When Pricing, Adaptability is Useful

Life is transient. So, adaptability certainly helps.

Earlier this week, I found myself reflecting on a recent project. A client was about to launch a new product and was trying to pinpoint which price structure was most appropriate for their market and for meeting their strategic goals. I ran a straightforward scenario analysis, generating revenue and profit projections for the two main price structure proposals, one with a per-use model and another with a monthly subscription model. Both price structures had superior performance to the client’s initial price structure.

But there was more than one way to demonstrate the superior performance of the two Wiglaf proposals. For instance, I could start with the same sales projections and show the differences in profitability between the different models. Alternately, I could also show how the two Wiglaf proposals could provide the same profit but with far fewer units sold. The message in both cases was the same: this is a better option. However, the two approaches illuminated *how* differently. Should I keep the inputs constant and observe the variation in profit outcomes? Or do I keep the outcomes constant to emphasize the various input requirements?

I eventually settled on crunching the numbers for both approaches for both price structure proposals. This would allow me to switch from one approach to the other on-the-fly with the client. Personally, I have found that a key part of being adaptable is being prepared.

Pricing Adaptability

In the end, my conversation with the client moved closer to a decision by my showing them the various profit outcomes when keeping the inputs constant. But I couldn’t have known that before the meeting. I had to be ready to adapt.

My example here concerns adaptability during one phase of a pricing project. But I would argue that pricing professionals must be adaptable in general. You must be prepared to adjust your pricing in response to changing market conditions. And market conditions just keep on changing. And it appears as though the changes are coming more frequently. For two examples, just look at rental-car companies and Walmart’s continued digital transformation.

Rental-car companies forced to adapt

Look at how quickly demand has turned around in the rental-car market. Demand for rental cars collapsed last year, as overall demand for travel plummeted due to the coronavirus. Hertz reported a 46% drop in revenue. Rental-car companies sold hundreds of thousands of unused vehicles to make up for the lost business.

Now there is a surge in demand for travel. And rental-car companies are having trouble keeping up. They simply do not have enough cars on their lots. There are reports of renters waiting for a car to be dropped off so that it can be cleaned and prepped for them. And a review of travel websites indicates that the days of supercheap rental cars are gone for the time being.

Add in the fact that some travelers will be avoiding taxis or ride-sharing for the foreseeable future, and demand looks likely to match or outpace supply in the near term.

The rental-car companies are scrambling to purchase additional vehicles, but production delays at car manufacturers due to the semiconductor shortage is only exacerbating the situation. The rental-car industry has been through a lot in the last year, and there will be more to come. Adaptability will be in high demand.

Walmart continues to digitally adapt

As I previously discussed, Walmart has made some large strides towards becoming a more digital company, exhibiting envious levels of adaptability. Well, Walmart just continues to double down on their digital platform. In 2020, Walmart Marketplace (their platform where 3^rd parties can sell their wares) grew to an estimated 70,000 sellers. The number of sellers is expected to rise 146% by the end of 2022.

Walmart Marketplace had a modest start. Launched in 2009, there were no more than a half-dozen sellers through 2014. Even after more sellers began using the site, the relatively few sellers meant that each seller had a higher profile than they would on rival platforms like eBay or Amazon. Additionally, the sellers were able to develop a good business reputation.

Now there is some concern among existing merchants that Walmart may increase the number of sellers without regard to the quality of sellers. And Walmart announced recently that it will open Walmart Marketplace to international merchants. Walmart has already added 130 new Chinese sellers, according to Marketplace Pulse. Walmart is also trying to partner with foreign vendors. In some cases, it has purchased a controlling stake in companies, as it did in 2018 with Flipkart, the Indian ecommerce giant.

A significant concern for Walmart will be to avoid the proliferation of counterfeit goods that has plagued Amazon. Walmart hopes to limit the number of bad actors on their platform, but they also wish to expand the size of their marketplace to take advantage of their momentum. Walmart has started to offer competitive commissions rates compared to Amazon and has even offered a temporary suspension of commission charges for new sellers.

Walmart sees that life (and their market and their pricing) is transient. So, Walmart adapts.

References

McCartney, Scott. “Wait, Where Did All the Rental Cars Go?” The Wall Street Journal. Dow Jones & Company, April 14, 2021. https://www.wsj.com/articles/hertz-avis-enterprise-rental-car-shortage-11618335385.

Naidu, Richa. “How the Pandemic Helped Walmart Battle Amazon Marketplace for Sellers.” Reuters. Thomson Reuters, April 14, 2021. https://www.reuters.com/business/retail-consumer/how-pandemic-helped-walmart-battle-amazon-marketplace-sellers-2021-04-14/