While you’re recovering from 4 days of eating turkey, here are some pricing leftovers:
Slate answers the question “How do airlines set their ticket prices?” by quoting Dave Barry: “Rudy the Fare Chicken pecks at a keyboard sprinkled with corn to determine ticket prices. If Rudy is sick, he added, Conrad the Fare Hamster takes over.” The article does discuss rudimentary pricing theory (the more competition, the lower the prices) for the lay person.
A Bad Taste in the Mouth
Quizno’s, the rapidly growing sandwich chain, is the target of a lawsuit from Wisconsin-based franchise owners, alleging fraud, antitrust violations, and other wrongdoing. The store owners say that they have to buy supplies from Quizno’s or other approved vendors at inflated prices, while the prices set by the parent company prevent them from making a profit. Franchises are tricky spots in the pricing/legal landscape, especially when they must buy from certain vendors and sell at certain prices. Most pricing people have so much less pricing power than this that the issue never comes up.
Ford and GM Swear They Mean It This Time
The remaining US auto giants are committed to lowering their addiction to inflated list prices and big incentives. Ford claims they will get there on Ford, Lincoln, and Mercury vehicles by 2008. GM is the subject of an interesting article on pivoting the price waterfall in the Wiglaf Journal. The idea is that if you lower the list price, but reduce discounts by more than enough to offset the loss, you come out ahead. While the graphs look nice, the concept is obvious, and has been the explicit strategy at GM since the “Employee Pricing for Everyone” debacle. The folks at Detroit are thinking more clearly about pricing, which is a step in the right direction. The real question is whether they are thinking about value. Both companies coasted along on the SUV wave without figuring out how to make money on cars (no, I’m not kidding). Making prices “stick” requires delivering the value to back up the price. I’m a perpetual cynic about Detroit, although after the renaissance at Cadillac, anything is possible.
Later in the week, we’ll talk about the potential for huge pricing fallout from the US midterm elections.