Pricing Solutions News

admin — Mon, 27 Jul 2009 16:01:10 +0000

– Smart Phone Price Wars
– Luxury Goods for Less
– Catering to Cash-Strapped Consumers

Apple courts the masses with cheaper laptops, $99 iPhone
The consumer electronics powerhouse Apple, which has always been able to charge a premium for what it sells, slashed prices on many of its high-end laptop computers and its flagship operating system software while announcing that consumers will soon be able to get a $99 iPhone – all in an effort to bolster sales amid sagging confidence and an expected drop in electronics sales this year. By offering an iPhone for $99, Apple has opened itself up to a new group of consumers who might not have been able to afford an iPhone before, potentialy boosting its overall share of the smart phone industry. It is expected that competing carriers, such as Verizon Comminications Inc. in the U.S., will slash prices on iPhone competitors such as RIM’s BlackBerry devices in the coming weeks to minimize the Apple onslaught.
Source: Globe and Mail, June 9, 2009

$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

New Phone Number for the North American Office. Please note that effective July 20, 2009, Pricing Solutions’ new North American (Toronto) office number is: 1-416-943-0505. All extension numbers and our fax number will remain the same. Please update your records. Thank you.

Please contact Greg Thomas (gthomas@pricingsolutions.com), Leader, Pricing Research Practice, or 1-416-943-0505, ext. 120, to discuss how we apply our pricing expertise, innovation and collaborative approach to your research projects.

PEOPLE & ORGANIZATION – PROCESS & CHANGE MANAGEMENT – RESEARCH & ANALYTICS – TOOLS & SYSTEMS
North America 1-416-943-0505
United Kingdom + 44 207 323 5059 – France + 33 1 4602 6032 – Spain + 34 91 572 6821

Newsletter Summer 2009 – vol. 2 no. 1

admin — Wed, 15 Jul 2009 17:10:55 +0000

In this issue…

Pricing for Long-Term Profit and Growth (Part III of III) by Jim Saunders
Frugal is the New Black by Paul Hunt
Research Practice Update
News and Events
- Webinars
- Seminars and Workshops
- Pricing Solutions welcomes Avy Punwasee
- New Phone Number for North American Office

Pricing for Long-Term Profit and Growth (Part III of III)
by Jim Saunders

In Parts I and II, we established the framework for performing price optimization to maximize long-term profit, by looking at the Customer Lifetime Value and the impact of pricing on the possible future outcomes. We also discussed how the “Price/Volume/Profit Tool”, a vital element for achieving Level 3 of the World-Class Pricing framework (www.pricingsolutions.com), links to this model. In addition, we also delved into the available margin pool and extracted a number of factors that could affect future profitability from a pricing management stand point. In this newsletter, we will discuss how to grow volume profitably in a long-term price optimization model (see the profit/growth model in Figure 3).

Ultimately, the optimization of both everyday prices and promotions leads pricing managers to focus on segmentation. More effective segmentation, as well as a pricing structure that responds to the needs of specific segments, provides an opportunity to improve both growth and profit in the long-term – the “Holy Grail” of pricing. Figure 3 shows the range of potential impacts that a pricing move can have. A move that takes the company up the vertical axis (such as a price increase) can increase profits but does not improve value and may, in fact, hurt the long term future of the business. Similarly, a promotional move that entices new customers, (e.g. temporary price reduction), but does not link customers to the value of the brand can grow the customer base, but possibly trains these customers to wait for future promotions leaving them unprofitable.

Part III continued…

Find Parts I – III all here

Frugal is the New Black
by Paul Hunt

Positioning your company as the smart choice in the tide of consumer and corporate thrift.

Conspicuous consumption is passé. Nowadays, frugal is the new black. Cheap is chic. The value calculus for making purchases has changed. There is a much sharper focus on price. People are re-evaluating everything before laying out their hard-earned cash. Consequently, it’s a dangerous time to be the high-priced player in any category, as Starbucks is learning the hard way. While the once high-flying chain is closing stores and trying to figure out how to avoid being seen as an unnecessary luxury, consumers are flocking to McDonald’s for its inexpensive, yet tasty, coffee.

