Rafi Mohammed

Price Uniformity = Rookie Pricing Mistake

Posted on November 11th, 2010 (0 Comments)

At a recent speech to a grocery association, someone cynically declared that grocery stores have no pricing power, since they all sell similar products. A challenging start to a speech where my goal was to help audience members price for profit and growth.

My retort was “should a gallon of milk be priced the same at a local convenience market, regular supermarket, and a Wal-Mart hyper-market?” Murmurs of agreement ensued. Value can be provided in a multitude of ways aside from the actual product.

At the end of the speech, an audience member mentioned that a Canadian pricing consultant had advised him to set the same product prices at each location of his grocery chain and wondered if I agreed. My response was clear: “I diametrically disagree.”  Note to the Canadian consultant, happy to have a point/counterpoint at any venue.

Tell me, should prices at a Panera Bread restaurant located in a highly competitive downtown area be the same as those at a Panera in a wealthy suburb with few competitors? Of course not, the value, hence the price that can be charged, of Panera’s products are higher in the wealthy suburb…agree? Value is all about how your product stacks up against the customer’s next best alternative.

A friend once relayed to me his experience of consulting for a large chain of eyeglass retailers. The company had been setting uniform prices throughout the chain and was basing its prices on those that were set at a local store located close to its headquarters. Competition was vigorous around this “model store” and as a result, prices were low. Think about how much profit was lost due to this chain’s uniform pricing policy. The value that every outlet provides its customers is different in each location.

I can already hear the moaning…“you mean I have to re-price all of my products?” I once recommended to a publisher to raise prices of hit books by a dollar or two. My client’s face turned to disapproval and the excuses flowed, “We’ll have to change the ISBN, etc, etc.” After allowing him to vent, I asked him how much time it would take to issue and process a new ISBN number, “an hour” he responded. And how much increased profit would result? “About $100,000 annually” he said with an agreeing smile.

Internet technology is allowing web sites to offer different prices based on location. A recent Wall Street Journal article (“Dr. Abercrombie and Mr. Fitch”) highlighted that Abercrombie charges premium prices abroad (as much as 50% higher). To prevent foreign customers from purchasing at a discount from its U.S. web site, Abercrombie detects what country a shopper is accessing its web site from and offers a location-specific price for its products.

You know my motto, “small changes in price can lead to big profits.” Abandoning uniform pricing in favor of location-specific pricing can lead to a financial windfall for your company.   

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