"Ten Pricing Lessons from Cartoons", I find another great pricing -related cartoon.
Friday, April 13, 2012
The French have always loved their food. So its hardly surprising that rising food prices, amongst other factors, contributed to the French Revolution of 1789 -1799. Several decades later, a Frenchman started another, less well known revolution: a pricing revolution.
Louis Auguste Boileau was a retailing visionary, many years ahead of his time. He had a vision of a social retailing experience for the women of 19th century Paris, and engaged Gustave Eiffel to build the world’s first department store, Bon Marche.
There were two other things that were revolutionary about Bon Marche. Boileau decided that the goods for sale would no longer be kept behind a counter. They would be spread out across the shop floor so women could handle the goods and think they were ‘within their grasp’.
This made it difficult for sales assistants to say to customers “you can’t afford that, have a look at this instead”, which had previously been the practice. Boileau solved this problem by putting the price on each article, creating the price tag. Frank Woolworth and Aaron Montgomery Ward (inventor of the mail order) loved the idea of price tags so much, they introduced them in America shortly thereafter.
It’s unclear whether these two initiatives lead to the development of “vanity price points” (e.g. FFR 9.95), but it is possible. One of the reasons for the popularity of such price points is the audit function they perform: the shop assistant has to give the customer change, rather than just slipping a 10 franc note in their pocket.
Today, there is a new revolution in retailing: the Internet. At the moment, customers are better at harnessing its powers against retailers, than retailers are against customers, with what I call “the deer have now got guns” syndrome.
The ‘guns’ shoppers are using include price comparison websites, and smart phone and tablet apps that let them find and buy the cheapest products online. Retailers are still working out how to respond to this.
From a pricing perspective (and pricing is not the entire problem), a good place to start would be for retailers to take a leaf out of their customer’s books and embrace technology. This would include apps for sales floor staff, linked to CRM (Customer Relationship Management systems), and price-setting technology which has been around for many years now.
But it could also include a new breed of pricing technology that has taken off in the last two years, that of competitive price intelligence and monitoring platforms, such as that offered by the likes of UpstreamCommerce.
Retailing is looking for its next Boileau. Fighting fire with fire is one place to start.
[This post also appears on LeadingCompany, 12th April 2012]
By Greg Eyres, Consulting Director at PricingProphets.com
In the 1980’s or 1990’s (I can’t remember which), the Chicago University –based Behavioural Economist Richard Thaler conducted what has become known as the “Beer on the Beach” price experiment.
He asked participants in the research how much they would be prepared to pay for an ice cold beer purchased from a run-down corner store at one end of a beach, and what they would be prepared to pay for an ice cold beer from the upmarket hotel at the other end of a beach.
As you would expect, participants were prepared to pay more when the beer was purchased from the latter, vis-a-viz the former. But as I discovered last week, this is not quite what happens in Fiji.
I was staying at a 3.5 star resort on one of Fiji’s many islands. Very much marketed as a family resort, it offers just about everything a family could want. It sits on a bay with spectacular views from the bar and restaurant. Most importantly, it offers a Kids Club where the ankle-biters can enjoy time away from their parents.
At the other end of the bay is another resort that is much more marketed to couples and honey-mooners. It is a 4 star resort that again offers spectacular views of a tropical paradise.
A glass of the house wine at the 3.5 star resort costs $11 (Fiji dollars). What do you think a glass of the house wine costs at the 4 star resort? Well, to my way of thinking, it would be reasonable to expect that it would something more than $11 - maybe $15. Probably a better quality wine and a more exclusive and tranquil setting.
In fact, the 4 star resort charged us $5 for glass of the house wine. Why? Have they made a reasoned decision or are they pricing incorrectly?
At the 3.5 star family resort, what is the value of the glass of wine? Mum and Dad have saved up all year for the annual holiday, the 2 kids are in at Kids Club, the sun is shining and they are finally starting to relax. Are they going to pay the $11 or walk for 10 minutes to the other resort, where they can’t charge their drinks to their room? Easy answer – they ain’t walking! What they are really paying for is relaxation and a chance to unwind. Walking around to the other resort will cut into that time and as any parent knows, that time is golden.
So, what of the 4 star resort? My wife reliably informs me that the wine there was not as good a quality, although reasonable enough. It is a beautiful setting and the accomodation and common areas are certainly of a better standard. Why are they serving lower quality wine at a low price? It clearly looks like a case of offering the wrong product at the wrong price. A low quality, low price wine is incongruous with the quality of a 4 star resort. They should be offering a premium wine at a premium price.
In contrast to the 3.5 star resort, this resort is selling quality and quality products. Pricing should reflect quality. They may even attract a few mums and dads from the other resort who are seeking a better wine.
Having said all that, I don’t drink wine so it makes no difference to me. I had a great time relaxing and snorkeling … while the kids were at Kids Club.