Pricing College Podcast

In this episode of Pricing College - we discuss the concept of price match guarantees.

On first inspection - you would think a price match guarantee will reduce prices - as you match a competitors price.

In reality - there is evidence that they have the opposite effect - as the stop people shopping around due to a false sense of confidence.

It can also be a useful segmentation strategy.

Today we're going to talk about whether price match guarantees decrease prices. Now, we're talking about that because in Australia, in particular, there is a sort of a big focus on pricing and customers like to get a good bargain and also stores like to say that they will compete with anybody that can provide the lowest price. We're interested now in terms of if you're going to do that, Are you going to make money? or is it better to do something else?

You can see a price match guarantee and you see them commonly in any store, major stores. What I'm thinking of in Australia is Bunnings, who have a price match guarantee on hardware, drills, hammers, that sort of item. You also get them in an alcohol tick or a bottle shop they're called in Australia, off licence in other countries, a liquor store in America, and they have a sign up in their window I can think of saying, we will match any published price in the local newspaper. The question is and there is a lot of debate about this in the literature and media. Does that sort of guarantee, How frequently do people come in and ask them to reduce their prices? or do people just slide over them and people forget about it?

Surprisingly, even though people are kind of obsessed about prices here, very few people go into the store saying, I have found a cheaper price elsewhere. I think it's around sort of like 90% of people just don't. Yes, there's going to be a small percentage of people that do their research or their homework on different products or on the same product, they'll get the receipt and they'll go into the store to prove it and get the price discount back or a credit note or whatever the store has in their policy. But I think the majority of people, it's enough for them just to know that store is giving that price match guarantee and they sort of almost forget about it, like it's some kind of psychological sort of trick almost but it's sort of appeases, any sort of loss that they would have felt had they not have provided that offer or guarantee.

I sometimes think of it as that it's almost like a psychological assurance for people that they're not going to be paying significantly more in this store than they would in another store. So to some extent it takes away the pressure on them that they feel they should go and do the hard work and the footwork and run from store to store to try to save those extra dollars. Particularly if it's a really small item, the bottle shop example we give where a bottle of wine says the bottle wine is $20 in this store, how much is it going to cost in another store? Even at the very minimum or on a special promotion it might be $10. But, are you going to run from store to store to save that money for the chance of that and to do the hard work? Probably not, so it gives people assurance and there's a lot of suggestions in the literature that it stopped people from shopping around, it makes them lazier because somewhere they think it's already been done.

So to some extent, the price match guarantee is also something that stores or businesses use to signal to other businesses that they are willing to. It's collisionally signalling to other businesses that don't compete with me on price because we will take a move and what are you going to do next? It's a price war sort of thing, preventing it may be, but also signalling that there is the ability to move if necessary.

I think that's a great point. Another thing I will say about it is, it's an almost false guarantee to some extent. Imagine that you are in a hardware store, and you know that one of the roads sells the same item. Say you're going to the store and in that store, a hammer drill sells $300 and in the store next to it has the price match guarantee and they're selling it at $400. The logical person would just buy it in the first store. They'll buy for $300 rather than going to another store proving this to them, printing off some form, and then just getting the same price. To some extent, that's ridiculous. You will just go to the store that sells the cheapest if you're aware of it. The only case where you wouldn't do that would be as if you valued the store with that price match guarantee, you were somehow already in that location, the other store was hard to access etc, but I think that's a very small percentage chance for the vast majority of cases.

And also there's been some really bad press on price match guarantees. Like people have gone into the store, they've got their evidence, they've got their dockets to show that they are more expensive and they want their money back. Often there's been sort of very long, arduous sort of pricing policies and it's almost been too much paperwork and too much of a headache for customers to get their money back. This has happened on numerous occasions, so I think overall, customers are now a bit wary. Yeah, it might have given them at the beginning when they were first introduced as a concept, some sort of assurance, but now it's a bit like, are they going to give me the money back? or is it just another gimmick?

I think the final thing I learned on this one is, it can be seen as a form of segmentation strategy. We often talk about segmenting, when you're running a retail business and you're selling, you know the bottle of wine or the hammer drill for example. Simple segmentation could be somebody buys one item or a business customer who buys 20, but at the same time, there are other customers if you look at the segmentation. It could be somebody who shops around, who prints off coupons and who really will do that legwork, and let's say that's 10% of the market. The other 90% they won't bother, they go to the store and they want to take it away immediately. So with this segmentation strategy, you can appeal to both, you will sell to 90% at the published price, and then that 10% who potentially you wouldn't have been able to sell to, you can sell to them also. What you do is you're protecting the other 90%, you're still selling at the price you want to sell at but you can give these people the discount because they have done this legwork. So to some extent, it's an unadvertised non-marketed discount that appeals to a certain niche segment of people who maybe have a lot of time in their hands.

All data is good data if they're giving you accurate insights into your pricing and your competitors' pricing, and if you haven't got that, then that's great for you because that's another data point that you can calibrate in your system and readjust your prices.

That's all I want to add today, I'll be honest, I'm not a big shopper around. To be honest, for big items yes you will go and compare big items but for the smaller items, the everyday items under a certain threshold you have to weigh up the time and the effort versus the money you potentially save. And also, do you want to be negotiating every single time and asking to speak to a manager, and showing them a printed piece of paper? Life can be stressful enough without that.

Life is short. I don't think people have the time or the inclination to collect all the dockets anyway. Tax is bad enough.

That's certainly true, so we'll say thank you very much for listening and see you next time.

In this episode of Pricing College we discuss the concept of a loss leader.

You may be aware of supermarkets and similar businesses selling very common or staple items at very low - or even loss making prices.

We discuss the rationale or this and what they may be hoping to achieve.

We also ask whether it is something that non retail businesses can use.

So today we're gonna talk about a concept that everybody knows and it's called a loss leader. So we're going to be talking about, What it is, Why do companies do it? Is it useful in terms of attracting more customers?

