As marketers we've been raised on the 4 Ps, and in fact some authors have suggested new Ps. Of the traditional 4 Ps most marketers are consumed with "Promotion" and "Product," and fewer yet focus on "Place."
However, it seems "Price" gets the short end of the stick time and again. Those days are over. In an increasingly global economy where new products are launched at break-neck speed, commoditization reigns, and consumer choice is abundant, "pricing" is more important than ever.
Airlines, hotels and the like have long used yield management applications to assist them with maximizing revenues for limited inventories. However, with the advent of the internet and specialized applications for pricing, many industries that once used "cost plus" pricing models, are now able to use analytics to drill down on a detailed level to fine tune pricing.
Yesterday, I ran across two articles in the main stream press showcasing how "pricing" is making a comeback. The first article from the Wall Street Journal, "Changing the Formula: Seeking Perfect Prices, CEO Tears Up the Rules", detailed how in a staid industry like manufacturing, some companies are using analytics to increase revenues by examining pricing of all products.
In the article, Donald Washkewicz, CEO of Parker Hannifin Corporation, mentions that for many years, the pricing model of all products was cost plus 35%. The article notes, "No matter how much a product improved, the company often ended up charging the same premium it would for a more standard item."
Realizing the insanity of such a system, Washkewicz instituted a pricing review of all products and examined what a customer was willing to pay rather than what it costs to make. No small undertaking, the pricing review in one of his businesses took six months to review 2,000 items and gathered 20,000 data points in total.
The pay-off, however, more than made up for the hassle. According to the article, "Today, the company says its new pricing approach boosted operating income by $200 million since 2002. That helped Parker's net income soar to $673 million last year from $130 million in 2002."
Overall it wasn't easy and Washkewicz faced pressures from customers and suppliers since some prices were adjusted higher, and some lower. Ultimately though, Washkewicz persevered and the power of "Pricing" speaks for itself.
In a related article in the LA Times, "Baseball Charts a New Course on Seating", the Los Angeles Dodgers are now getting granular in pricing, down to the row and seat.
The article notes, "You might pay more for your seat than the fan seated next to you. The Dodgers sell tickets in the field box section for $20, $30, $35, $37, $40 and $45, depending on whether you buy on game day, before game day or as part of a full-season, partial-season or group ticket package."
The article also highlights that teams across the league are dividing the parks into smaller and smaller sections and charging more per seat based on whether a "hot" team is in town or whether it's opening day. The re-emergence of "pricing," at least in these instances, has created some detractors. Dodger fans complain the pricing is too complex and long for simpler days of three or four pricing tiers.
Even CEO Washkewicz was a target for push back as he instituted his strategic pricing review. And I know hundreds upon thousands of airline customers just wish they could have simpler pricing for an airline seat. So "pricing" is making a comeback and yield management isn't just for hotels and airlines anymore. However, I have to ask the smart marketers in this forum, is this trend in pricing a good thing? Especially from a service perspective?
From the LA Times article, "It's not all about making it easier for the consumer," said Dennis Howard of the Warsaw Sports Marketing Center at the University of Oregon. "It's largely revenue-driven." Increasing revenues is obviously a good thing but how do you balance revenue management with the presentation of a coherent and dare I say, "fair" pricing strategy?
Also, at what point will consumers and business customers become confused and start looking for those companies presenting a simpler pricing model?
Take the first step (it's free).
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