Strategic Movements: February 2017


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

Published February 7, 2017

Online or Specialize

Dismal earnings have been reported at Macy’s, JC Penney, Kohl’s, Barnes & Noble, Sears, and many other retailers—countered by increase sales at Even Walmart is investing in online capabilities, begging the question will all physical retail fail?  No.  Sephora, H&M, Zara, and sometimes Best Buy, show numbers that indicate otherwise.  The long-term trend continues:  consumers move online for much standard fare while seeking specialty and brand flagships when their needs are more refined.  In this churn, the clear need for change can be seen with malls:  shopping mall capacity utilization is down.  If you want to be in bricks and mortar, focus on the experience.  If it can be reduced to simple transaction, go digital.

Automakers: they all did it – but were they forced to?

It wasn’t just Marchionne’s Fiat that went for $3,900 off in December.  As auto sales reached 17.6 million units, higher than pre-recession numbers, automakers increased buyer incentives to an average of $3,452.  From a price management viewpoint, it is often best to move prices along with competitors to keep the value differential aligned with a neutral price position.  From an auto industry management viewpoint, I suspect some of these discounts were targeted towards fuel-efficient cars as customers expressed a strong demand (and therefore willingness to pay) for light trucks, yet government CAFE standards require automakers to balance their sales between the two types.  Liberal economists suggestion: tax gas if you want to encourage people to use less gas, don’t restrict the automaker.

Not Price Fixing, but Good Industry Price Management

The U.S. Justice Department has been investigating Southwest, American, Delta, and United Continental for price collusion for over a year, and yet came up empty.  Yes, the airline’s executives made statements to investors.  Yes, they spoke at industry events.  Yes, they talked about capacity management.  But all of this was public.  Telling investors and customers what to expect from a firm is normal – most would call it good business.  And yes, they listened to their competitors.  That is called competitive intelligence.  But competitive intelligence isn’t collusion.  The line is somewhat clear:  direct discussions of pricing with competitors is illegal, indirect communications whose main purpose is to reach customers and investors but may be heard by competitors is legal—and can lead to good industry price management.  Their recent seven years of profitability is a good testimony to the value of managing competitive intelligence.

Dave Lesar Gets It

Halliburton CEO Dave Lesar: “If a customer agreed to better pricing, we continued to work for them. If not, we took that equipment and used it to fill the incremental demand with a customer that shared our view on how to work together and make better wells.”  Halliburton is drive a greater than 10% increase in oil-field services pricing after surviving the oil-field downturn.  Serving customers that value your output and are willing to pay for that output, while eschewing those that won’t, is just good pricing policy.

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.