Archive for the ‘Prices’ Category

Amazon and the “power of free” …

November 15, 2018

Since Amazon is in the news these days ….

In class, I always preached: Don’t underestimate the “power of free”.

Here’s a real life example to prove the point.

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Everybody knows that Amazon’s free shipping program has been a resounding success.

So much so. that the company has announced that it will be moving the minimum qualifying order up from $25 to $35 … inducing shoppers to fill  their carts fuller or switch to the highly profitable Amazon Prime program.

The free shipping program’s success was highly predictable based an an apparently inadvertent “matched market test” that Amazon did.

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Here’s the skinny on the Amazon’s inadvertent market test …

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Amazon and the “power of free” …

July 24, 2018

Over the weekend, Bernie Sanders and NY Dem Congressional candidate Alexandria Ocasio-Cortez were barnstorming deep-red states with their Progressive platform: Medicare for all, free college, minimum wage, guaranteed job, etc. Source

Many dismiss the ideas as unaffordable pie-in-the-sky.

But in class, I always preached: Don’t underestimate the “power of free”.

Here’s a real life example to prove the point.

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Everybody knows that Amazon’s free shipping program has been a resounding success.

So much so. that the company has announced that it will be moving the minimum qualifying order up from $25 to $35 … inducing shoppers to fill  their carts fuller or switch to the highly profitable Amazon Prime program.

The free shipping program’s success was highly predictable based an an apparently inadvertent “matched market test” that Amazon did.

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Here’s the skinny on the Amazon’s inadvertent market test …

(more…)

Buy now (at list price) or you may regret it … say, what?

June 14, 2016

There are two basic retailer pricing strategies:

· Everyday Low Prices. Think Walmart with relatively constant prices and few sales

· High-Low Prices. Think Kohl’s with very high “regular” prices and frequent deep discounts.

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Which strategy works better?

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Amazon and the “power of free” …

November 13, 2015

Yesterday in class, I mentioned some work by Chris Anderson of Wired on the “Power of Free”

Free: How Today’s Smartest Businesses Profit by Giving Something for Nothing

Here’s a real life example of the power of free.

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Everybody knows that Amazon’s free shipping program has been a resounding success.

So much so. that the company has announced that it will be moving the minimum qualifying order up from $25 to $35 … inducing shoppers to fill  their carts fuller or switch to the highly profitable Amazon Prime program.

The free shipping program’s success was highly predictable based an an apparently inadvertent “matched market test” that Amazon did.

image

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Here’s the skinny on the Amazon’s inadvertent market test …

(more…)

Alert: Mickey is reaching for your wallet …

October 12, 2015

I’m conflicted on this one.

On one hand, I teach pricing strategy in some of my courses.

The explicit strategic goal: increase revenue and profits with aggressive pricing tactics.

On the other hand, I always feel sorry for “average” parents who get creamed financially when they take their kids to a ball game or amusement park.

 

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Based on recent announcements, Disney – Mickey’s parent company – is rolling some pricing tactics to fatten Mickey’s wallet and flatten your’s …

(more…)

States: Where does $100 buy the most? The least?

July 27, 2015

The Bureau of Economic Analysis (BEA) does a periodic market basket study – estimating how much a standard basket of goods costs in different parts of the country.

The national average is indexed to $100 … and called the Relative Price Parity index.

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Based on the most recent study, prices are the lowest in Mississippi where the $100 shopping basket can be purchased for $86.80.

Said differently, a dollar is worth 15% than the national average in Mississippi.

What’s the most costly state?  Where does your state rank?

(more…)

Amazon and the “power of free” …

July 1, 2015

Everybody knows that Amazon’s free shipping program has been a resounding success.

So much so. that the company has announced that it will be moving the minimum qualifying order up from $25 to $35 … inducing shoppers to fill  their carts fuller or switch to the highly profitable Amazon Prime program.

The free shipping program’s success was highly predictable based an an apparently inadvertent “matched market test” that Amazon did.

image

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Here’s the skinny on the Amazon’s inadvertent market test …

(more…)

Amazon and the “power of free” …

November 19, 2014

Everybody knows that Amazon’s free shipping program has been a resounding success.

So much so. that the company has announced that it will be moving the minimum qualifying order up from $25 to $35 … inducing shoppers to fill  their carts fuller or switch to the highly profitable Amazon Prime program.

The free shipping program’s success was highly predictable based an an apparently inadvertent “matched market test” that Amazon did.

image

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Here’s the skinny on the Amazon’s inadvertent market test …

(more…)

Memo to $15 /hour burger flippers: Meet Alpha, your competition.

September 16, 2014

Fast food workers around the country have been protesting for a $15 minimum wage.

A couple of days ago we warned about the possibility of McDonald’s replacing $1 menu with a buck-and –a-half menu … ouch!. The core story line: economists modeled the impact of raising the minimum wage for fast food workers to $15 and concluded that, all else equal, fast food prices would have to go up by about 40% to cover the increased labor costs.

Ooch.  Continues a historic trend … As time rolls on, a buck buys you less and less at Mickey D’s

McD for a buck - 1955 today
Source

Since that post, a couple things happened.

First, McDonalds reported a 3.7% decline in global same-store sales.

That ranks as the company’s worst global same-store sales results in more than a decade.

Profit margins are shrinking and the company is trying to upmix customers to higher margin menu items.

Not exactly the time to be asking for a 66% raise, right?

