Understanding J.C. Penney's Risky New Pricing Strategy
Last week J.C. Penney made a media splash with its new Fair and Square Every Day pricing strategy. Apple Store Svengali Ron Johnson has made pricing a lynchpin strategy for the revitalization of J.C. Penney.
Please check out my latest blog on this pricing strategy on the Harvard Business Review site. As always, your comments will be much appreciated!
Posted on January 30th, 2012 (0 Comments)
Are Publishers Becoming Too Greedy With Their Ebook Prices?
Remember the days when publishers were fuming over $9.99 ebook prices? Well it appears the pricing pendulum is swinging in the opposite - more expensive - direction. In a recent Wall Street Journal article (“Ebook Readers Face Sticker Shock”), Jeffrey Trachtenberg notes that some ebook prices are creeping into the mid-to-high teens. Also, in some cases, ebooks are even priced higher than their print counterparts. As a pricing strategy consultant, I’d like to offer the following advice when setting ebook prices.
It’s unclear if ebooks are more valuable to readers than print. Sure, ebooks are convenient to purchase, transport, and store. However, there are negative attributes too. For instance, they are difficult-to-impossible to share, cannot be resold, and it’s debatable how the reading experience stacks up to print. When considering the value readers place on ebooks relative to print counterparts, both the positive as well as negative attributes need to be considered.
The general value of books is decreasing. When low priced substitutes - new next best alternatives – enter a market, prices usually have to be lowered. Remember when purchasing a set of encyclopedias was a major investment? The reason why Encyclopedia Britannica can’t reap the high prices that it used to command is because low priced substitutes became available. The publishing industry today is experiencing a similar influx of lower priced substitutes.
Many authors are self-publishing and setting lower retail prices. In addition, there are an increasing number of next best alternatives to big name publisher books. The Internet, for instance, provides a variety of reading options. Even other leisure activities such as video games are credible – and cheaper – substitutes. Our fledgling economy has also lowered the amount that readers are willing to pay for books.
Initial pricing devalued ebooks. Consumers remember that e-books were initially priced low. As Netflix recently discovered, it’s difficult to increase prices once a “base price” is embedded in the minds of consumers. A low “rollout” price devalues a product and it’s tough to reorient consumers’ perceptions of value.
So are all ebooks doomed to be, say, $13.99 or lower? Not necessarily – the key is to figure out which books merit – based on value – higher prices. Reference or classic books (that will be reread over time) are more valuable - and hence can be priced higher - than a throw-away summer novel. Similarly, premiums can be levied for unique specialized books with few next best alternatives. Finally, there may be an opportunity to boost prices for books targeted towards consumers who highly value the e-format (younger or technologically inclined readers).
Ebooks are a giant red bow wrapped gift to publishers. The numerous cost advantages make digital immensely more profitable relative to print. Even if consumers value books less, publishers can reduce prices and still grandly profit. My advice is to temper the urge to set unrealistically high e-book prices and strategically determine which books can command a digital premium. Then…sit back and relax and enjoy the financial e-windfall.
Posted on January 17th, 2012 (2 Comments)
How Price Can Help You Succeed with Your New Year’s Resolution
It’s that time of the year again my friends - this year I am really determined to drop a few pounds.
A new iPhone app, Gym-Pact.com, is trying to use money as a motivator to get us to the gym regularly. The app works as follows: you commit to going to the gym a specific number of times a week and if you don’t, you pay a minimum penalty of $5 per missed workout. If you do keep to your workout schedule (required to “check-in” via your smartphone at a health club), you get a cash bonus.
Every week Gym-Pact collects all of the penalties, skims 3% off the top, and then distributes the remainder as bonuses to those who kept their workout commitments. Individual bonus “congratulations, you did it” payments are presumably made based on factors such as number of workouts and the penalty amount ($5 - $10 – even more) that each user commits to. So far, these bonus payments seem minimal – approximately 50 cents per workout.
Gym-Pact’s strategy is in line with the recent advice of Stefano DellaVigna, an economics professor who recently suggested to the New York Times that gyms charge higher membership fees and then rebate customers $10 - $20 when they workout 2 or more times a week.
I acknowledge that I am indeed a cynic (I’m an economist after all) – but I simply don’t think that a lot of people are going to pay a “fine” if they miss their workouts (or commit to higher gym membership fees that provide bonuses for meeting goals).
That said, I do have an idea about how price can be used to incentivize us to be healthier. Insurance companies tend to benefit (lower medical costs) when we get healthier (lower weight). I think that health insurance companies should offer customized rebates to people for lowering their weight. By customized, I mean that the rebate can be higher per pound for those who are severely overweight compared to those who are merely overweight. Similarly, patients who currently have medical ailments related to weight can earn an even higher rebate per pound. This strategy is a win for the health insurer, win for the dieter strategy. My hunch is that health care savings can be significant, thus enabling rebates to be meaningful.
Since insurance companies have detailed data on each of us, they can offer person-specific rebates as well as measure progress. As an added bonus, state regulators would love insurers that offer such incentives.
So what do you think? Can price help you meet your New Year’s goals? I’d love to hear from you! Here’s to a great, happy, and profitable 2012!
Posted on January 4th, 2012 (3 Comments)
