12” LP’s were the dominant music format until the mid 1960’s when the 7” single took over. Then along came CD’s in the 1980’s, hoping to persuade everyone to replace their vinyl records collections. The “Home Taping is Killing Music” campaign reached its peak in the 1980’s and by 1994 the CD had become more popular than cassette tapes, which had sparked that campaign. But, as the article discusses, record companies were selling CDs and giving away their master tapes. And of course, we then get into Napster and iTunes, which brings us up-to-date.

So while the pressure on recorded music pricing has been all downwards, it’s the opposite in live music: the trend has all be upwards, and I’ve also commented about this in other blog postings, as does Pop Economics: in the 1980’s the price differential between a Madonna CD and a ticket to one of her concerts was negligible. A ticket to see her at Wembley last summer was more than twice the price of her entire back catalogue.

The last paragraph of the article is one that I’d like to quote in full, because not only does it apply to pop economics, it also applies to many Web 2.0 sites, which I’ve also written about in the past. It reads:

In his book e-Topia, William Mitchell relates the increasing value of shared
experience to the isolated nature of electronic or online virtual worlds. “in
conducting our daily transactions, we will find ourselves constantly considering
the benefits of the different grades of presence that are now available to us,
and weighting these against the costs” he writes. Being in the same place at the
same time as a live performance, music fans appear to have decided, is the
rarest and most precious presence of all.

The iPhone (Nbr 2)

Well here's something you don't see very often....a company giving compensation to customers who previously purchased, at full price, a product that has subsequently been discounted.

A $US100 voucher to those customers who purchased the 8GB iPhone. And the 4GB iPhone? Well, thats been discontinued altogether.

The iPhone (Nbr 1)

When the iPod first came out, some people thought that iPod stood for "idiots price our devices". When the iPhone first came out (on 29th June this year), some commentators (like this one and this one) suggested that the iPhone was underpriced.

Not according to Apple and the New York Times, which is just one of many publications around the US and the world, covering today's unexpected iPhone price cut.

A digital set-top for £10 ???

An avid reader of this blog kindly sent me a link to a very interesting story on the BBC website, which you can read here.

The email continues...

[I] didn't see this whilst shopping at Tesco tonight (wasn't even looking) but did notice some strange price differentials - nothing new but it gets me wondering: Why should brown wholemeal pasta be 50% more expensive than white - same brand, same shape pasta, same size pack. It's the "Healthy" premium I suppose. And Organic: sometimes products twice as much and some the same price or even cheaper than non organic.

Or perhaps brown wholemeal pasta is just being sold above cost...unlike the £10 digital set-top boxes :-)