So what is a loss leader? I think any human being who's ever been to a supermarket is probably aware that some shops and some chains will do very low pricing on staples and obviously in different countries, that staple may be different. It could be milk, it could be bread, it could be a can of beans or a can of peas, and whatever it is. It's the staple that a very large number of the population buy on a very regular basis, and it's a price that they're commonly aware of. I even remember back in Britain years ago, when they wanted to prove how out of touch politicians were, they would ask them how much is the price of milk? or a pint of milk? And very often, they wouldn't know.

Often these loss leader products, if you're thinking in terms of supermarkets, can be that sort of private label product in terms of milk, margarine, butter, obviously growing in popularity in supermarkets. So, we're going to just look at, why that is? One reason would be the assumption that people buy on price and low price brings and attracts people to the store. Yes, to a certain extent there are some people who will be attracted to a supermarket or buying these sorts of goods because of price.

Certainly, they will be a shop around and when we say a loss leader, we don't know what the shop is making a loss on every can of beans or every bottle of milk, but what they're doing is they're cutting the price below what they would like to sell that. If they were only selling that bottle of milk and didn't think they'd sell anything else they wouldn't do it, but what they're doing is they're selling one item at a loss, hoping and being quite confident that they will make up that profit on the other items that customer buys. The big question is for a successful loss leader program, once you get them in the store, you need them to buy other items also.

And often these loss leaders are designed and produced based on things that people want to buy, and there will be a competitive product at a slightly higher price which this loss leader is competing with and that's putting in the mind of the consumer a question, which one should I buy? Should I buy on price? or the assumption is, should I buy on quality? Now, of course, many of these loss leaders aren't necessarily cheaper or worse than the competitive product. So you asked the question, are loss leaders loss-making? Well, initially, perhaps but they've recouped their money by optimising price across the customer and product lifecycle.

I don't know the answer to this but I'm pretty confident that supermarkets in most countries nowadays they're getting bigger and bigger. Certainly the out of town store, so once you make the effort to go, there's a time and effort invested. It's almost like a queueing system and the old Soviet block. So you've driven to the car park, you walk into the store, you avail yourself of the advertised loss leading bottle of milk for $1 or whatever it is, and that would have had $4 elsewhere and then when you're there, you think I might as well get the rest of my groceries or the rest of my items. You're focusing on that loss leader and there's a psychological aspect to it. But you're buying those other items, maybe a packet of lollies, a newspaper, whatever it is that you probably still come out of. It may be a little bit ahead of what you would have done at your local corner store but the supermarket certainly is on average making profits.

A loss leader is very similar to the Startup Platform freemium model, it's like give it a go try it. It's not gonna hurt you, it's low cost, and it's not going to take a big hit on the bank account. And as you do, you try something and you go back if you like it, then you might buy an extra two things and put that in your basket because you bought a particular product. So here they're thinking not just about one product, they're thinking about frequency coming back to the store but they're also thinking about what other things you would buy if you bought that loss leader product.

One thing I think we can all learn from this, we obviously don't run supermarkets but sometimes in the pricing community, it's hard to get it across to management why potentially you should make or should consider making a loss on one item or one SKU if you stock thousands of SKU's. This concept of bundling, or baskets or the common shopper and what they will generally buy, that's a message that I think we can all take away from it. The supermarket analogy is a clear and easily understandable example that nearly everybody will get.

I think another key takeaway from this is if you're going to do it, you must make sure you monitor your customers' response to the loss leader. There's no point introducing loss leaders if you're not going to track. What are your customers' responses to the price? Are they going to come back? Are they going to put other stuff in their basket? I mean then that would be unprofitable, so it's understanding your product portfolio and understanding your customers' response to the product and the price.

One thing which we'll cover in future episodes is obviously in supermarkets, they're very keen and they'll probably be some of the earliest adopters of loyalty cards, you scan them and collect certain points etc. So generally, they know exactly what you're buying, exactly what you're bundling, and what you're buying instead of something else. If you're buying a bottle of milk, you're not buying soy milk or almond milk. So there's still some of that big data that they have also available and that really can help them track, monitor and have a good estimate of the profitability of these projects and promotions. Not every business can do that but we can all move to some extent in that direction.

In today's episode of Pricing College - we discuss the broad options available to a company who is considering a pricing transformation for their business.

The broad options available to any company generally include:

A - engage pricing consultants to advise your business

B - employ a proven pricing manager to implement change internally

C - utilise a pricing software system

And the winner is.........

Today we're going to talk about options for you if you're going through a price improvement project or you're thinking about improving or changing prices and you just want to know, what the options are out there? What should you do next? So just to start on that, I think Aidan I would like to give you the three examples and the first one would be consulting, you can invest in external consultants to come in and set up a new pricing system for you. Consultancies like top tier ones like McKinsey, Bain, Boston's and Simon Kutcher. People like that can come into the business, they can do some diagnostics of your current pricing situation and then advise on what you need to do next, what strategy would suit your business and industry, and then potentially think about the analytics, and the people required, but they won't necessarily do all the pricing for you, they'll be more advisory.

A second option, and obviously, all these options have to be looked at from your own corporate requirements where you're starting from, you have to play the ball from where it lies as the old golf says. A second option would be to build your internal resource. Do you have a pricing department right now? Do you have pricing expertise? What you can do rather than bring an expert advisory on a freelance or contract basis, you can employ an expert in your own business, and then build that department, grow that business and seek to internalise that expertise in the company. They will likely require more resources, it may not suit every budget etc, but maybe in the longer term, that will help internalise that and build relationships and stakeholder contacts inside the company. So that's option two.

Option three would be to buy a pricing system or software to install in the business to then algorithmically price your goods, services and products. For instance, you could use software from price intelligently for the SAAS community or technology community, you could use a Zilliant or PROS for B2B and B2C pricing needs, they're very popular and quite expensive pricing software, but they ultimately implement dynamic pricing in B2B and B2C settings and to some degree customised pricing to suit your business.