Continued…

Pricing Research Practice Update

Greg Thomas, Leader, Pricing Research Practice, reports that Pricing Solutions is experiencing high client demand for our pricing research services. According to Greg, “Our new and existing clients recognize the need for pricing research to be conducted by highly specialized pricing experts such as Pricing Solutions, particularly in this challenging economy with changing consumption patterns.”

The Pricing Research Practice is also proud to announce the successful completion of the Marketing Research and Intelligence Association’s Gold Seal Certification Review process, and our new designation as a Gold Seal-Certified Corporate Research Agency. The Gold Seal Certification is one of MRIA’s primary mechanisms for developing and delivering world-class professional standards and ensuring member compliance. This achievement demonstrates Pricing Solutions’ continued commitment to excellence.

To discuss how we can apply our pricing expertise, innovation and collaborative approach to your research projects, please contact Greg Thomas, Leader, Pricing Research Practice at 416-863-0685, ext. 120 (as of July 15, 416-943-0505, ext. 120) or email him at gthomas@pricingsolutions.com.

News and Events

Webinars

September 16 – "Competing on Pricing Analytics" with Loic Le Corre, Managing Director, Pricing Solutions Europe – 17:00 to 18:00 CET, 11:00 to 12:00 ET – visit www.pricingsolutions.com to register

Seminars and Workshops

October 13, 14 – FMCG Pricing Excellence Seminars, Paris, with Loic Le Corre, Managing Director, Pricing Solutions Europe – contact llecorre@pricingsolutions.com for details
October 21-23 – PPS Annual Fall Conference, Orlando, Florida
- "Pricing 2.0 – The Next Generation of Pricing Management" – Keynote Speaker – Paul Hunt, President, Pricing solutions
- "Effective Pricing in Latin America" – Fernando Ventureira, Iberia (Spain & Portugal) Practice Leader
November 25-26 – PPS Annual European Pricing Conference, Brussels
- “Pricing 2.0 – The Next Generation of Pricing Management” – Keynote Speaker – Paul Hunt, President, Pricing Solutions
- “Measuring & Managing Pricing Effectiveness” (CPP Workshop), Loic Le Corre, Managing Director, Pricing Solutions Europe, and Tony Hodgson, United Kingdom Practice Leader
- Visit www.pricingsociety.com for more information.

Pricing Managers Forum

September 25 – "Building Your Pricing Team" – Pantages Hotel, Toronto – An opportunity for pricing managers to regularly discuss topical pricing issues and challenges. Contact Jim Saunders on how to join.

French Pricing Club Breakfast Meetings

Pôle Universitaire Léonard de Vinci, Paris – An opportunity for pricing managers to regularly discuss topical pricing issues and challenges. Contact Loic Le Carre on how to join.
- September 8 – “New approaches to Pricing Research”
- October 8 – “Pricing Analytics”
- November 19 – “Service Pricing”

Pricing Practitioners Breakfast Meeting

September – Venue to be advised, London, United Kingdom
Contact Tony Hodgson, United Kingdom Practice Leader, for more information.

Pricing Solutions welcomes Avy Punwasee

Avy Punwasee has recently joined Pricing Solutions Limited as a Senior Consultant, focusing on pricing management and strategy. Prior to joining Pricing Solutions, Avy was responsible for pricing management in the service parts business of a major domestic automotive company. In this capacity he managed over 400,000 SKUs and $700 million of revenue to a diverse customer base. In addition, he was a key contributor to developing and implementing the organization’s long-term strategic vision and financial business plan. Avy has a wealth of experience in numerous operational areas including channel pricing, competitive realignments, promotional pricing, input cost negotiation and change management. Over his pricing tenure he has added tens of millions of dollars in profit while still maintaining a focus on increasing sales.

