Rip-off Ryanair?

I am still in the UK, where there hasn’t been much of a summer, except for this bank holiday weekend, which has been absolutely magnificent. So while I was reading the papers over the weekend, I stumbled across the news that the folks at Ryanair are about to start charging £4 to check-in. Don’t believe me? Read it here.

I tend to agree with the comments in this article that this charge is pushing things just a little bit too far. Yes, the low cost airlines have unbundled the traditional flight ticket to a pay-as-you-go model, and they have made air travel more affordable to the masses. But, to be blunt, this charge will piss customers off. And it should play nicely into the hands of airlines like easyJet (no, I don’t own stock, but I did used to work for Stelios), provided they don’t become too greedy.

Guess I was wrong with my February 2006 prediction that the toilets would be the next thing to be monetized.

Some news on supermarkets and search engines

One of the main differences between an everyday low pricing (EDLP) strategy and a high/low pricing strategy is that the former is often retailer lead, while the latter can be more supplier lead. Today’s edition of The Guardian newspaper carries a story on just how much an EDLP strategy may be retailer lead.

When I was last here in the UK in June, a banana price war broke out, and subsequently spread to other products. In the process of completing a study on the way the UK supermarket industry operates, the Competition Commission has discovered that a couple of the supermarkets may have been a bit too demanding of their suppliers during this price war. You can read the full Guardian story here.

Meanwhile, and this isn’t exactly a pricing story, Google is finding itself in a bit of hot water of late. As this story tells, it is reportedly being sued by American Airlines, who are finding that users who search for the airline are being given sponsored links to AA’s competitors in the search results. A similar practice was discovered in Australia a couple of weeks ago. A search engine, such as Google, is a two-sided market. It must please both its users and its advertisers, though Google only monetises one side of this market (the advertiser). But clearly, failure to provide its users with relevant search results can be detrimental to its cost-per-click revenue stream.

Pricing Nostalgia

This week’s blog posting is all about pricing nostalgia. You may recall my posting back in November last year about the price of U2 tickets….in 1984 ($19.90).

Well during the week, I stumbled across a website with a fantastic name (http://www.ticketsonyourself.com) which sells T-shirts with old (and some not-so-old) concert tickets printed on them.

There have been many reasons put forward for concert ticket price inflation over the years. Some authors have blamed The Eagles (people were always going to pay once Hell Froze Over), while others suggest that as sales of recorded music has declined (thanks to Napster, and more recently iTunes), artists have re-balanced their revenue stream, by increasing live performance ticket prices and thus revenue.

It’s great to flick through the t-shirt designs on offer on this website, and not only see some of the prices (Woodstock at $8 per day, or $24 for all three days – perhaps bundling hadn’t been invented then?) as well as some of the support acts (Bob Dylan with Eric Clapton and his Band).

Enjoy.

The price of dying...in 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?

Hmmmmm

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.

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 http://www.pumps.ie/ 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 Farecast.com 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?

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.

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 http://www.winningwords.com.au/

Podcast: How to Set and "Sell" Your Prices

The interview I did with Michelle Nichols, Business Week's Savvy Selling columnist is now live on the Business Week website, for downloading to your iPod of PC.

You can get a copy of the podcast by clicking here.

I hope you enjoy listening to it as much as I had fun making it.

Podcast

I've just recorded and interview with New York City -based Business Week, the premier US business magazine. The topic of the interview is "How to set and sell your prices", and it will be available as a downloadable podcast very soon. Details will be posted on this blog, so please check back again shortly.

Pricing Masterclass 2007 - Update #2

The Pricing Masterclasses 2007 were mentioned in the 'MyCareer' supplement in The Age today, Saturday 31st March 2007.

You can see what they said, in page 4 'Networking' column, below.

Sales of the Melbourne event are very strong: early bookings are strongly recommended.

Low Cost Airlines

Are low cost airlines running out of names?