That's right, so those are the three broad categories, which one is most appropriate and maybe it's not just one, maybe it's a mixture of all three that are appropriate to your business. But I think when you start to look at a transformation project, you should be aware of the options available, the cost-benefit analysis of what it would cost upfront? What will cost on an ongoing basis? What immediate short term and medium-term and what ongoing benefits will you get from it? and it's only then that you can make the right choice or the best choice.

I agree and then underneath that, you can think about suitable change management approaches just to underpin each option because you have to think about each option just not in terms of what you're buying today to fix a specific pricing issue that you have now but thinking about building that sustainable pricing capability. As Aidan says, that could be a mixture of all three, or just one so it's just getting that diagnostic right so you know where to take the next step but yes, those are your options and I hope that's helped.

In this episode of Pricing College we discuss some of the biggest frustrations in the pricing community.

Whether it is people expecting far too much too soon, or people simply not listening at all to advice - we discuss some of the annoying parts of the job.

In today's episode, we want to talk about those frustrating things about being a Pricer or Pricing Manager and the things that annoy you. I suppose is a bit of catharsis, is that the correct pronunciation for all of us or something that will be cathartic, but I think we've all been in meetings or done presentations or spoke to the board, and seen it fall flat and so today we want to cover some of those.

If you've been listening to our podcast before, we've gone through a lot of different theories, different ideas and proven concepts in pricing but many of those concepts, I think, are very new to a lot of people, not in the pricing world perhaps but maybe to senior executives or different functions in the business. So all of these things, what does that mean? It makes your job as a Pricer very difficult and sometimes frustrating. So I think Aiden's got something to say.

I think the thing that annoys me the most when I worked in companies in pricing roles was that fundamentally people just didn't listen or didn't care. And one of the most disheartening things I think in my professional experience was, we did a presentation to the board or the management team. There were 20 people in the room. We'd spent a couple of weeks putting together all the information, all the detail, and a big presentation. It seemed to go down very well. Everyone seemed very engaged and very interested, and then 15 minutes later, a very powerful man in the company, started speaking and said, completely ignored what we've done and said the only thing we can do with pricing is drive cost to zero and I think at that point you realise, you're on a hiding to nothing so yeah it's just when you can bring a horse to water but you can't make a drink and sometimes people just do not want to listen or be engaged.

Yeah, I think that comes down to you've got different areas of the business, all focused on what's most important to them even on that particular day, at that particular moment. So when you bring up a new pricing concept to a different approach, maybe that traditional cost-plus or even competitive pricing that people are used to in the business, it creates a little bit of a rumble in the organisation. Some people go, nope, not gonna do it and other people just go yeah maybe we'll do that next week and sort of like brush it off but, where does that leave the pricing manager? Well, speaking to a lot of pricing managers in my daily work and a lot of pricing managers feel frustrated sometimes even defeated. So I think, as a pricing manager, you need that impetus to keep positive. That positive frame of mind to know that you just have to keep edging forward to sort of change other people's mindsets because, ultimately, it's a mindset change.

I think when we look at companies from an advisory perspective, one of the most important things is, if you're not speaking to the top dog, the CEO or the general manager or whoever the boss is if you're not speaking to him or her, I'll be honest the chances for a pricing transformation or change being successful are limited. Anybody who's worked in the corporate world, in any country will know that it's a bit of a political environment, there are political animals there and oftentimes, it's not down to who does a better job? who's with the better advice? Oftentimes are purely political decisions. If you're trying to suggest pricing changes, working in that environment between sales, marketing, operations, where impacts profitability and impact whether working. You do need to have the most powerful people in the organisation backing you and on your side because unfortunately, otherwise you'll end up frustrated and going nowhere.

So a large part of this frustration in terms of pricing, the pricing job itself doesn't fall into the technical aspects it largely falls into that human change management aspect of the job. Sometimes I think a lot of pricing managers come in and think pricing is very technical, very numbers-driven, and they don't realise that the full impact of the job entails a lot of changing of hearts and minds and I know that sounds cheesy but it does. Often, people can go into the boardrooms, they've got that golden opportunity to speak to a senior leader as Aidan said but often bombard them with facts and data that maybe people are not ready to listen to at that particular point in time. Often there's that opportunity there, sometimes just to listen to the objections to them reframe what that business case should be at that moment in time and that can be a good way to influence people in the right direction with pricing, rather than sort of telling them by data ad nauseam when they're not interested. So I don't know, maybe that's an element that people can use to just reduce that frustration in the job. I think it's important for business leaders to go away from that top-down change management strategy, and start thinking about pricing in more of an open-source change strategy and we can go into that in a little bit more detail in another episode.

I think the other example we wanted to give all frustrations can be overinflated expectations as to what a pricing team person machinery can do at some points. I think the first example we gave was people, don't listen at all. The second example can be, you've been here three weeks, how come we're making millions of dollars? That inflated expectation, you can't win in that environment either, in the real world, the laws of physics and gravity still exist. We all know what pricing can do but we have to bear in mind that a company changes, transformational changes take a long period of time, and that will not happen overnight.

I think pricing managers and good teams could make money quicker than they do if they're given or people listen to them more and that's a change management approach. If you're expecting as a leader for the pricing teams to make that money within the first three months, sure then give them the leeway, let them use their expertise to drive that initiative, and listen to the feedback, good and bad, success and failure because learning from mistakes leads to that revenue margin opportunity much quicker. That's all I'm going to talk about for today. Thanks a lot.

In this episode of Pricing College Joanna and Aidan discuss what sort of skillset a great pricing manager or leader should have.

Whilst not saying one needs to have all the skills mentioned - pricing is a very varied discipline.

Numerate, driven, smart, good team worker - the list goes on!

Now if you're thinking about a career in pricing and you're wondering what type of people go into pricing, Am I suitable? Would it be a good fit for me? We're going to just go through all of those and address those questions for you today and talk about a profile of pricing managers today that are successful in businesses and do get the outcomes that businesses want from the pricing. Now to start, we'll go from the basics, pricing by its very nature and even the title you can see it is a numbers-based career but it's not all of the careers, I would say because of the change management aspect of the job, it would sort of be roughly 40% of the job, however, you have to be good at maths and data, good with numbers, figuring out, sorting out the data, manipulating data, analysing data, and then interpreting data. All of those three areas of data analysis are very important to pricing managers, now you don't need to be a mathematician, no you don't, but you do need to understand what you're looking at.