To reach Avy, please call
416-863-0685, ext. 105
(as of July 15, 416-943-0505,
ext. 105) or email him at
apunwasee@pricingsolutions.com

New Phone Number for North American Office

Please note that effective July 15, 2009, Pricing Solutions’ new North American (Toronto) office number will be: 416-943-0505

All extension numbers and our fax number will remain the same. Our 1-888-771-8326
number will also remain the same. Please update your records. Thank you.

Keep Informed

Sign-up for the following e-publications, learn about relevant webinars and events, at www.pricingsolutions.com:

e-Newsletter: This publication on pricing strategy and upcoming Pricing Solutions events

Price Clippings: Our current pricing news digest

Pricing for Researchers: Our concise summary of practical and relevant research methodologies and innovative ideas

Pricing Solutions’ Events: Notice of webinars, seminars and speaking engagements

FOR MORE INFORMATION or to provide comments or suggestions on this newsletter, please contact Christine Terashita (cterashita@pricingsolutions.com) or visit our website at www.pricingsolutions.com

You have received this email as you expressed interest in Pricing Solutions’ services or you have subscribed to the Pricing Solutions e-Newsletter. If you do not wish to receive the e-Newsletter or any other communications from Pricing Solutions, please unsubscribe as detailed below.

Price Clippings

admin — Mon, 11 May 2009 12:29:22 +0000

Pricing Responses to Economic Downturn – Cuts, Increases, PWYC and FREE

Fans to benefit from price cuts
Thousands of Premier League supporters will pay less to watch their football clubs next season, as five clubs decided to cut their season-ticket prices. Five others announced a price freeze. The trend is not unique to the U.K., as numerous professional sports teams in North America have announced similar price cuts. However, the Premier League is also finally starting to realize that its fan base is aging, as less than one in ten fans are younger than 24. There has been extra focus on cutting prices for under-16s, and in some cases, making the under-16 tickets available to under-18s.
Source: BBC News, March 1, 2009

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…

McDonald’s free coffee promo sparks java war
McDonald’s will give away small coffee to its customers during breakfast hours at all its Canadian locations until May 3–and you don’t have to buy anything to get one. The move is sure to heat up the coffee war across Canada, as Tim Horton’s struggles with falling profit and Starbucks is closing many locations due to overexpansion and a drop in consumer spending in the recession. McDonald’s believes the promotion will help lure back customers who have recently left the fast-food chain and optimistic expectations are that new customers who try the coffee every day for the two weeks it’s free will acquire a taste for it.
Source: The Canadian Press, April 20, 2009

The Pricing Research Practice at Pricing Solutions is proud to announce the successful completion of the Marketing Research and Intelligence Association’s Gold Seal Certification Review process, and our new designation as a Gold Seal-Certified Corporate Research Agency. The Gold Seal Certification is one of MRIA’s primary mechanisms for developing and delivering world-class professional standards and ensuring member compliance. This achievement demonstrates Pricing Solutions’ continued commitment to excellence.

Please contact Greg Thomas (gthomas@pricingsolutions.com), Leader, Pricing Research Practice, or 416-863-0685, ext. 120, to discuss how we apply our pricing expertise, innovation and collaborative approach to your research projects.

PEOPLE & ORGANIZATION – PROCESS & CHANGE MANAGEMENT – RESEARCH & ANALYTICS – TOOLS & SYSTEMS
North America 1-888-771-8326 ext. 169
United Kingdom + 44 (0) 20 7323 5059 – France + 33 1 4602 6032 – Spain + 34 91 572 6821

Price Clippings

admin — Wed, 28 Jan 2009 13:57:10 +0000

This edition of Price Clippings features articles on:

A record-setting drop in consumer prices
A Canadian executive accused of price-fixing in the U.K.
The decline of newspaper revenues
"Aggressive" pricing in the grocery industry
A change in what we can expect to pay for both music and electronics

U.S. consumer prices drop 1 per cent
U.S. consumer prices plunged by 1 per cent in October, the biggest one-month decline in the past 61 years. The drop was twice as large as the 0.5 per cent decline analysts expected. The big drop reflected not only a record-setting fall in gasoline and other energy costs, but widespread declines in other areas. Core consumer prices, which exclude food and energy, fell by 0.1 percent last month, the first drop in core prices in more than a quarter-century.
Source: The Associated Press, November 19, 2008