Click here to see the name of the latest low-cost airline, who plan to start flying to destinations in France, Germany, Italy, Spain & Eastern Europe, from Cardiff International Airport this coming (northern) Autumn.

More Pricing Humour

Any excuse for a sale. Need I say more?

Can advertising save phone booths?

Telstra recently announced that it will offer advertising space on telephone booths. This may save thousands of telephone booths around the country apparently, which are suffering from declining usage due to the proliferation of mobile phones.

Will it?

Will advertisers pay to advertise inside phone booths if no one is using them? Probably not. If no one is using them, are people looking for them and therefore at them? The answer once again is probably not.

Telstra says that phone booth advertising has an 80% recall rate. Maybe thats the novelty factor of people saying "Wow, look at that, a phone booth. I wonder who uses that these days?"

What else could Telstra do? Well, perhaps phone booths could become mobile phone recharging stations. After all, mobile phones are not totally wireless: they still need to be recharged. A five minute power recharge station could be one option for phone booths.

Another may be a pre-paid credit vending machine, allowing users on pre-pay plans to quickly grab an extra $20 credit from a vending maching inside the booth. Credit on other Telco's could also be offered in-booth.

These two services could even be combined in the one booth...and I'm sure people would then read in-booth advertising while charging their phones for 5 minutes.

Zara & its competition

Readers of this blog who have attended one of my pricing workshops will know that I use Zara (whose Kuala Lumper store is shown opposite) as an example of a best pricing practice company.

This article, from the BBC wesbite (once again, courtest of Alan Cooper at Managing Change, tells how H&M, is responding (and looking increasingly like) Zara.

The greatest price since sliced bread

Here's a couple of interesting stories from the BBC website on the pricing of bread and market segmentation...

In-store bread vs in-bag bread and A family that blows its own trumpet

...courtesy of my good friend at Managing Change

Inflation in Zimbabwe

I visited Zimbabwe (twice) in the late 1980's. At the time, it was a safe and peaceful country, and at the time was being held up as a model for the rest of Africa (particularly its large southern neighbour) for making a successful transition from minority to majority rule.

How things change. As The Daily Telegraph notes, inflation in Zimbabwe reached 1,394% on the 12th February 2007. Some shop keepers in Harare are predicting dynamic pricing (prices changing by the hour) in 3 months time!

So much for the model country!

What's good for the goose isn't good for the gander...in China

My very good friend Alan Cooper sent me this story from the BBC's website.

Seems its OK for the Chinese to lower the price of everything they produce everywhere...except at home.

2006: The Pricing Year in Review

2006 was a year where Pricing possibly became a bit more transparent. It was a great year to pick up and read a book on Pricing, or to visit a website that helps unlock some of the mystery surrounding the setting of airfares. But it was also a year that the world lost a couple of Pricing pioneers. In February, Sir Freddie Laker passed away at the age of 83. In its obituary, The Economist said “Mr Laker in 1977 introduced the first outrageous discounts, of £118 ($US206) to fly the Laker Skytrain from London to New York, and the first taste of no frills”.

Meanwhile in New York, Sol Cantor passed away in June, at the age of 95. Cantor was an early visionary when it came to discount department stores, and built up Interstate Department Stores and Children’s Supermarket, the latter a predecessor to Toys ‘R’ Us.

The airline industry has been at the cutting edge of Pricing since the deregulation of the US industry in the late 1970’s, and 2006 was no exception. Across the North Atlantic, a new breed of carrier was born: business-class carriers in the form of Silverjet (UK) and Maxjet and Eos (US). Meanwhile, Oasis Hong Kong Airlines (eventually, after some Russian airspace difficulties) started services from Hong Kong to London-Gatwick. Oasis has guaranteed that 10% of its seats will be available at £75 plus taxes.

Meanwhile, British Airways found itself in hot water over “inappropriate discussions” with a competitor on fuel surcharges. This came shortly after the European Union and the US Department of Justice commenced a wider investigation into collusion in the air freight market.