Okay, so point two, we've covered the numbers but you also have to have a real sales focus. In many companies, we separate salespeople from financial people but pricing sits between the two, you need to know how to sell, why big customers buy and how to emphasise the value and the pluses. So, yeah, have you sold anything in the past?

Number three. So as you listen to us before, there's a lot of psychology involved in pricing, especially in value-based pricing, customer focus pricing and as businesses try to reconnect or connect closer to customers to think about their pricing, you can understand that psychology in pricing is becoming a key skill. So not only do you need to be good with people and data, you need to start to understand people, why they buy from you? And that's another key aspect.

Vote for me. Are you a politician? Are you naturally good at stakeholder management? Can you build relationships internally with accounts, with finance, with marketing and with senior executives? Do people trust you and want to work alongside you? Because being a Pricer sits you know, it's everywhere and is nowhere so the real skill is to not be isolated, you have to have that buy-in from the key stakeholders, make them feel that you're working alongside them, and that helping you will help them.

Another key skill mindset would be that entrepreneurial mindset, always thinking ahead, what's happening? How do I make more money? Where are the opportunities? Where's that margin opportunity? Is it where it used to be? Where in the market should I be focusing? Looking at segmentation as a key driver to fulfil that curiosity and entrepreneurial spirit to find those revenue opportunities for the business, but when we say entrepreneurial but do it in a very safe way that is always checked by data and systems peer reviews. So yeah, that would be another skill and I think that's something that senior management respects in the more successful pricing managers, all of those characteristics are quite dominant in successful pricing leaders and I wouldn't say any one of those attributes would be greater than the other, it's a real sense of balance. And I think finally I'd like to just mention that personality that's almost the energy, successful pricing managers have this innate burning energy to just succeed. They're very positive, they're not tired, they look after themselves both physically and mentally, they know it can be tough, there's a lot of objections and questions that they have to address daily as a lot of firefighting happens, and a good pricing manager is always positive up for that discussion, and never closes down conversations and, yeah, always looking for the upside.

Sometimes I think the perfect pricing manager is somebody who should be an entrepreneur but doesn't want to set up their own business. They almost drive a business, they look at the business model that hopefully improves it, and they get involved in all the tough parts and places where you can't hide, the customer negotiations, the pushing back on price negotiations, those sorts of things. The place where no one generally wants to go is where you have to go as a pricing manager. So it's somebody who could potentially be a great business owner themselves but just for whatever reason doesn't do it.

In this episode of Pricing College - Aidan and Joanna discuss whether a pricing guru and a great pricing strategy can rescue a bad or outdated business model.

We discuss the examples of Blockbuster Video, Virgin Megastores and music retailer HMV.

We state that pricing generally can not rescue a bad business model - but can help a value based business pivot early enough to survive and prosper.

Today's topic was suggested to me by something I was doing during the lockdown, we were watching a bit of Netflix, with the kids. I thought to myself, God I remember the time when we used to go and rent VHS or a video at blockbuster, and I wonder, what happened to Blockbuster?

What happened to Blockbuster? Well, nothing good happened to Blockbuster and what we wanted to talk about today which relates to that story is that sometimes you can't fix a bad business model or a dying business model by simply pricing your way through it.

At Taylor Wells, some of the queries we get through are from new companies and companies that are mature and want to improve, but we also get queries from customers who are looking at pricing as a silver bullet. Basically, as a solution to their problems, and they're hoping that this magic box of tricks will unleash new profitability and rescue them from failure.

Often these companies are ones that haven't considered the business lifecycle, or their customer lifecycle and both of these concepts and measurements are important to pricing, because good Pricing Managers will always look at the impact of pricing on a business model, and they'll look at pricing within a business in terms of what pricing power they have based on the total economic value a business can offer to customers and in the ecosystem. So, to go through what that means because there's a lot of long words and concepts there, we'll go back to thinking about a business of the music industry, for instance. HMV and the virgin megastores from the 90s, extremely popular for a good deal at a time. But, what happened? They didn't think that their business would ever die, they thought people would keep going back and they had a very staunch view of business strategy. They were almost, one could say they feared the pain of losing that business strategy to inevitable changes that were occurring in the market. They were even resistant to changing their pricing strategy. They kept their prices very high. They assumed loyal consumers would keep coming back and they disregarded the fact that in their field, new entrants were coming in to provide consumers with cheaper DVDs. I'm thinking they were the supermarket's who started to offer customers DVDs and music at like half the price of HMV or Virgin. And another thing they did, they didn't think they should be getting online, they assumed people would always come back into the store to buy deep expensive music and vinyl simply because they loved music. All of these assumptions were proved incorrect, and at the very last minute, only then did they slash their prices to keep their doors open, but by which time it was too late because the business lifecycle was already at its end.

I think you can look at these companies, blockbuster HMV etc. They had a very successful business, you could almost say it was a goose that laid the golden egg. Every year they're making profits, they were selling and renting out DVDs or VHS or whatever it was at the time but technology moved ahead basically without them fully being aware of it. There was a competitor growing somewhere where that was streaming or satellite television or something else, and that was growing in the background. Spotify in the world of music. When that came along, it wiped them out because these companies were focused on what they were doing at that time, that this massive technological change and we can't say something's right or wrong and they should have moved ahead or they should have surfed that wave when it came because that would require great entrepreneurial flair, etc. and that's not for everyone. But the concept was when they saw that the writing's on the wall the question is, could the pricing change have rescued Blockbuster Video? Could have rescued HMV music virgin megastores? That's a really good question.

