Rafi Mohammed

PricingStew: Pricing Stories in Today's News

Posted on March 25th, 2008 (0 Comments)

This is the first installment of PricingStew (thanks to Ivana Taylor for the concept) which will run regularly on pricingforprofit.com. The idea is to feature a potpourri of fascinating pricing stories currently in the news. Today’s edition highlights pricing stories on Apple, Sonic, Sirius, and Wal-Mart.

The Financial Times reports that Apple is in negotiations with music companies to allow iPod and iPhone owners to purchase an all-you-can-eat plan that allows unlimited music downloads for the life of their Apple device (oh, and these downloads can also be burned to CDs). Apple reportedly wants to pay music companies $20 for this option while labels are pushing for $80. Even an $80 price tag (the price of 6 – 7 CDs) seems like a great bargain for consumers. Is this really a good deal for record companies?

Sonic, the fast food chain, is well known for its specialty (non-alcoholic) beverages. The chain claims to offer 168,894 drink combinations. To boost business during its off-peak hours and draw in new customers, Sonic has been offering a “Happy Hour” 50% discount on its drinks between 2 – 4 PM daily. This pricing initiative is paying off handsomely. Sonic’s second quarter profits jumped by 49%. The company attributes this profit increase to its Happy Hour initiative and store-retrofits. This is yet another beautiful illustration of how straightforward pricing changes can lead to big new profits.

The Sirius-XM merger received approval from the Justice Department yesterday and the last hurdle to make this merger a reality is approval by my former colleagues at the FCC. Both satellite radio companies offer an unlimited channel subscription for $12.99 per month. What’s interesting is that FCC Chairman Kevin Martin was initially hesitant about the merger but apparently warmed to it when the companies agreed to also offer a-la-carte pricing. This pricing option allows customers to purchase only the channels they want. So offering a new pricing strategy not only draws in new customers, it also can sway regulator approval!

Newsweek has an interesting story on Wal-Mart opening a new store in Dearborn, MI (an area with the largest concentration of Arabs outside of the Middle East). In addition to its standard fare, Wal-Mart is stocking 550 items targeted towards Middle Eastern shoppers. What I found intriguing is that in an effort to protect local Mom & Pop shops, Wal-Mart agreed to charge a dime more than local merchants for a six pack of pita bread. I’ve never heard of Wal-Mart agreeing to charge MORE than its competitors. That said…the jury’s out on whether a dime premium will generate gangbuster business for Mom & Pops.

Finally, I just finished reading Treasure Hunt: Inside the Mind of the New Consumer by Michael Silverstein and give it my highest recommendation. Silverstein offers fascinating insights on how today’s consumer trades-up (purchase premium products) on some of their expenditures and trades-down (purchase discount products) on other expenditures. This book provides cutting edge insight on how consumers think about value that can help every company with their overall business strategy.

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