Pricing Solutions News

$700 for Nokia’s new phone. Are they nuts?
Nokia’s flagship smart phone, the N97 has gone on sale in the U.S. at the whopping price tag of $699. This price isn’t that shocking considering the phone will also be offered in Europe for a comparable price. But in the U.S. where consumers are accustomed to paying $200 for a smart phone, it seems a bit ridiculous. To make matters worse, just days before the N97 made its debut, Apple announced its new iPhones would soon be hitting the market, and at a much cheaper price. The 32GB iPhone, which has the same amount of built-in memory as the N97 will cost $299. Apple will also be offering an 8GB model for just $99. The iPhone doesn’t come without strings; customers must sign a 2 year contract to get the discounted price and are subject to an early cancellation fee if terminated before the 2 years are up. However, when you add the $300 price tag with the $175 termination fee, iPhone subscribers will still only pay $475 for the device-or about $225 less than the Nokia N97.
Source: cnet.com , June 9, 2009

Office suppliers bet on "value" to win shoppers
Anlaysts expect Staples and rivals Office Depot and OfficeMax to play the "value-for-money" card prominently to woo recession-weary customers this back-to-school season, while hopefully avoiding the need to slash prices. Staples plans to expand its private-label offerings in a bid to give cash-strapped shoppers more value for their money. But "value" does not necessarily mean offering cut-rate goods. Simply lowering price doesn’t stimulate demand; it’s going to be all about offering quality products at a reasonable price. For the big three in the industry, private label accounts for anywhere between 20 to 30 percent of sales. While private-label products tend to cost less than brand-name products, they also tend to carry higher margins for retailers, helping profits.
Source: Reuters.com, June 8, 2009

Designers tout luxury for less with $300 Coach Bags
Between 2005 and 2007, the average wholesale price of luxury goods increased 10 per cent to 15 per cent each year. A shrinking global economy is reversing that trend. Sales of brands that cater to the wealthy may drop 10 per cent this year after holding steady in 2008. Vera Wang, known for her $9,500 (U.S.) wedding gowns, has cut the average retail prices for her bridal wear by almost a third as shoppers become increasingly cost-conscious in the recession. Coach Inc. is selling more handbags for less than $300, and Saks Inc. dispatched managers to Europe to help suppliers come up with lower-priced products for its stores. The moves are part of an industry-wide push to expand a tier of luxury that uses simpler designs and less costly materials after years of ballooning prices.
Source: Bloomberg, June 3, 2009

Cash-strapped consumers hunt for bargains
Cash-strapped consumers are buying more sandwich wrap, home hair colouring kits and family-friendly DVDs as they eat out less and do more at home, the head of Canada’s largest retail chain says. But even Wal-Mart Canada Corp. acknowledged its sales growth slowed as the economy dove into recession. However, while the overall market for big tickets items, such as big screen TVs and furniture, is shrinking, Wal-Mart said it is making gains as consumers shop for value. The retailer is selling more private label products, seasonal items, such as patio sets, and recently introduced dollar-store priced items. Such goods are priced at $1 and $2 instead of odd prices, such as $2.87, making it easier to shop to a budget.
Source: The Toronto Star, June 2, 2009

Nvidia accuses Intel of unfair pricing
The European Commission fined Intel $1.06 billion Euros and ordered it to change its business practices for competing illegally against Advanced Micro Devices. Nvidia, one of Intel’s biggest competitors, has now added their two-cents regarding what they are calling an “unfair” pricing strategy implemented by Intel. Nvidia makes graphics chips that pair with Intel’s low-powered Atom in lower-priced netbook computers. Intel sells an Atom chip by itself for $45, but sells a three-chip set for $25 to lure business away. Nvidia claims these prices make it impossible for them to compete and serve this market. Nvidia hasn’t taken legal action yet, but claims they will “do whatever we have to do when the time comes” if Intel refuses to compete on a fair basis.
Source: Reuters UK, May 18, 2009