Well, it could have been for a time. They could have optimised prices, earlier than they did but saying that, the business life cycle would have come to an end, so it's sort of optimising to an inevitable end. What they didn't do was capture the EBIT opportunities throughout the lifecycle, they did at the beginning, but then they just kept their pricing strategy and price-setting the same. From that, they didn't optimise and then they lost volume because the traffic went to supermarkets, the traffic went online, so they lost a lot of their customer base, they lost market share, they lost profitability, and then they didn't even collect the EBIT that they deserved. So, they could have done more price optimisation through the business lifecycle which they didn't. So yes, there was an opportunity, what I'm saying is yes, there's an opportunity for dying business models, but you've got to be smart about it and you've got to know what you're doing to capture those EBIT opportunities. Because in each phase of the business there are different types of opportunities, and a good pricing expert or manager will know this and they will optimise which means they'll adjust prices accordingly. Whether this is across the product group or according to different customer segments or price segments, they'll do whatever it takes. However, the important point to make here is that pricing is always connected to the business model, and for businesses that don't see that they're the ones that suffer in the end, and they don't get any additional profitability and they lose volume.

My personal view is pricing could not have saved these businesses, they would have required a massive pivot, a term we use in startup businesses. You're looking at those huge brick and mortar stores, most of them were in very prominent town-centre locations or easy to access suburban locations and an example of the Blockbuster video where people could go easily. With that, they either own the stores or rent, so massive rental leases have very large salary costs, and a lot of them would have a debt as well which they would have used to expand or to buy more premises and grow their business. The big issue with business and life in general is, you can only see so far ahead and we tend to extrapolate. Who would have thought that Netflix and Spotify were coming so quickly and have dominated the market so fast? It's not these things that happen to any industry, but I suppose the lesson I will take from this is, in industry pricing has to be focused on the value, the value you're giving to the customers. At the initial stage of seeing these challenges come along and seeing these challenges appear, I don't know the answer to this. Did those companies think let's ignore, let's keep the golden goose laying eggs for us as long as possible? or did they think let's just go up against these guys, let's try to challenge them, and let's see where it could go? But we don't know the answer to that but I would have to say when you have a very successful business, it's very difficult to get buy-in from a company to pivot to a less profitable one in the short term.

I think the answer to that is that I think a lot of businesses fear the pain of loss, they fear that they've made you know when you make such large investment and effort into a certain strategy, and then you decide to pivot, you feel pain in the fact that you've made a wrong decision in the original strategy, you invested so much in it so you don't pivot. So that's almost like the opposite of agile, what I'm trying to say here is that it's okay to fail but you have to understand that quickly before you can use pricing more effectively. You've got to know when your business model is failing because otherwise, you're just pricing for the moment, and yes you'll get something in return if you're doing your price optimisation right but it's not a long term strategy. So, I think, if these businesses have used a value-based pricing approach at the core of the business but obviously, they didn't. I think this would have informed their business strategy and it would have helped these executives understand a bit more when the problems were occurring. I think this is a lesson that a lot of businesses can learn now as we are all disruptive with the crisis of COVID, this is kind of a massive implication and change effect on how we price. I think those that have a very value-based pricing model will be two steps ahead if not five or six than those that have a fixed cost plus approach, who have an insular view of their business strategy, who are not looking out for better examples across the industry about what other people are doing and who are not looking at their customer base for cues about their pricing. So, take this on board, think about your customer lifecycle, think about your business lifecycle when you're pricing, and never look inward, always keep looking outward.

I wrap up and I think nearly every country, certainly Australia, the United States, the UK, there's a huge amount of government support for companies which is a plus because in the medium phase it preserves employment but also in a capitalist society, companies have to fail, businesses have to collapse. They will have to move on to new business models and new companies, no company will last forever, some do last a very long period of time, but the majority of companies last a lot shorter period of time than we think. We need corporate failure to drive innovation and to drive new business models. Pricing can help optimise things along the way and can help people focus on the right business model but if a business model is failing, there's not very much you can do with it.

In this episode of Pricing College - we go back to University for Economics 101.

If you increase prices - how much will volume fall? Is that something we should know or care about?

Is there anything we can do to influence elasticity - or is it a given? Why does the Tax man care about elasticity - or in-elasticity?

Today we're going to talk about a very popular concept in pricing called price elasticity. Now price elasticity has an important role in pricing because it's a measurement, which tracks consumer demand or responses in relation to a price. So, if a certain price is high, what happens next? Does demand go up? or down? Does volume go up? Or down?

I think we need to be clear that in this podcast, it's a variable method of spreading information so we're not intending to give you mathematical formulas or look at it in that concept, but we're just going to give an introduction that any marketer any salesperson and certainly any pricer that should know.

It's an interesting concept because a lot of pricing managers use it, especially in say more consumer-focused B2C industries like airlines, cruise ships, the tourism leisure industry, and even cinemas, things like that, especially ones which have a capacity restraint of some sort, goes with dynamic pricing quite well. However, in B2B, a lot of pricing managers don't use price elasticity, maybe they should say they don't need to because there's very little difference, however it's a good measure to always track volume and demand according to price changes, whatever industry and sector you work in the market.

I previously have worked in a B2B environment, and we will put through annual price rises and I'll be honest the very concept of price elasticity was never even discussed. The company would have had an overview that a certain number of customers would leave business price increases, but they wouldn't have had a calculation, they wouldn't have had a forecast, and it was all very mathematics and almost as if the cost of the price elasticity did not exist.

In B2B, it's an assumption that it tends to be a cost-plus price-setting sort of regime, most customers are sort of on the same price, with different rebate structures. So, why do we need to monitor the elasticity? We need to monitor the elasticity because your customers are different and what that shows when somebody says that to me is that you haven't segmented your customer base, you don't report on price response or neither do you understand it.

I think in this topic we'll give an example or two. In this instance, it's very much commonly used in economics and academia or our government who likes to tax things and maximise their tax income, they certainly know about elasticity and inelastic products and services. If you ever think about where the government puts taxes on or what consumer products have been taxed, it's always something that if you increase the price, the demand will stay relatively stable. Think of cigarettes, think of petrol for your car, think of alcohol, those sorts of things tend to be very inelastic, obviously up to a point that some countries have lifted minimum pricing for alcohol. But if you're going to make a car journey, if the price of petrol goes up a couple of cents it's probably not going to make a huge difference to how much you consume.

