By Kevin Meyer
Today I read one of the dumbest articles I've ever seen in The Wall Street Journal – a piece that might enlighten a third grader looking to learn something about how to improve the performance of his lemonade stand. No, that's being too generous.
The article tries to describe how executives are trying to find the right price points in this crazy market. Sure it's a challenge, but unless you are still living under a rock and trying to sell at some set percentage above your cost instead of understanding value from the perspective of the customer, it's a known challenge. So here's a snippet from this insightful article:
[OfficeMax] Chief Financial Officer Bruce Besanko said he is keeping a close eye on pricing. He said there have been cases where shoppers stopped buying items that became more expensive, so he had to adjust them back down.
Really? Wow, I should try that. Here all this time I've been raising prices when my sales dropped. Go figure. Here's another:
Through the course of a day, the [Royal Caribbean] cruise operator adjusts hundreds of prices. Still, Mr. Rice said fare prices haven't returned to prerecession levels. "We clearly don't have our pricing where we need it to be," he said. Ticket revenue in the second quarter grew 7.1% from the year-ago quarter.
Seriously… "pricing where we need it to be"?? Value is not price, price is not value. Value is from the perspective of the customer, and it's either really there, not understood by the customer, or it's not there and eventually you won't be able to pull the wool over their eyes. Create some additional value or do a better job of explaining the value, and maybe you'll be able to negotiate higher prices.
If these jokers ran a lemonade stand… well, nevermind.
Jim Fernandez says
Yeah, pretty dumb article. Why do you read the Wall Street Journal anyway?
OK, usually I understand your postings. This one quote has me confused.
“Through the course of a day, the [Royal Caribbean] cruise operator adjusts hundreds of prices. Still, Mr. Rice said fare prices haven’t returned to pre-recession levels. “ We clearly don’t have our pricing where we need it to be,” he said. Ticket revenue in the second quarter grew 7.1% from the year-ago quarter.”
So he’s complaining that his ticket revenue grew by 7.1% during a recession. How can he complain about that?
Or is he complaining that his revenue is too high which tells him his prices are too low? He thinks he could be charging more. His prices have not returned so he’s only got a 7.1% increase in ticket sales instead of much more…..
I’m corn’fused.
david foster says
The CFO of OfficeMax, or any other company, should not be setting prices, whatever methodology he uses. Prices should be set by product line managers who are responsible for particular segments, with profitability measurements, and there should also be reasonable discretion for store and regional managers, again with appropriate measurements.
Much of American business seems to have lost all the lessons about delegation and decentralization that have been learned over the past 100 years, and to be on a massive central-control kick.
Mark Graban says
Starbucks is, yet again, portraying that they are entitled (or required) to raise prices because costs have increased:
http://www.leanblog.org/2010/09/controversy-over-new-standardized-work-at-some-starbucks-stores/#comment-12894
Avijit says
I am guessing…elasticity can be a factor here and Starbucks seem to be playing that.To them,coffee demand in Starbucks is fairly inelastic so much so that the demand will not affect much with some price raise. That being said, there is a point to which you can play this game and Starbucks should seriously consider their input costs rather than passing it to the customers. Eventually, Customers will see no value and drink elsewhere!
Mike Robinson says
The article goes on to to say that “Spirits maker Pernod Ricard raised prices of Absolut vodka by 15% to 30% in Europe, Asia and Latin America, but Pernod Ricard CEO Pierre Pringuet said he kept prices flat in the U.S. because of weak consumer confidence”
As a European resident, it’s good to know that my confidence is strong enough to support being ripped off in this way…
Mark Graban says
Mike, you’re not being “ripped off” unless you choose to buy…
Steven Boancorsi says
All customers evaluate products and services using multiple attributes, price (aka. cost to the customer) is one of them. Quality is another and quality can have many factors under that category; speed is another factor and also has many factors. There are many other categories such as agility, environment, safety, etc… Value is not price, it is the perception of a product or service from the customer that includes cost, quality, speed, usefulness, agility, etc… Those that do not understand the Voice of the Customer will not survive in business next to those that do.
Melanie Candana says
It still amazes me how many customers think of value purely in terms of price – both at the corner store and for high tech complex industrial components. Some customers understand the value of consistent on-time delivery, quality, new technology, stable processes, customer service, engineering interaction, quick lead times. Others, often the largest and supposedly most sophisticated customers, focus purely on price and then live to regret it – time and time again.
Of course we have grown up in an era where the government projects go to “lowest bidder” instead of value…
German says
Mike – if you’ve bought, then you’ve agreed that the price is accurately representing the value. Like Melanie said the difficulty is with those that haven’t bought – either the price is not correctly representing value, or the value proposition has not been adequately sold.