Winner Pricing Thesis Award 2009-2010 !

December 2010- The European Pricing Platform announces with great pleasure the new winner of the Best European Pricing Master Thesis Award 2009-2010.

With his thesis “Barriers to Value Based Pricing Strategies within Irish Small to Medium Sized Enterprises: A Quantitative Survey Analysis”, Eoin Healy – Dublin City University Business School – convinced our jury that he had the most complete pricing thesis of the other 6 theses that were selected. Eoin won a € 500,00- cash reward, a bundle of books worth € 75,00- a free ePP training of his choice valued at € 1.500,00- and free ePP participation for 12 months worth € 395,00- .

The jury motivated their choice as following: “Very professional thesis with clear steps in study design that is straight in our core business. The methods and objectives are well formulated and the thesis has a really scientific methodology. In general the thesis gives a valuable empirical contribution to the value of pricing research.”

The motivation of Eoin to dedicate his thesis to pricing topic came from the lack of time contributed to pricing during his masters in Marketing, as opposed to branding, distribution strategies or buyer behaviour. Eoin says: “ I found this odd as I had read about the power of pricing in terms of the profitability of a firm. So I begun researching the topic of pricing within academic databases and of course on the web. This is how I came to find the ePP and its pricing thesis award.” By knowing that there was a competition to enter Eoin made his definite choice to devote his thesis to pricing.

The reason why Eoin choose to provide a piece of literature for Small and Medium Sized business within Ireland, was because they make up the majority of business types within the Irish market. His study highlighted both the importance of value based pricing to them while at the same time pointed to reasons, or barriers, why they might not yet be using value based pricing strategies. Therefore Eoin says: “I felt it would be most appropriate to analyse them in the interest of the larger Irish economic context. Through research, value based pricing was picked as my strategy of choice due to the fact that it is said to result in greater profitability to the firm and it can ultimately result in a sustainable competitive advantage!”

At the finish of his thesis Eoin concluded that there is still so much to learn on pricing in the whole marketing community, but particularly also amongst the academics. They should revisit how important pricing actually is as an element of the marketing mix and spend much more time on sharing information and knowledge about it.

Eoin finishes with an important conclusion: “Pricing I believe is one of the most frightful and misunderstood elements in most marketers toolbox and it is only through learning more about pricing that we will over come that fear. This I feel, is where organisations such as the EPP can help.”

Need a Pricing Strategy ? Fire a customer

If you haven't walked away from a piece of business in the past six months, then it is very likely that your company doesn't have a pricing strategy.

In other words, you are trying to be all things to all people, and that is not a strategy. In fact, it could have a detrimental impact on your business because it means that highly price-sensitive customers will infiltrate your company and obtain pricing that is well below what your loyal customers who value your offering pay.

I've learned that it's not the best customers who get the best price; it's the best negotiators. We call them "system beaters." They know where the holes are in your pricing — how to get premium products at discount prices, or secure special discounts by making your salespeople feel guilty or afraid of losing their business. They might also negotiate free delivery, demand an unusually high level of technical support, pay bills late — the list goes on.

So how do you deal with customers who have champagne tastes but want to pay beer prices? If you want to ensure that your company's pricing integrity is not compromised, you must walk away from them. By doing so, it energizes your company to focus on the opportunities that will grow your business — and, most importantly, increase your profits.

Before you fire an account, it's a good idea to do a customer-profitability analysis. That will enable you to identify which accounts are unprofitable, so you can reprice or fire them.

Recently, I was talking to the president of a successful company that had lost an account that represented 25% of its sales volume. Sounds like a disaster, right? Wrong! Even though sales went down, profits went up! This is not an unusual story. Most companies have many customers that are unprofitable, and the best gift you could give the business is to fire these accounts. Some of them may be willing to pay the higher price, but don't fret over those that won't; let them take their unprofitable business to your competitors. Be prepared, however, for resistance from the sales force, particularly if they are paid commission on volume. (We'll talk about that topic in our next column.)

We recently had a client who was selling a seasonal product to a large chain retailer, while the volume was outstanding, the profits were unsustainable. They had a negative margin on the product, meaning that the more they sold, the more money they lost. The retailer had convinced them that no other suppliers had taken a price increase.

Looking at the data, we found that the rest of the category had been increasing prices while our client had been offering more and more, effectively decreasing their prices. We put together a sound business case to support a double-digit price increase and worked to bring the account team on-side. The manufacturer felt they deserved the increase and their conviction to the business case resulted in a successful presentation to the retailer.

If you are not prepared to fire customers, an alternative is to offer versions of your product or service offering. Take, for example, a company that specialized in storage. It had premium clients in the pharmaceutical industry that used its storage facilities because of the high level of security, temperature control and 24/7 access it provided. However, it also had low-priced accounts that appreciated the superior offering, but were not willing to pay for it. Consequently, the pharmaceutical customers asked for the same prices as the lower-priced accounts. A potential disaster!