Victory for consumers in bra war
Marks and Spencer has agreed to end its policy of charging more for larger bras after a campaign led by customers. The store took out newspaper adverts admitting it had "boobed" and promised to standardize prices. The “Busts for Justice” campaign, which had attracted over 13,000 supporters on Facebook, called the £2 surcharge for bras sized DD and up “ridiculous” and “unfair” and called for a boycott of the company. Marks and Spencer initially defended its pricing policy, stating that the extra £2 was necessary for larger bras because they cost more to make. As the “Busts for Justice” support group grew, M & S backed down and will now charge the same price for its bras no matter what the size.
Source: BBCNews.co.uk, May 8, 2009

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Digital retailers cut prices to lure CD buyers
As the music industry watches in horror while physical CD sales tumble and digital sales fail to bridge the gap, online MP3 retailers are trying to stem the bleeding with an age-old technique: slashing prices. Some new releases are being priced at a mere $3.99 for a limited time on Amazon MP3; the company offers some full album downloads for 99 cents. Apple’s iTunes store runs spotlight specials for as little as $4.99. And subscription-based service Rhapsody routinely has deals for $6.99. On average, a regularly priced full album digital download costs about $10.
Source: The Boston Globe, March 18, 2009

iTunes Price Change: Sales Down, Revenue Up In Week 1
The songs that comprised iTunes Top 100 sold 0.5% fewer units in the first week after the much-publicized new tiered pricing strategy. However, even though fewer units of those 100 songs were sold, their total revenue increased. The drop in sales was not large enough to offset the extra $0.30 received on nearly half of the Top 100 songs, as they were raised in price from $0.99 to $1.29. There has been some hope that higher track prices would encourage consumers to buy the entire album instead but there is no clear picture if this happened after the first week of the price change.
Source: Billboard.biz, April 15, 2009

Designer Clothing Prices DOWN
There was speculation that the abundance of extreme 70-percent-off-type sales that kicked in before the holiday-shopping season could knock clothing prices down across the board in the seasons to come. The general consensus was that the public would no longer be willing to pay full price for something. As it turns out, clothing prices are expected to drop significantly for the fall, but isn’t exactly because the pubic is not willing to spend. Retailers that have lost a lot of money in the downturn, including Saks, Neiman Marcus, and Nordstrom, are asking designers to lower prices because they don’t want to pay full price for things. Many have slashed budgets by up to 30 percent, and with the exception of a handful, designers are obliging and lowering prices.
Source: nymag.com, March 31, 2009

Time Warner Cable Backs Away from Pricing Change
Time Warner Cable caved—for now. In the face of widespread consumer outrage over its plan to change its pricing for Internet access, the company said it will shelve plans to implement the new price formula in several new markets. Time Warner Cable CEO Glenn Britt said the consumption-based model was needed to maintain an expensive, burdened broadband network, citing other countries that for years have had broadband-metering models, including Canada. But the plan unleashed a firestorm among the public and politicians who say the new method is discriminatory and would stifle innovation. Some politicians called for congressional hearings.
Source: BusinessWeek.com, April 16, 2009

“Pay what you want,” UK restaurant tells diners
A London restaurant has decided to do away with bills for the next month, asking customers to pay only what they want for meals in an unorthodox bid to beat the credit crunch. The Little Bay restaurant in central London will present diners with absolutely nothing when they ask for the cheque, leaving it up to them to decide what the meal was worth. This “pay what you want” concept has been popping up in various industries since British alternative rockers Radiohead shocked the music world in 2007 by implementing it to sell its album In Rainbows online. Research into the concept has shown promising results, and early numbers from the Little Bay experiment are looking good. Customers have reportedly been paying an average of 20 percent more than the original menu price.
Source: Reuters.com, March 3, 2009