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

Sony to Raise Prices in Europe Due to Stronger Yen
Sony could raise the prices of some of its products more than 33 percent due to the strengthening of the Japanese yen versus the U.K. pound and the euro, the company confirmed. With economic uncertainty set to continue into 2009, "Sony will increase the trade price of a number of products over the coming months," the company said in a statement. Sony said it has not determined the exact price increases, but that most products would not rise more than 33 percent. Sony said it expects other companies may do the same.
Source: PC World, December 18, 2008

Van Westendorp Analysis (aka “Price Sensitivity Meter”)

Greg Thomas — Wed, 26 Nov 2008 14:30:40 +0000

Background

First proposed in 1976 (van Westendorp 1976)
The Price Sensitivity Meter (PSM) has steadily gained in popularity as companies increasingly try to estimate optimal pricing
Particularly popular for use in consumer goods and small ticket B2B products
Concept is driven by two psychological principles: "Theory of Reasonable Prices"; "Price Signaling Quality". (see bottom of page for more details)

How it Works

Educate respondent about new product offering
Then ask four questions:
1. At what price would you consider this item to represent a good value?
2. At what price would you say this item is getting expensive but you would still consider it?
3. At what price would you say this item is so expensive that you would no longer consider it?
4. At what price would you say this item is so inexpensive that you would begin to question its quality?
Output from the 4 questions generates a demand curve that is supposed to calculate the optimum price.

Strengths

Simplicity of execution
Results are never embarrassing or inexplicable because it is based on the "Theory of Reasonable Prices"
Most useful for highly innovative products for which there is genuine ignorance as to what kinds of reasonable price ranges respondents might generate.

Weaknesses

The key weakness is the four questions are too similar to "How much would you pay for this product?". This typically results in responses being biased and low.

Measures of Predictive Validity

Unaware of any published validation in the past 26 years since van Westendorp’s original paper
Exceptionally few publications addressing this method at all.
In 1999, Pricing Solutions Division conducted a study testing three methods of pricing research (i.e. van Westendorp, Price Laddering, Discrete Choice) – the results from the van Westendorp were biased low, underestimating the optimal price by 35%

Our Assessment

PSM is used far too frequently and its results are taken much too literally.
While promising on the surface (i.e. simple, easy to use, and has intuitive appeal) it is frequently ineffective – providing results significantly different from the optimal price (i.e. volume and margin are maximized)
Further testing should be done using other research methods (e.g. monadic, discrete choice, etc.) before accepting PSM results

Pricing Theories

"Theory of Reasonable Prices" – assumes buyers can examine an item and formulate a rough notion of what they would expect the item to cost or at least the range into which they would expect it to fall.
"Theory of Price Signaling Quality" – assumes that some prices are "too low", and that buyers will avoid products that are priced too low.

Pricing 2.0 webinar

Paul Hunt — Tue, 25 Nov 2008 10:30:53 +0000

How can you avoid the traps, face the new competitors & harness the power of 2.0?

How do you…

Manage ‘Value Propositions’, Pricing & Targeting to optimize volume and profits on Web 2.0 and new channels?
Optimize Client interaction and experience on web and mobile channels?
Manage your brand and value perception in the 2.0 era?

Prepare yourself for effective Pricing in the 2.0 era by attending this free webinar.

What You Will Cover Learn more about the new approaches to Value Based Pricing in the Web 2.0 era: One to One & Microsegmented Value Propositions & Pricing

Context-based approaches
Versioning
Bundling, Targeting & Fencing
Auctioning
Willingness to Pay testing & Roll out
Option Pricing

Also find out some of the risks and challenges that these strategies entail, and how you overcome them.