In order to do business with both types of customers, the company built a separate storage facility for low-value products. By doing so, it reduced its cost to serve and was able to offer lower prices profitably. The pharmaceutical companies were not interested in this option because they valued the superior security and other benefits, and so the problem was resolved.

Whether you choose to walk away from your unprofitable customers, or provide versions of your offering, don't let them sip on champagne when they paid for beer.

Source: Paul Hunt (Pricing Solutions) for Financial Post

OFT urges brands to review "misleading" Price Ads

Retail and brand marketers are being urged to review their pricing strategies by the Office of Fair Trading (OFT) or face tough “enforcement action” following its report into misleading price advertising.

The OFT says it recognises that advertising price is a “key part of active price competition which benefits both consumers and the economy” but warns that some pricing practices can mislead consumers and break the law. The watchdog says it will “actively monitor” price promotions and “take targeted national enforcement action against firms using practices that constitute serious breaches of the law”.

The OFT supports the Advertising Standards Authority (ASA) which regulates the content of ads and sales promotions in the UK. The report identified seven potentially misleading pricing practices as part of a new framework to regulate price advertising.

Drip pricing, where additional costs are added during the buying process, time limited offers and baiting sales, where only a small proportion of stock is available at the advertised price, were identified as the most harmful to consumers.

Despite recent criticism, buy one get one free (BOGOF) deals were seen as one of the least harmful practices.

Under the new framework, companies such as RyanAir which use drip pricing throughout the booking process and retailers such as Marks & Spencer which has been accused of bait selling with its recent £10 champagne offer, could face court action and fines.

The British Retail Consortium slammed the report saying that consumers benefit from the competition and are good judges of the best deals. Tom Ironside, BRC director of business and regulation, says: “Customers aren’t stupid. They make sophisticated judgements about prices and value within stores, between stores and over time and have all the information they need to do that.”

The OFT seeks to reassure “fair dealing businesses” that they should not be concerned that they risk enforcement action on trivial matters. John Fingleton, OFT chief executive, says: “Misleading pricing is not only bad for the consumer, it is also bad for competition, and creates an uneven playing field between fair dealing businesses that stick to the spirit of the law, and those that push the boundaries too far. “We urge all firms to review their pricing practices and to get their houses in order where necessary.”

The Institute of Promotional Marketing welcomed the OFT’s report and says: “Price promotions that are deliberately designed to confuse and mislead consumers are simply not acceptable.” The IPM says it will look to incorporate the findings into its best practice guidance.

The seven pricing practices investigated are:

• Drip pricing - where optional price increments such as taxes, card charges and delivery charges are added during the buying process
• Time-limited offers - for example “offer must end today”
• Bait pricing - when consumers are drawn in with offers of discounts although few items are available at the discount price
• Complex pricing - for example offers where the price depends on numerous elements which may be conditional on each other
• Reference pricing - such as “was £100, now £60”
• Multiple unit price promotions - such as “three for two”
• ’Free’ products offered as part of a package - such as “first two months free

Source: Rosie Baker, Marketing Week

Top 5 Pricing Trends for the Holiday Season

With the holiday season upon us, many retailers are wondering what pricing strategies they should implement to price for profit and growth.

This year, more than ever, the U.S. is a “have” and “have not” economy. On the negative side, consumer sentiment remains low and the unemployment rate continues to sit at 9.6%. However, there is positive news: Personal expenditures were up by 2.6% in the third quarter, the Dow Jones Index is over 11000, corporate profits are on the upswing and unemployment has stabilized (albeit at an unacceptably high level).

Bottom Line: A new opportunity exists this holiday season to serve cautiously confident consumers who, due to pent up demand and an interest in treating themselves, are willing to open their wallets.

Trend 1: Tailor your pricing strategy to your customer:

•In economically-depressed areas, continue the status quo pricing strategy of recent holiday seasons: focus on staple products, offer financing and layaway plans.

•In cautiously-confident markets, there is an opportunity to sell higher margin luxury products and services.

Trend 2: Show customers why they should purchase your product:

•In previous holiday seasons, price was the key driver of sales. This holiday season, cautiously-confident customers are willing to pay a premium for unique features (for instance, ads for Apple’s MacBook Air highlight its thinness).

Trend 3: Feature upscale “reach” products to cautiously-confident consumers:

•While the basic version of an upscale product may be discounted to attract consumers, reap higher profits by offering upgrades as well as complementary products.

Trend 4: Welcome cautiously-confident consumers back with new pricing plans:

•Offer generous financing and layaway plans.

•Minimize risk with “satisfaction guaranteed” pledges.

•Offer lower cost options such as “basic” versions, rentals, and leases.

Trend 5: Offer experiences to cautiously-confident consumers

•After years of pinching pennies, consumers are willing to splurge on fun experiences.

Source: Rafi Mohammed, FOXBusiness