Strategic Movements: January 2019

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

Published January 30, 2019

MoviePass Poor Thinking

MoviePass subscriptions declined in the 3^rd quarter 2018 related to (1) decreasing offer to three movies per month (2) increased competition from AMC. Strategically, subscription bundles only make sense if the marginal cost to serve is low. AMC has a low marginal cost to serve, as they own the theatre, that is, unless the theatre is full. MoviePass doesn’t. MoviePass pays theatres for each visit by a patron. Simply, it’s poor thinking on MoviePass’s part. Pricing Strategy, Chapters 12 and 13 would have told them this was poor thinking. Too caught up in Lemming Thinking on e-subscription services.

Tesla Price Drop

Elon Musk may be demonstrating his limits. Tesla is dropping the price of their Model 3 by $2,000 across the board in response to (1) reduction of U.S. federal subsidies for e-vehicles from $7,500 to $3,750 and (2) slowing demand. Did he do market research to inform this decision? Was this price cut necessary? What does a conjoint analysis of prices and cars show for that category? Shooting from the hip is fun to watch, but a bad habit and culture when it comes to pricing. A pricing culture transformation is needed at Tesla if it is to blossom from a “cool concept” to a “real business.”

Deglobalization Knock-on Effects

Shipments of U.S. soybeans to China dropped 44% in the first 9 months of 2018. Corn exports decreased by more: 64%. This was all in response to a tariff war. Missing a major market to sell to, farmer’s incomes get hit. Without the income, tractor sales decline. Deere & Co. anticipates sales growth at 3% for 2019, down from 15% the year prior. CNH is hoping for corn to be planted—corn, which requires greater machinery usage.

AT&T Shifts to Media Play

After acquiring Time Warner, AT&T is shifting to a media play. WarnerMedia will launch a 3-tier streaming service: Tier 1 is movies. Tier 2 is original programming. (Will it include movies in the first tier? Seems like it should.) Tier 3 is all of the above plus classic films, comedy, and children’s programming. This is classic versioning strategy. Speculation exists that some incumbents will experience smaller libraries. Netflix, Disney, and Amazon will face increasing competition. This creates a healthier industry structure but will temper profitability. Each of these players has a very different set of other strategic assets. Cross selling and industry turns will prove interesting to watch.

Posted in: Corporate, Pricing
Tagged: Amazon, AT&T, culture, Netflix, tariffs, Tesla

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.