Why Should I Attend

Pricing Solutions, one of the world’s leading pricing consultancies, presents a power packed webinar for the nation’s leading marketers on how Web 2.0 & new channels will affect pricing strategies and management. Paul Hunt’s pricing experience is based on more than 18 years of in-depth analysis into the impact of price and Value Propositions on consumer and B2B buying decisions. Participants are guaranteed to return to work with a greater understanding of how to proactively manage Value Propositions, Pricing & Targeting to optimize, volume and profits on Web 2.0 and new channels. The complimentary webinar will begin at 12:00 pm (New York time) and last for approximately 60 minutes.

Speaker Biography
Paul Hunt, President Pricing Solutions Limited

Paul Hunt is one of the foremost consultants in the field of pricing research & strategy. Throughout his 18-year career as a pricing consultant, he has advised organizations of all sizes, from small businesses to Fortune 500 companies.

Click here to learn more…

Date: December 16th, 2008
Time: 12:00 pm – 1:00 pm NY time (5:00 pm London time, 9:00am Los Angeles time and 6pm Paris time)

How to Register

To register for this webinar, please use our form, or e-mail Mark Altosaar at: maltosaar@pricingsolutions.com with your contact information.

Price Clippings for November

admin — Tue, 18 Nov 2008 14:00:36 +0000

This edition of Price Clippings features articles on:

New pricing models & strategies
Commodity price changes
Pricing strategy in the travel industry
Fair Pricing for the 2012 Olympics

Amazon Simple Storage Services gets a new pricing model
Amazon will cut prices on its Simple Storage Service (S3) and offer more volume discounts. The pricing may reflect that Amazon is looking to grab share as competition from Microsoft and others is about to heat up. Meanwhile, the volume discounts and tiered pricing will appeal to enterprises. A few folks did note that at scale it made sense to do your own storage. This pricing move may alleviate some of those concerns.
Source: blogs.zdnet.com, October 9, 2008

Blockbuster tests pricing In a test market in Florida, Blockbuster was offering three different levels of membership. One enables customers to rent DVDs by the day, another lets customers rent by the week plus get the benefits of a rewards program for a $20 annual fee, and a lets customers rent unlimited movies and/or games "by the month" for a monthly subscription fee. As part of its tests, Blockbuster has also introduced "demand pricing," which simply means the movies that are in the most demand rent for $4.99, while movies still on the store’s new release wall are priced at $3.99, while classic older movies will rent for about $0.99.
Source: Reuters, November 5, 2008

Price of home heating oil to be cut in half
Home heating oil prices will be slashed in half between now and Christmas. The good news comes after a snap survey of local oil distributors revealed that some companies have already knocked 24% off their prices in the last six weeks. It also coincides with the price of oil plummeting below US$75 a barrel — just over half its July peak of US$147 — and it brings fresh hope for families struggling to offset the recent shocking 33% rise in electricity tariffs. There will probably be more fluctuations over the winter period but the price reductions are very welcome for oil consumers as we enter the start of the heating season.
Source: The Telegraph, October 17, 2008

Norske Skog says confident of price hike
Norwegian papermaker Norske Skog said it was confident that a price rise of 15% to more than 20% on European newsprint would be accepted because it has concluded deals supporting the new level. Newsprint prices are typically set for a year at a time. The industry has struggled for years with weak prices and rising costs due to soft demand and overcapacity.
Source: Reuters, October 17, 2008

American Airlines considers a la Carte Pricing
Starting next year, American, which led a stampede by U.S. carriers to charge customers for checking even a single suitcase, plans to imitate the a la carte pricing structure pioneered by Air Canada, airline officials say. There are likely to be a few basic fare plans, and travelers can pick additional services — for a fee. Fans of "unbundling," as it’s called, say it gives travelers lower base fares with the option of paying for extras that they really want, from beverages to blankets. Some travelers are wary, however, and suspect the airlines are just trying to chisel them a few bucks at a time.
Source: abcnews.go.com, October 5, 2008