So it comes down to when a customer needs a product or service, then they're likely to be more or less sensitive to price, and think about other things rather than just the price point. They're thinking about the value the product has to them, whether it solves a specific issue, like everybody needs to put petrol in the car for the car to move so they can go from A to B, so to a certain point, this is why it's inelastic. But I suppose in terms of B2B, you've got to start thinking about those drivers as well in terms of when I put my price up, what happens when I put my price down? Does it change?

That's it and obviously, every instance is very different. The reason the government can do it is that they're part of flood increase across the entire economy for petrol or alcohol or whatever it is. When you're an individual business the elasticity will likely be much more prominent because people could swap out for other providers, they can swap for another similar but slightly different product. So you need to consider the exact instance of your business, know that value drivers as to why people buy from you, and then you should be able to overtime as you builds up a history of knowledge of your customer base, you should be able to have a reasonable estimate as to the elasticity of prices that you will make.

Also remember I suppose this is a tip, yes the price is important and it does drive demand, but it's not the only thing. I think sometimes in pricing we get fixated on the power of price to drive demand when sometimes it's more than that and we've got to refocus that back to the customer, what is driving the behaviour? Yes, it's price. What else is it? Why are they buying from us? And then when we read our pricing elasticity is measured with that frame in perspective in mind, then we can start working out. What drivers we talked about before about loss aversion? and what the drivers are price elasticity? The number one driver of price elasticity is that loss aversion concept I do recommend going back to that podcast. So it's not just price that drives demand in other things too.

I sometimes see price elasticity, not as a standalone thing but it's almost a result of your business. We talked about pricing power, when a company has an off-brand reputation, trust relationships with customers, those sorts of things they have pricing power and the pricing power goes hand in hand with price elasticity. If you have pricing power, it means fundamentally you can increase prices, and hopefully not see a large drop off in volume so they go hand in hand. The pricing power and pricing elasticity, I think, are the different ways of looking at the same thing. If you have a great business if you work hard with your customers and your sales team marketing, everything's working well, I would be suspicious that you could see your price elasticity become more favourable to you.

I agree I see price elasticity as an important measure to monitor the market and to monitor different segments. It becomes more useful when you've got your segmentation worked out, and then you can start looking at different customer groups and their response to price by a group. And then after that, it's one of the measures so there are multiple things you can do to interpret price elasticity because on its own it's just a basic measure, so we want to get to, why it's happening? we can see it's happening with the price elasticity, so why is that happening? because from there we can start to reset prices according to value.

I think if you look at the example we gave of where you have a better relationship with your customers or your product is much better. If you take a real extreme example of that where there is no competition, you look at monopolies or, companies with huge market power oligopolies etc governess jealousy to control those because those companies can increase prices for electricity or water or whatever it is, railway travel, and there's nothing the customer can do they still have to buy. So, in those instances, it does lead to price gouging, which again we covered in a previous episode. When pricing power is unfettered or uncontrolled, you will have certain problems in the market, and that is something that a lot of government agencies seek to control as well. So it's a topic that covers business but also economics and a lot of government interference.

In this episode - we look at the concept of loss aversion. It is an old saying in gambling - that money lost hurts twice as much as the pleasure of money won!

This same concept should apply in your sales meetings and sales discussions.

If your product is more reliable and less risky than alternatives - then you should definitely be discussing that - and maybe charging more for it?

Today we're going to talk about loss aversion and the role of loss aversion in pricing. Now, loss aversion is an important concept in pricing yet strangely quite underdeveloped. So we're just gonna go into the theory in a bit more detail, that theory is called Prospect Theory and then just provide a few examples.

There's an old saying in gambling that money lost hurts twice as much as the pleasure of money won. So when a gambler loses money on the roulette table in Vegas that hurts them much more than the benefits they might get in winning a similar amount And that's something that we can factor in if you're selling a product, think about if your product is more reliable, less likely to break down and longer-lasting, that's a real value to the customer that you should make them aware of.

In terms of the theory, it was a guy called Kahneman who developed the Prospect Theory and like Aidan was saying, what they discovered was that people feel the pain of loss twice as much as any gain or like the pleasure of gain. I think that's quite interesting in terms of pricing because often people price or develop pricing strategies based on people's, I suppose feelings of reward as opposed to the feelings of protecting themselves against loss and risk. And I suppose one industry in particular that thinks about risk and a little bit more detail is insurance, and how they price, the policies, the life insurance, car insurance, they are always all thinking about risk in a different way than I think other industries can learn from.

What I like to think of is if you're selling a product to a buyer and your product is more reliable, it's a better quality product, in theory, what you're doing is you're selling built-in insurance in that product, the chance that they'll have to pay for repairs or pay for replacement is much lower. So if you think about it, you should be able to charge a premium, in theory, that premium would almost be equal to a third party insurance contract that they can take out. So, if your product is more reliable, it's your job as a sales team and a marketing department to make sure that people know that, to make sure that they factor that into their buying decision. And when you're asking them to put pen on paper, sign on the pricing sheet you want to be asking for a little bit more cash.

An interesting point from the research is that, to what extent do people feel the pain of loss? Everyone does but the important thing to note is that everyone does feel the pain of loss but very differently. So this is when you need to think about loss in terms of different segments because they're going to be some people who know that that can almost withhold the pain of loss more, I'm thinking of gamblers. Why do people keep going back and gambling? Yes, they're almost like gambling through the risk because they think they're going to recoup their money lost or they're hoping they're gonna do it, but they've got a higher propensity for loss than say the gamblers or the tourists that just comes in and plays one or two games and then is almost too fearful to keep carrying on, even though probability would say if they just kept on a bit more, they would have won. So, there are differences and very important differences to note within customer segments in terms of loss, and with all of this as you can see, it's very customer-focused, not only are we talking about their behaviour and response to prices. We're also talking about their internal feelings to price, and in pricing that's called the reference point, and everyone's reference point to different price points is different and as I said, shifts, so it's a very complicated thing to measure but yet a very important one and one that can be trapped if you do it properly.