Price hikes on menu at McD’s
The table is set for bigger price hikes at McDonald’s restaurants this year. Price hikes have been a key driver of sales growth for the chain, and bigger boosts would bring some relief to franchisees squeezed by higher food costs and expenses associated with McDonald’s push into specialty coffees. But raising prices during a recession could send cost-conscious customers running to rivals. To keep store traffic high during the downturn, McDonald’s Corp. has emphasized its Dollar Menu and rolled out a series of low-price promotions. McDonald’s collects royalties based on total sales volume from franchisees, who bear the brunt of profit pressures from rising expenses and promotional pricing.
Source: ChicagoBusiness.com, April 13, 2009

In the meantime…

Canadian Bread executive implicated in U.K. bagel price-fix allegation
Canada Bread Co. Ltd. is investigating allegations that an executive of its British bakery operations sought to influence the pricing of a competitor, Mr. Bagel Ltd. Canada Bread began negotiations to acquire Mr. Bagel in October, the main terms of the transaction were settled, and Canada Bread began discussing pricing strategies to be implemented after the acquisition. Negotiations ended due to a significant raise of the selling price of the business by Mr. Bagel late in the process. The managing director of Mr. Bagel has now made price-fixing allegations to Britain’s Office of Fair Trading. 
Source: The Canadian Press, December 8, 2008

Newspaper revenues to plummet in 2009 says new study
Newspaper revenues in 2009 will plummet while online revenue will grow according to a survey of 400 daily newspaper executives in the US and Canada. The survey revealed that more executives projected a downward spiral rather than increases in seven out of eight ad revenue categories. While online ad revenues appear to grow, automotive and real estate classifieds, among other categories, are on the decline. Improving rate structures and pricing programs has become the next priority for many newspapers, as well as developing online, both in terms of content and advertising programs.
Source: MediainCanada.com, December 16, 2008

General Mills grows market share in second quarter
General Mills Inc. gained market share in brands like Cheerios and Yoplait yogurt this fall, even though prices for those items were higher than last year, while ConAgra Foods Inc., maker of Healthy Choice and Crunch ‘n Munch, had the opposite experience. ConAgra learned a tough lesson in pricing and branding as its consumer foods volume slipped in the second quarter. The company said its ‘’somewhat aggressive” pricing turned some consumers off and volumes for some of its brands dropped. Neither company is planning to drop prices, despite pressure from retailers and growth in private-label products.
Source: The Associated Press, December 17, 2008

Apple Changes Tune on Music Pricing
Apple Inc. unveiled significant pricing changes to its iTunes Store – moves by the dominant online music seller that could spur similar action across the industry. The changes include a new three-tiered pricing plan for songs, instead of the 99-cents fixed price Apple has used almost exclusively. Under Apple’s new pricing plan, the vast majority of songs will cost 69 cents, some songs will still cost 99 cents, but the most sought-after songs – which generate most of the sales on the service – will likely cost $1.29, as both Apple and the major record labels try to boost revenue growth.
Source: The Wall Street Journal, January 7, 2009

Concert Industry Bucks the Recessionary Trend
The concert industry has so far bucked the recession, but promoters are bracing for a bumpy 2009. Box-office earnings from North American concerts are up from 2007, as a result of higher ticket prices. But the total number of tickets sold for the 100 top-grossing shows fell for the second consecutive year. Music fans are becoming wary of increasingly costly “cheap seats”. Live Nation, the world’s largest concert promoter, is trying to become more flexible in how it scales ticket prices – making cheap seats cheaper and perhaps dividing them into more than the usual two or three price levels.
Source: The Wall Street Journal, January 5, 2008

Holiday firm changes price policy 
A tour operator owned by Virgin Holidays has changed its pricing policy after an investigation into its misleading headline prices. Travel City Direct, a specialist in package deals to Florida that include hotel, flight and rental car, advertises prices as low as £369 per person. These prices, however, do not include mandatory insurance and tax which can add at least £60 to the price. While Travel City Direct explains that their price presentation is similar to that of other operators in the market, they have agreed to simplify their advertised prices and make clearer what travelers can expect to pay. Rules set by the Office of Fair Trading demand prices be all inclusive.
Source: BBC News, January 8, 2009