2006: The Pricing Year in Review

Jon Manning of Sans Prix Pty Ltd
January 2007

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2006 was a year where Pricing possibly became a bit more transparent. It was a great year to pick up and read a book on Pricing, or to visit a website that helps unlock some of the mystery surrounding the setting of airfares. But it was also a year that the world lost a couple of Pricing pioneers. In February, Sir Freddie Laker passed away at the age of 83. In its obituary, The Economist said “Mr Laker in 1977 introduced the first outrageous discounts, of £118 ($US206) to fly the Laker Skytrain from London to New York, and the first taste of no frills”.

Meanwhile in New York, Sol Cantor passed away in June, at the age of 95. Cantor was an early visionary when it came to discount department stores, and built up Interstate Department Stores and Children’s Supermarket, the latter a predecessor to Toys ‘R’ Us.

The airline industry has been at the cutting edge of Pricing since the deregulation of the US industry in the late 1970’s, and 2006 was no exception. Across the North Atlantic, a new breed of carrier was born: business-class carriers in the form of Silverjet (UK) and Maxjet and Eos (US). Meanwhile, Oasis Hong Kong Airlines (eventually, after some Russian airspace difficulties) started services from Hong Kong to London-Gatwick. Oasis has guaranteed that 10% of its seats will be available at £75 plus taxes.

Meanwhile, British Airways found itself in hot water over “inappropriate discussions” with a competitor on fuel surcharges. This came shortly after the European Union and the US Department of Justice commenced a wider investigation into collusion in the air freight market.

And of course the airlines accelerated the unbundling trend that commenced a couple of years ago (think iTunes, and how it has unbundled the 12-15 track album, or how digital cameras have unbundled the 12/24/36 exposure film). Two European low cost airlines (Flybe, followed shortly thereafter by Ryanair) started the year by announcing they would start charging a fee for passengers to check their baggage, discounted of course when the luggage is booked in advance. Aer Lingus made a similar announcement in August.

And one of the most interesting Web 2.0 sites launched during the year is built on prices: Farecast.com is a US airfare search engine that predicts whether airfares over US city-pairs will rise of fall in the days ahead.

Many companies keep a close eye on the Pricing models used in the aviation industry. 2006 was no exception, with Amtrak announcing its adoption of airline-style revenue management practices on its high-speed Acela train services.

Hotels started to wake up to the poor economics of the mini-bar, and realised that they (a) are labour intensive (it takes 20 employees 7 hours to service the 1,946 mini-bars in the New York Marriott Marquis), (b) create time-consuming disputes when guests check-out and (c) are impossible to customise with guest-preferred contents. Watch out for refrigerators with empty space for your medical and dietary needs.

The Pricing industry itself was also in the news during 2006. Metreo, a vendor of Pricing optimisation software defaulted on a loan in January and was put up for sale by its creditors. Meanwhile, the Pricing scribes were hard at work, and we saw Pricing books released by Baker (Pricing on Purpose), Cram (Smarter Pricing) and Simon, Bilstein & Luby (Manage for Profit, Not For Market Share). And of course, Chris Anderson’s long awaited book The Long Tail was released mid-year. The Long Tail has many implications for Pricing, but in trying to answer what the effect of The Long Tail is on prices, Chris gave the inconclusive answer that “it depends”. Nevertheless, the book was probably the best and most interesting read of the year.

Elsewhere in the world of Pricing:

• Inflation hit 1,000% in Zimbabwe during the year, forcing the central bank to issue a $Z 100,000 note;
• Prices were no longer required for products such as Bankcard (an Australasian credit card), Nikon 35mm camera’s and Telegrams delivered by Western Union, all of which reached the end of their product life cycle in 2006;
• Similarly, the UK electrical retailer Dixons announced it would no longer stock Cathode Ray TVs, 35mm cameras nor CD and cassette players.

But perhaps the biggest Pricing news story of the year was the introduction, in September, of “Pricing in Proportion” by Royal Mail in the UK. Following two years of consultation and development, a £10m advertising campaign, and the training of 20,000 counter staff across the UK’s 14,400 post offices, the price of sending a letter is now a reflection of the cost of doing so. And the forecast revenue impact of the price change? Nil.

And finally, does a year ever pass without some headline-grabbing Pricing disaster? The recently opened Disneyland Hong Kong blocked out 4 days of the Chinese New Year during which discounted admission tickets could be used, failing to realise than Chinese Mainlanders had a 7 day New Year holiday. Needless to say, the thousands turned away at the gate were not too happy.

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Author
Jon Manning is the founder and principal consultant of Sans Prix Pty Ltd, a strategic Pricing consultancy based in Melbourne. The company specialises in all aspects of price optimization and revenue management, services it has provided to companies in Australia, Europe, Asia and the USA.

Increasingly in demand as both a speaker, educator and trainer, Jon is a frequent speaker at pricing conferences, workshops and educational institutions across the Asia-Pacific & the Middle East. He is the author of articles that have appeared in the Journal of Professional Pricing, the Journal of Revenue & Pricing Management and The Pricing Advisor. jon@sansprix.com.au, www.sansprix.com.au, +61 (0) 405 629-141

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