Strategic Movements: October 2019


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

Published October 16, 2019

Market Share? Meh. Customer Satisfaction and Brand Equity? YES, Please!

Managers care a lot about market share, but should they? Meta-research by Alexander Edeling and Alexander Himme in the Journal of Marketing entitled “When Does Market Share Matter” shows that market share does, on average, have a small positive impact on company value, but that a larger positive impact on company value can be realized from improving customer satisfaction (customer-related assets) or brand equity (brand-related assets). As such, key metrics for measuring marketing performance should be related both to customer engagement and to brand awareness and positioning. As for market share, it’s ok but that is all it is.

General Mills increases profits with strategic pricing

General Mills Demonstrates Pricing Power

General Mills reported that while comparable sales fell 1% in the last quarter, profit margins widened due to increased prices. The result was quarterly profits of $520 million, up from $392 million from the same time last year. CEO Jeff Harmening, well done. I know some of your brands aren’t doing as well as they have in the past and that the breakfast category is otherwise down, but if you can keep improving profits, you are on a winning track.

MoviePass Closes but CEO Wants to Re-open

On Monday, September 16th, it was reported that MoviePass discontinued operations. If you recall, MoviePass initially offered customers the ability to see all the movies they wanted at theaters of their choosing for a simple $9.95 per month subscription. MoviePass paid movie theaters for all of the movies their subscribers watched. The result? A lot of investor cash spent on movies and insufficient subscription revenue. They tried rejiggering the offer, but fundamentally their business model was a dud and they ran out of cash.  (Strong growth without profits is a problem for a lot of tech startups, leading to predictably unsustainable business models and investor losses.)  What do you do if you have a bad business model?  Stop doing it?  “No” says Theodore Farnsworth, ex-CEO of MoviePass. He wants to collect more investor cash and start again. As long as I am not the investor, I wish him well.  (Thanks, investors, for the cheap movies.)

MoviePass discontinues operations after insufficient revenue despite user growth

Apple TV+ and Arcade: $4.99/month

The press is making a big deal about how cheap this is compared to Netflix and the future Disney subscription service. I ask: “do you offer anything of value?” There is a disruption in the TV/Video/Streaming business happening today on a screen near you.

Crazy Idea:  Reveal Production Costs to Customers

Bhavya Mohan, Ryan W. Buell, and Leslie K. John tested the idea of telling customers the production costs to drive sales. It worked within a specific scope of market arrangements. Specifically, they told customers at a lunch counter the cost of making soup and found that customers were 21% more likely to purchase it. They also looked at wallets, travel packages, and T-shirts, among other products, and found similar results. They claim, “Just as when people reveal sensitive information, when firms do so, it can engender trust and deepen the relationship among companies and consumers.” I wouldn’t trust this approach in business markets, but in some consumer markets within the proper scope of situations, it’s nice to learn this.

Price Promotions During Popular Events

Wiebke I.Y. Keller, Barbara Deleersnyder, and Karen Gedenk asked whether or not it was better to price promote during a major popular event. During an event like the Olympics or Football Championships, customers may be distracted and it may be harder for brand messages to be heard with their distinctive voices. As such, some argue event related promotions are bad. Alternatively, major popular events create an intense atmosphere of feelings, enable brands to reach specific target segments, and are often related to category level demand in specific categories. So, others argue event related promotions are good. Who is right? Their research says that doing price promotions during popular events increased the price promotion elasticity by 9.3% on average. Nice improvement in effectiveness, but their research did not look to determine if the price promotion increased profitability in the first place. In any case, if you are going to price promote, relating your promotion to major cultural events might be a good idea. (“Price Promotions and Popular Events.Journal of Marketing 83, no. 1: 73-88.)

Forget the Price Promotions, Just Promote!

PepsiCo advertising expenditures were up 12% this year resulting in organic growth of 4.3% for the latest financial reporting period. Now that is the way to do it. Communicate the value you deliver.  Capture your share of the value you delivered.

Online Publishers: Erect that Paywall

Erecting a paywall for publishers presents a problem: fewer readers online resulting in less advertising revenue. On the other hand, not having a paywall encourages people to take advantage of the willingness of paid subscribers to subsidize the news for unpaid subscribers. Which is better? Paywall or no paywall? According to research by Adithya Pattabhiramaiah, S. Sriram, and Puneet Manchanda on the New York Times, it looks like the paywall wins, but only if you look at all the channels. Having an online-paywall significantly increased the paid subscriptions of offline (print) subscribers as well as online subscription rates. (“Paywalls: Monetizing Online Content.” Journal of Marketing 83, no. 2: 19-36.)

Brokers offering free trades experience stock price decrease due to investor backlash

Bankers Gone Bonkers

Charles Schwab Corp., Interactive Brokers Group Inc., TD Ameritrade Holding Corp., and E*Trade Financial Corp. are all offering free trades on some or all of their ETF. Why? Some plan to capture profits from holding investor cash in low-interest accounts. This may cover the profit losses associated with trading activity, but investors in the banks don’t think so. Schwab’s stock fell 8% as a result.

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.