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Adding to the discourse, a couple of loyal readers fed me some red meat: the realistic possibility that, very soon, low skilled burger flippers will be eased out by burger-making robots.

Here’s the scoop …

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McDonald’s replacing $1 menu with a buck-and –a-half menu … ouch!

September 9, 2014

Relax, we’re just speculating … it’ll only happen if the fast-food workers get the $15 per hour that they were clamoring for last week

Economists at the Heritage Foundation have observed that fast-food joints operate on very slim profit margins (about 3% on average) so they’d have no choice but to bump up prices. to stay even.

 

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The Heritage economists estimate that a $15 minimum wage for hamburger flippers would force restaurants to raise average menu prices about 40% in order to hold the current level of profitability.

Here’s the essence of their analysis …

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List price, realized price … and the war on doctors.

April 7, 2014

Have you ever really looked at the EOB (“Explanation of Benefits”) that you’ve gotten from your health insurance company after getting medical care?

I hadn’t … just threw the letters into the file … or wastebasket.

But, the ObamaCare launch has heightened my interest … and recently, unfortunately, I’ve been able to gather some personal empirical data points.

 

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Here’s the first part of my story …

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You’re under arrest: your prices are too high …

November 13, 2013

Here in the U.S., we just whine about high prices.

Not so in Venezuela.

According to USA Today, the Venezuelan government cracked down on soaring inflation by sending troops into appliance stores to slash prices.

Venezuelan bargain-hunters rushed Daka — an electronics chain similar to BestBuy –after the socialist government ordered a military “occupation” of the company’s five stores to force the company to charge customers “fair” prices.

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Things got pretty ugly …

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List price, realized price … and the plight of doctors.

November 4, 2013

Have you ever really looked at the EOB (“Explanation of Benefits”) that you’ve gotten from your health insurance company after getting medical care?

I hadn’t … just threw the letters into the file … or wastebasket.

But, the ObamaCare launch has heightened my interest … and recently, unfortunately, I’ve been able to gather some personal empirical data points.

 

image

 

Here’s the first part of my story …

(more…)

Flashback: Only thin ladies need apply …

July 1, 2013

We’ve previously posted about Samoa Airlines novel pricing programs – charging heavier than average passengers higher fares than average girthed passengers – to offset higher fuel costs to haul them and protect other passengers from “seat encroachment”.

Suffice it to say that readers’ scale tilted away from the idea.

For background, see:

Samoa Air: Pricing by weight is the ‘concept of the future’

Why don’t airlines charge more for these bags?

 

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Well, now GoAir – an Indian airline – has initiated a weight-based program that rolls back the clock to the 50s and 60s.

(more…)

Prices: Get a Big Mac cheap …

February 9, 2013

OK, so you have to go to India …  it’s technically a Maharaja Mac, not a Big Mac … and, the cheap price is driven by relative currency values.

Still, one of my favorite price indices is the Big Mac Index … it compares the currency adjusted price of the burger across the globe.

According to Ryan Avent, chief economist at The Economist

The Big Mac index is based on an economic theory called purchasing-power parity (PPP), which indicates that over a long enough time exchange rates should adjust so similar goods cost the same across countries.

The index reveals that, at market exchange rates, the price of the same McDonald’s  burger can vary vastly from country to country.

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I’m lovin’ it ….

Source

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Price War: Targeting online retailers

January 11, 2013

Target is sick & tiered of being “showroomed”.

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According to USA Today

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Sucka Alert: It’s after 5 p.m., so the price is higher…

October 18, 2012

Excerpted from the book Pricing Segmentation and Analytics by Bodea and Ferguson

One example of using price segmentation in the price analytics process has been applied at a grocery store chain.

Previous studies have shown that consumers who shop at a grocery store after 5 p.m. on weekdays are generally less price sensitive than consumers who shop on weekdays before 5 p.m.

This finding is intuitive as the consumers who are shopping after 5 p.m. are generally working professionals who are on their way home from work and do not bother to comparison shop, while consumers who shop before 5 p.m. consist of homemakers and retired individuals who, conceivably, are more price conscious and have more time to comparison shop.

To take advantage of this knowledge, there is a grocery store chain in Texas that raises the prices of almost all items after 5 p.m. on weekdays and lowers them again before opening the next morning.

I’m a strong advocate of “dynamic pricing” but this one gives me the creeps … I’d like to be a fly on the wall when customers catch on to the pricing scheme.

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Crop shortfall starting to impact prices … at the grocery store and and at the pump

September 27, 2012

Punch line: Forecasts of U.S. corn and soybean yields are set to have a major impact on the prices we pay for everything from processed food to beef and poultry.

Crop forecase falls again - Image by flickr user nicora

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Excerpted from NYT.com, “Government Lowers Crop Yield Forecast Again”

The Agriculture Department  lowered its forecast of corn and soybean yields as record heat continued to batter crops in the Midwest.

The new data suggested that customers would pay more at the grocery store next year as the prices of corn and soybeans — major ingredients in processed food, animal feed and biofuels — rise to record levels.

The United States is the world’s largest exporter of corn and soybeans.

The report said exports of both crops would be substantially lower than last year, which could have a devastating effect on countries like China and Mexico, which depend heavily on American exports.

The report said beef and poultry production was expected to increase this year as livestock producers culled or sold their herds because of higher feed costs.

But prices for beef and poultry are expected to rise 4 to 5 percent next year.

Edit by JDC

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