I think we're talking really about the psychology of the buyers, psychological mindset when making that purchase decision and sometimes people don't think about what can go wrong and they only think about the upside and the benefits of it. But sometimes it can be important to have your sales team ready to not be negative but push, make sure the customer is aware of the potential negatives, and as I always say compare apples with apples, we look at the negative sides too, not just the pluses. When you're making a purchase decision it's the pluses and the negatives and it's the weighted average of all those things that you're looking for, and that's something a sales team needs to know about. Yeah, that's all I've got to add today.

And as a pricing manager, I think it's important to remember that when somebody looks at a price they can feel both mixed emotions. They can feel the pain of loss, but they also can experience the feeling of pleasure and reward from that price. It's how you frame your prices which is that marketing aspect. But thinking about pricing, how do you set prices? Price is a summation of the value you offer and if we think about value in terms of the reward value in use, but also at that risk element, then you can start almost like quantifying different elements of your service offer not just the product, the service offer, how you deliver it to your customers? By thinking about the pain points you're helping them avoid when they buy, and this comes down to observing, understanding your customer base, and trying to hone in on those risk drivers as well as the value drivers. But yeah, we'll go into this a little bit more in more detail. It is an interesting, fascinating topic that does require a little bit more thought and what we'll do in later series.

In this episode - we look at whether a smaller consumer products business can say no to major supermarkets and retail chains and go direct.

A move like this is a complete business shift and means you need to invest in distribution and shops.

However - the upsides can be huge - and profits can follow!

Okay so today I'd like to talk about a business model that I respect for many reasons and it's called Haigh's chocolate, it is a competitor to Lindt and everyone knows Lindt may have heard of Haigh that's a conscious decision on their part and their business strategy. So today I just wanted to go through their business strategy, the pricing, and the distribution because I think a lot of fast-moving consumer goods can all learn from Haigh and what they've done, especially in terms of their choices to work with, or not Coles and Woolworths.

Yeah, I think in many walks of life pricing managers their role is to go in and have a procurement meeting with someone whose job is to force them down a price, make them feel bad sometimes and get the product or services at a lower price. There's an old saying in any negotiation that the person who has the hand, or the power in that relationship is the one who is prepared to walk away. The issue in many cases when dealing with procurement is that they know that you cannot walk away, whether you're a major corporation, such as Unilever, Palmolive or someone like that, you still need to distribute your product and service, and of course, that applies also to chocolates. If you're trying to sell chocolates in Australia, clearly through the major retailer's Coles, Woolworths and IGA those are the companies that's how you get seen by most people.

But because of that a lot of businesses get overlooked because maybe the supermarket retailers think they're too small, their staff won't be popular enough or they don't think that they should get the front shelf space that may be other biggest suppliers should get because they're known brands and they know people like so they don't get the small ones a chance. But really what Haigh showed us about their strategy, they decided that they were going to go a different route, that they weren't going to be distributed through Coles and Woolworths and they were going to own the distribution themselves. So, what was their business strategy from doing that? They weren't going for a market share approach, but I think their business strategy just wasn't simply thinking about market share and margin. I think they were thinking deeper than that, they were thinking about the value to their customers, what they represented as a brand? and how they could best do that on their own? Because as Aidan was saying, they knew if they went through Coles and Woolies they'd be a mass market. From there, they'd be forced to promote and ongoing promotions can destroy a brand, and they were very clear in their mind that they wanted to be high-value premium chocolate that everybody could afford. So, how do they do that with their pricing? we'll go on to that next.

Speaking of promotions, one thing when I'm in Coles and Woolworths I'll often notice how chocolate and you have the major brands in the Aussie supermarkets. Lindt seems to be the certainly the biggest component and then secondly if you'd like green and blacks who at one point time were seen as a premium product but the discounting is almost predictable every month or two there will be huge discounts which will drive sales during that period and then I assume sales will drop off slightly. And what I ask is, what does that do to the brand image? the value of the brand? and also the profitability of that company? By going directly, completely changing the game, it gives you complete control over your distribution and you're taking on the capital expense of maintaining stores, etc. For example in Sydney stores, you've got prestigious locations such as the QVD building and with that prestigious location, nice packaging that creates a very much a high-value image and offer.

When I saw the Green and Blacks, yes they discounted and promoted quite regularly, what happens then is that customers realise that they can reload, they can anticipate the next promotion and that devalues the brand, the price points and overall the retail price point then gets lowered and you promote again, it's sort of a vicious cycle. But also what I've noticed is that Green and Black shelf space over the years got smaller as it's probably been through some tough negotiations with Coles and Woolworths. From that, they derange and then they're given them smaller shelf space and they have put Green and Black higher up, so not in the prime location, not the middle shelf where everyone can see they've replaced Green and Blacks with some sort of Lindt, who's agreed across the board to promote everything. There are so many different varieties of Lindt now and a very small space for Green and Black so you can see that Lindt is accommodating that mass-market share approach, but for how long? Because equally just like Haigh, Lindt was supposed to be premium, but what's happening with promotions now is people don't trust the promotions and people thinking, what is it really premium? or is it just standard milky chocolate? so it's low the benchmark I think for Lindt.

I'll ask you this yourself if you received a box of chocolates as a gift for a birthday or an anniversary, etc, and nicely packaged in Australia, obviously, people overseas do not know these brands but to be equivalent in your country as well I assume. So, if you received a nice nicely packaged box of Haigh's chocolates versus a supermarket-bought major brand the impression that you receive will be very different and people will perhaps respond differently also. With something like chocolates, there's a feeling to it, it's more than just the actual product. There's the feeling, the image, the luxury aspect, how people package them up and the fancy bow put all around them etc, almost like a Christmas present. So there's the paraphernalia that associates the product and when you stack those on supermarket shelves, you shouldn't be surprised that the impression decreases and sometimes the buying experience is also important.

