Strategic Movements: June 2018


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

Published June 28, 2018

Ticketmaster Reduces Secondary Market

For decades, concerts would sell out moments after tickets were released, leaving fans flummoxed to work through secondary markets and pay higher prices. Ticketmaster, and others, have long known of this challenge.  But what to do about it? Raising prices is part of the answer but insufficient. High prices can leave cash-strapped super-fans out cold—and the super-fans are tantamount to creating the right concert vibe. Do one better they said. Ticketmaster created a Verified Fan program. Fans can login and become verified by watching music videos or purchasing fan merch.  As a verified fan, they get premium seats at discounted prices.

Preliminary Result: Taylor Swift isn’t quite always sold out but her American tour revenue is already up 15%, only 3% of presale tickets found themselves on secondary markets, and concert fans seem happy saying: “I think she’s being smart.” Well done Ticketmaster and Taylor Swift.

Trans-Atlantic Pricing Pressure to Increase

With new competitors Norwegian Air Shuttle and JetBlue Airways entering the market, and the addition of smaller 200-seat planes, capacity on transatlantic flights has grown by more than 20% since 2013.  That is comparable to a 4% capacity increase year for the past five years.  Did demand increase at this rate as well?  Expect pricing pressure to increase as new entrants attempt to muscle their way in.

Race for Organic or Keep the Conventional?

Organic (Bio for Europeans) chicken sells for $6.91 per pound, a 178% premium over conventional chicken at $2.49, according to USDA data.  Offering differentiator: chickens must be fed organic feed, not consume any antibiotics, and be allowed to go outdoors are the major requirements to earn the USDA organic seal.  Do people want such expensive and hard to raise chickens? Organic chicken is only a $333 million per year market compared to $7.7 billion for the conventional option—a miniscule 4% of the market.  One might be tempted to dismiss this segment, but growth of organic chicken is at 12% per annum, dwarfing that of conventional at 3% (or near the population growth rate).  What do you do when tastes change? Tyson has bought Tecumeseh Poultry in an attempt to bolster its presence in the organic chicken arena. Pilgrim’s Pride converted an existing plant to processing organic chicken, and bought GNP Co while Perdue Farms bought Coleman Natural.  In the race for organic chicken, chicken producers are offering the conventional option as well.

Grocers Push Back on Brand Price Increases – Smucker’s

“There are moments in our history and in the industry’s history where our retail partners push harder than others, and this happens to be one of those times.” CEO Mark Smucker on the challenges facing J. M. Smucker Co. in raising prices on branded grocer products. Recommendations:

(1) Seek targeted price increases and targeted improvements to commercial policy rather than blanket changes—can discount management improvements drive results like we’ve seen in other businesses? (2) Quantify the appropriate price response to the trend towards increased store-brands and hard-discount grocers—is the brand value eroding?

Price Challenges followed by Redundancies – McDonalds

Julie Jargon reported that McDonald’s Corp has been battered by price wars and customer defections.  McDonald’s USA President Chris Kempczinski informed staff in early June that the layers of management between field consultants to the CEO will be reduced from eight to six. Response: prices are bad so people lose their job. I’ve heard this one all too many times…fix pricing.

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.