Travelodge declares price war on UK hotel rivals
British budget hotel chain Travelodge on Sunday announced 5 million pounds ($8 million) worth of price cuts for the rest of 2008 designed to lure its budget and mid-market competitors into a price war. Travelodge is currently benefiting from customers cutting spending on more expensive hotels. It offers promotional rates starting at just 9 pounds per night. The company said it believed budget hotels would drive structural change in the market in the way that budget airlines had done, with customers not necessarily returning to more expensive alternatives when the economy improved.
Source: Reuters, November 9, 2008

Travel and tourism brands should look at new ways of pricing their products to help attract visitors and promote loyalty as the recession bites.
According to World Travel Market’s Global Trends Report, produced in association with Euromonitor and released today, new pricing models are beginning to make inroads in the travel industry. The ‘core free goods’ model where the basic product comes for free but extras are paid for is most commonly used by low-cost airlines. However, Travel Offers in the UK features 320 hotels where accommodation is free, but guests have to pay for dinner and breakfast and a £35 annual fee. The report says that: "More and more potential customers will become accustomed to naming their own price or expecting a major portion of the product or service for free."
Source Travel weekly 7th November 2008

Olympic fair pricing charter garners support
Over 40 London businesses have signed up to the 2012 UK Event Industry Fair Pricing & Practice Charter since its launch two weeks ago. The charter aims to ensure that operators’ pricing for the period around the 2012 Olympic Games is fair and reasonable. It also guarantees that businesses, including those within the hospitality and tourism sector, will not artificially inflate prices for goods or services. In return charter members will be promoted to organisers seeking venues and suppliers via Visit London’s enquiry service, and through VisitBritain’s network of overseas offices.
Source: Caterersearch.com, November 6, 2008

World Class Pricing – The Journey to Excellence

Mark Altosaar — Wed, 22 Oct 2008 10:00:55 +0000

Pricing Solutions and the Professional Pricing Society together are hosting a seminar for World Class Pricing: The Journey to Excellence on December 4, 2008.

Paul Hunt, president of Pricing Solutions, will be instructing on how to become a world class pricer: through gaining control of pricing, effective discounting policies, selling value instead of price, and more!

Click here for the agenda and more information

We look forward to meeting you!

Newsletter Fall 2008 – vol. 1 no. 2

admin — Tue, 30 Sep 2008 14:00:50 +0000

In this issue…

Pricing for Long-term Profit and Growth (Part II of III) by Jim Saunders
Turbulent Times for Pricers Continue by Paul Hunt
Announcements
- Pricing Solutions, Bellis Jones Hill Partner to Open Pricing Solutions U.K.
- Western North America Office Launch
- Greg Thomas
- Welcome Claudia Lopez
Pricing for Researchers
Price Clippings
Get ‘LinkedIn’ to Our Pricing Club
Upcoming Events
About Pricing Solutions

Pricing for Long-term Profit and Growth (Part II of III)
by Jim Saunders

In our last issue, we established the framework for performing price optimization to maximize long-term profit, by looking at the Customer Lifetime Value and the impact of pricing on the possible future outcomes. We also discussed how the “Price/Volume/Profit Tool,” a vital element for achieving Level 3 of the World-Class Pricing framework (www.pricingsolutions.com), links to this model. In this edition, we delve into the available margin pool and extract a number of factors that could affect future profitability from a pricing management standpoint.

We believe the effectiveness of a pricing strategy has to be measured over the long term, and not solely by its ability to deliver quarterly, or even annual, profit and growth targets. Your business has an available margin pool (the total available margin that customers are prepared to generate in a given segment over the product life cycle). The objective of the pricing strategy is to capture as much of that margin pool as possible.

Continued…

Turbulent Times for Pricers Continue
by Paul Hunt

Things are not getting easier. In our last newsletter, I predicted continued volatility and high energy prices. However, this has hit with an even greater severity than I anticipated. As a result, companies are executing price changes at an alarming rate and to an extent not seen since times of high inflation. DOW has announced an across-the-board price increase in the neighbourhood of 20%; airlines are adding hefty fuel surcharges; and most other companies are looking to price increases for relief.

Continued…

Announcements

Pricing Solutions, Bellis Jones Hill Partner to Open Pricing Solutions U.K.

