Strategic Movements: August 2017

Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published August 24, 2017

Department Stores Discount Makeup? They Are in Trouble.

Macy’s has begun discounting prestige branded cosmetics. Lord & Taylor and Saks are looking at doing it as well. Why? Because the major department stores have lost market share in this sect, which grew at 11% last year as customers move online and shift to cosmetics-only outlets. What better way to attract customers than with a discount? I’ll tell you what is a better way: Redefine your business into something customers actually want to engage as a first resort, not as a cheap resort. Yes, some department stores will survive, but the shakeout will be huge. Leaders must experiment and invest in new formats, or drive the consolidation and shakeout.

PepsiCo Raises Prices?

Yep, that’s right. Pepsi raises prices and shifts priority to higher margin products where it’s prudent. The last part of that sentence is key. They aren’t raising prices across the board. They are looking at segments and microsegments where they have opportunity, and then seizing them. This is years in the making. Analytics. Coordination. Routines. Technology. Decision Making. Incentive Alignment. It is…. wait for it… Pricing Done Right!

Pharmaceuticals. Two Segments. One Price. What to do?

Novartis AG’s ACZ885 drug can be used for managing a rare inflammatory disease at $16,000 per dose, and managing complications of heart attacks at a seriously lower price. What should they do? Analytics indicate choosing a price based on risk adjusted expectations of overall profit dollars. Morals and Ethics. Now that is a different question.

Exogenous or Endogenous

Price differentials between fresh and frozen produce have reduced since 2008, thus reducing the premium for fresh produce. Concurrently, fresh produce has increased market share compared to frozen produce. (Wells Fargo reports growth of 16% for fresh fruits and 21% for fresh vegetables, compared to only 10% growth for processed fruits and vegetables between 2008 and 2017.) Are the market share shifts due to people becoming more health conscientious (exogenous cultural variable), or are they attributed to reduced price differential (endogenous price variable)? How would you determine? Conjoint analysis of price premium across these two would have been necessary to disentangle effects.

Posted in: Corporate, Selling
Tagged: Amazon, Bloomberg, , Pricing Done Right

About The Author

Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.