And of course the airlines accelerated the unbundling trend that commenced a couple of years ago (think iTunes, and how it has unbundled the 12-15 track album, or how digital cameras have unbundled the 12/24/36 exposure film). Two European low cost airlines (Flybe, followed shortly thereafter by Ryanair) started the year by announcing they would start charging a fee for passengers to check their baggage, discounted of course when the luggage is booked in advance. Aer Lingus made a similar announcement in August.

And one of the most interesting Web 2.0 sites launched during the year is built on prices: Farecast.com is a US airfare search engine that predicts whether airfares over US city-pairs will rise of fall in the days ahead.

Many companies keep a close eye on the Pricing models used in the aviation industry. 2006 was no exception, with Amtrak announcing its adoption of airline-style revenue management practices on its high-speed Acela train services.

Hotels started to wake up to the poor economics of the mini-bar, and realised that they (a) are labour intensive (it takes 20 employees 7 hours to service the 1,946 mini-bars in the New York Marriott Marquis), (b) create time-consuming disputes when guests check-out and (c) are impossible to customise with guest-preferred contents. Watch out for refrigerators with empty space for your medical and dietary needs.

The Pricing industry itself was also in the news during 2006. Metreo, a vendor of Pricing optimisation software defaulted on a loan in January and was put up for sale by its creditors. Meanwhile, the Pricing scribes were hard at work, and we saw Pricing books released by Baker (Pricing on Purpose), Cram (Smarter Pricing) and Simon, Bilstein & Luby (Manage for Profit, Not For Market Share). And of course, Chris Anderson’s long awaited book The Long Tail was released mid-year. The Long Tail has many implications for Pricing, but in trying to answer what the effect of The Long Tail is on prices, Chris gave the inconclusive answer that “it depends”. Nevertheless, the book was probably the best and most interesting read of the year.

Elsewhere in the world of Pricing:

* Inflation hit 1,000% in Zimbabwe during the year, forcing the central bank to issue a $Z 100,000 note;
* Prices were no longer required for products such as Bankcard, Nikon 35mm camera’s and Telegrams delivered by Western Union, all of which reached the end of their product life cycle in 2006;
* Similarly, the UK electrical retailer Dixons announced it would no longer stock Cathode Ray TVs, 35mm cameras nor CD and cassette players.

And finally, does a year ever pass without some headline-grabbing Pricing disaster? The recently opened Disneyland Hong Kong blocked out 4 days of the Chinese New Year during which discounted admission tickets could be used, failing to realise than Chinese Mainlanders had a 7 day New Year holiday. Needless to say, the thousands turned away at the gate were not too happy.

Wishing you a happy Christmas and a safe and prosperous 2007. 

A Pricing Joke

An American decided to write a book about famous churches around the world. So he bought a plane ticket and took a trip to China.

On his first day he was inside a church taking photographs when he noticed a golden telephone mounted on the wall with a sign that read "$10,000 per call". The American, being intrigued, asked a priest who was strolling by what the telephone was used for. The priest replied that it was a direct line to heaven and that for $10,000 you could talk to God.

The American thanked the priest and went along his way.Next stop was in Japan. There, at a very large Cathedral, he saw the same golden telephone with the same sign under it.He wondered if this was the same kind of telephone he saw in China and he asked a nearby nun what its purpose was. She told him that it was a direct line to heaven and that for $10,000 he could talk to God.

"O.K., thank you," said the American.He then travelled to Pakistan, Sri Lanka, Russia, Germany and France. In every church he saw the same golden telephone, with the same "$10,000 per call" sign under it.

The American decided to travel to India to see if Indians had the same phone. He arrived in India, and again, in the first church he entered, there was the same golden telephone, but this time the sign under it read "One Rupee per call."

The American was surprised so he asked the priest about the sign. "Father, I've travelled all over World and I've seen this same golden telephone in many churches. I'm told that it is a direct line to Heaven, but everywhere else I have been the price is $10,000 per call. Why is it so cheap here?"

The priest smiled and answered, "You're in India now, son - it's a local call".