Paul Hunt, President of Pricing Solutions Ltd., is pleased to announce that Tony Hodgson, of consulting firm Bellis Jones Hill, will open Pricing Solutions United Kingdom in September 2008.

“Tony brings tremendous experience to the U.K. marketplace,” notes Hunt. “As former head of global pricing for a Fortune 500 company, he was responsible for the day-to-day decision-making faced by many of our clients. But he also brings several years of consulting experience with Bellis Jones Hill, a leading U.K. consulting firm in the field of activity-based costing. We are very excited to have a partnership with this highly accomplished team.”

Western North America Office Launch

Paul Hunt, President of Pricing Solutions Ltd., is pleased to announce the opening of an office in Western North America, effective Q4 2008. Jim Saunders, a senior partner in the firm, will head up the new venture.

“This office will help us more effectively service our growing base of clients in the Western U.S. and Canada,” says Hunt. “Jim has extensive experience in high-tech, packaged-goods, and service-based industries. His knowledge and leadership will be the perfect complement to our growing client needs in this important market.”

Paul Hunt is pleased to announce Greg Thomas as partner, effective October 12, 2007

Greg leads the pricing research practice at Pricing Solutions. In that capacity, he manages pricing research projects from start to finish. Greg has worked with top organizations in industries as diverse as packaged goods, pharmaceuticals, manufacturing, financial services, technology, and media.

Since joining Pricing Solutions in 2001, Greg has spearheaded over 100 pricing research initiatives. He has achieved a world-class competency at developing highly accurate forecasting models that measure the impact of implementing different pricing strategies. He leads a Pricing Research course for the Professional Pricing Society, and is a frequent guest lecturer at the University of Guelph’s Pricing Management course. Greg publishes our new “Pricing for Researchers” bi-monthly e-newsletter, and is the past-president and current treasurer of the Toronto chapter of the Market Research & Intelligence Association (MRIA).

Welcome – Claudia Lopez

Paul Hunt, President of Pricing Solutions Ltd., is pleased to welcome Claudia Lopez to Pricing Solutions as a Consultant, effective February 19, 2008.

Claudia is a consultant working in pricing research and pricing management. In that capacity, she is involved in helping clients optimize their pricing through the application of advanced pricing research methodologies, and achieving world-class competency in pricing management through the application of advanced analytics.

Claudia worked in Mexico for several years as an economist in the financial-services and government sectors. She is an expert in quantitative and qualitative techniques applied to business analysis, and has done in-depth analysis focused on optimizing returns and efficiencies. She has a Master of Arts in Applied Economics, and a Master of Science in Consumer Studies.

Pricing for Researchers

At Pricing Solutions, we are committed to the ongoing education and development of market research professionals in our specific area of expertise – pricing research.

In response to numerous requests for more information on this subject, we introduce an initiative designed specifically for market research professionals. Over the next several months, we will be broad-casting a series of free pricing e-bulletins. Each e-bulletin will be a concise summary of practical and relevant research methodologies. The e-bulletins will cover the essentials of pricing research as well as topics of current interest, enabling you to satisfy your internal clients more effectively and helping you to make more profitable pricing decisions.

To receive our free PRICING FOR RESEARCHERS e-bulletin, please call Greg Thomas at 416-863-0685, ext. 120; or e-mail him at: gthomas@pricingsolutions.com.

Price Clippings

At Pricing Solutions Ltd., we are committed to keeping you informed of new and innovative pricing issues and trends. Therefore, we introduce you to “Price Clippings,” an initiative planned specifically for Pricing Solutions’ clients. Over the next several months, we will broadcast a series of electronic “Price Clippings” to provide you with a timely snapshot of a range of pricing challenges European firms face. Each “Price Clipping” bulletin is designed to be a concise summary of the latest pricing issues and trends in various industries.

To receive “Price Clippings” electronically, please call Madeline Stein at 416-863-0685, ext. 141; or e-mail her at mstein@pricingsolutions.com.

Get ‘LinkedIn’ to Our Pricing Club

We are happy to be hosting an online community of pricing professionals through www.linkedin.com. Please go to the following link to put in your two cents on the discussion at hand: http://www.linkedin.com/groups?gid=127106

Read our blog at: http://pricingandvaluestrategies.blogspot.com/ and email maltosaar@pricingsolutions.com if you would like to contribute articles.

Events

November 13-14: Professional Pricing Society’s Annual European Conference Brussels Paul Hunt and Tony Hodgson will be running a one day workshop on Pricing strategy.
November 25: Paul Hunt and Jim Saunders deliver a presentation at the Canadian Institute’s Pricing Forum, the Sutton Place Hotel, Toronto.
November 26-27: Paul Hunt and Tony Hodgson will speak at Marketing Week’s Strategic Pricing Conference in London.

About Pricing Solutions

Pricing Solutions Ltd. (Associated with The Advantage Group International, Inc.) specializes in 4 core services: pricing research, pricing management, pricing training and advisory services.

Under the leadership of President Paul Hunt, Pricing Solutions has grown exponentially since its inception in 1994. We now have offices in US, Canada, France, Portugal and Spain.

Our Pricing expertise is based on more than 20 years of in-depth work on pricing optimization in B2C and B2B markets. We have developed a wide range of proprietary tools, processes and research techniques for studying and analyzing our clients pricing problems. The typical payback on an engagement is 15:1. We have been privileged to work with many of the world’s leading companies and are proud of the long-term relationships we have built with them. Many of our client relationships extend back to the launch of the company.

Our philosophy includes the following: the senior managers who sell the work are also the people who do the work, collaboration is at the heart of our approach to completing successful projects and long-term relationships are the key to our business’ success.

Office Locations

Toronto (Canada)
contact Simone Purboo: (416) 863-0685 ext. 169

Paris (France)
contact Loïc Le Corre: (33) 1 4602 6032

Madrid (Spain)
contact Fernando Ventureira: (34) 91 572 6821

United Kingdom
contact Tony Hodgson: (44) 207 323 5059

FOR MORE INFORMATION or to provide comments or suggestions on this newsletter, please contact Mark Altosaar at maltosaar@pricingsolutions.com or visit our website at www.pricingsolutions.com

BPTO – Brand Price Tradeoff Analysis

Greg Thomas — Wed, 24 Sep 2008 14:00:52 +0000

Background

Typically used to measure price elasticity.
Developed in early 1970’s.
Described in working papers by Johnson (1972), Jones (1975), Johnson & Olberts (1991).

Description of How it Works

A group of products are presented to a customer.
Each product is priced at its lowest level.
The consumer is asked to select one product.
The price of the product they select is then increased to the next level, no other prices change.
The consumer is asked to select again.
This process is repeated, until the product reaches its maximum price or the consumer selects another product.
The study may move through all of the competing products.
Sometimes the process will include the choice "None of the above", at which time the task ends.

Strengths

Upon an in-depth review of several BPTO studies and the available quantitative literature we are not able to provide any.

Weaknesses

The purpose of the study quickly becomes obvious to the consumer leading to self-consciousness which in turn causes artificial behaviour.
The typical result is the product’s price elasticity is significantly overestimated.

Measures of Predictive Validity

In a study that employed the BPTO methodology the estimated measure of elasticity was found to be -4.5, whereas the comparative TAG results using a different methodology estimated the elasticity at -0.8. The lower elasticity was proven to be correct. This has profound implications for forecasting revenue and market share changes.

Our Assessment

This method is generally worse than doing nothing at all.

Johnson, Richard M. (1972), A New Procedure for Studying Price-Demand Relationships. Chicago: Market Facts, Inc.
Jones, D. Frank (1975), "A Survey Technique for Measure Demand Under Various Pricing Strategies," Journal of Marketing, 39 (July), 75-77
Johnson, R.M. and Kathleen Olberts (1991), "Using Conjoint Analysis in Pricing Studies: Is One Price Variable Enough?" Presented at American Marketing Association’s Advanced Research Techniques Forum, Beaver Creek, Co. (June).