In terms of what Lindt has done, I mean they've got that value proposition is to provide high-quality chocolate to as many people as they can but what it's done is owned its distribution and thought carefully about like, do we want to be a mass-market? I think they've decided it is not, let's think about Victoria, more people would know about Haighs and in Adelaide, than they do say in Sydney, the brand awareness for Haighs is not as high here. That's something they're fine with also they've gone into thinking about, what their value proposition is? They're sort of a very family orientated brand. So they've opened up their site to the public to visit the chocolate-making factories and they put a story behind it. They've shown the family history and they've given that sort of provenance and credence to it to just build that that image is an authentic one too. In terms of pricing, the price points range from about $15 to a maximum of $100 when looking at the store. So yeah, you can go as extravagant as you want and get that $100 box with all the bows, all the whistles and all the different assortments and truffles, or you can go smaller. But what they've done is they didn't want people that couldn't afford the premium chocolate to have anything less than premium. So they decided to go with a unit sort of weight base, a pricing metric. So, if you can't afford the $100 big box of truffles, you can still afford the smaller box, maybe one or two of the same truffles but just obviously less of them. But overall, everyone can still afford it. Whether that's right or wrong, there are other things they can do which they have. They have a great online website now that you can order customised boxes and things like that which is great during COVID, they've seen sales increase in chocolates through that. So they've always thought well ahead about online, securing their distribution, thinking carefully about their customer segments and their price segments so they've done a lot of things right.

It's interesting to point directly to online sales because one thing I was conscious of is that through COVID these prestigious distribution stores that Haigh's operate will be under a lot of pressure. The fall in those areas will be monthly reduced, and many of them wouldn't have qualified as essential service or essential distribution. So, without the online aspect there, the sales would have been under pressure. One thing I would say is we're not proposing this mechanism for every company, every retailer because, fundamentally, every product is different and every customer base is different. The idea of chocolate is a prestige product, it is a luxury product and it's not something you buy at least, not everybody buys every day, and it's often bought for a third party for somebody else. So that luxury aspect doesn't apply to all the things, you can't do this for tins of peas and tins of beans etc so we have to bear that in mind. I'll give you another example of what I used to work in a previous existence. We're visiting a chicken and egg farm, and I was there for one year. The number of eggs was huge and a huge number of employees. I went back a year later, and there were a tenth the number of employees, and hardly even saw that the business was in trouble. I talked to the owner. Instead, what they decided to do was to go upmarket, organic free-range eggs, much higher quality welfare for the animals, and that required much fewer people, what they told me was seals were dying, but profits went through the roof. So really if you look at what you're doing oftentimes, sales revenue and profitability, they're not always they don't always go in the same direction, and what drives one doesn't drive the other.

I was reading recently about Nestle and their KitKat brands and they've done something similar to Haigh because they've had some, let's say, heated negotiation price discussions with the major supermarkets. They are trying to find different ways to deal with thinking about distribution, product innovation and pricing. One thing they have done like Haighs is that they've opened up a Kit Kat prestigious premium or Kitkat store. Now I know Lindt has done that KitKat who isn't considered to be in line with Lindt or Haigh's have decided to do that, Haigh's could have done that and have been doing that for years and all three are doing it for what? Yes, price positioning, brand positioning, but Nestle has come out and said they want to do it for future product innovation and price positioning as well so they want to see and get more connected with their customers to see what type of chocolate combinations that customers like. Then sell it to them so give customers what they want, rather than just simply guessing and then giving them the old school sort of KitKat that everyone's used to that they know is year on year sort of decreasing in people's tastes have changed people are not buying it as much and this is happening quite a lot in FMCG across the board. Whether it's peas, whether it's chips, or whether it's chocolate. You've got to protect your brands, not just by pricing but also by thinking ahead in the future and then aligning your price to changing markets whether that's online, whether that's distribution, whether that's product innovation and getting that together but only by looking at the market and segmentation of your customers and your prices.

I have nothing more really to add for this to this one today. All I say is for any family members who are intending to buy me chocolates or presents just bear in mind that I am picky and choosy, and I will put my nose up at the wrong product so have a great day.

All right, so that Haigh's all the way. Well done Haighs.

In this episode of Pricing College we celebrate getting back to restaurants and what tricks of the trade you can notice in restaurant menus.

Whether it is priced at $4.99 or just 5 without a dollar sign - the menu may be trying to manipulate you.

At least you have a defence now for eating too much at lunch!

Today we're going to talk about tips and tricks about menu pricing. Now when you go into a restaurant or when you look at a menu often you don't realise as a customer that there are certain things like pricing cues and psychological triggers being used in that menu price list. So we're going to discuss some of those tips because some people are good at that in restaurants, and others are not so good and it seems like they're just guessing.

Yes, I suppose, we're now in July 2020 and this is a point in time where many people have not been in a restaurant for a number of months. So maybe it's a good time as restrictions are easing in many areas to look and see what tricks potentially could be being used, whether they're making you buy more regularly or even just adding an extra dessert to your order.

Okay, so the first one I'd like to talk about is one related to framing and anchoring. We discussed that in an earlier episode. What researchers of menu price pricing have found is that people prefer or will spend more when you put the higher price item right at the front of the menu, rather than leaving it at the back on the back page. So for instance, say it was a chef's special with all the entrees, expensive entrees with the higher price. A lot of customers you would think would not want to see that but research shows that if the restaurant puts that right at the front, that sort of Prime's, the customer will spend more.

Another simple one I like and you see this a lot more often nowadays is psychological research shows that when people see a number without a dollar sign, a pound sign or a euro sign and if they just see a number, somehow they don't see it as real money, almost like Disney Dollars and potentially, they may spend more. You'll also see more of it creeping in whereby to even decrease the real monetary feel to the number, you will see it just written as the number five, not even a dot of zero. So if you're in a restaurant see five or six or seven, start asking questions.

Different research to debate that flat point, which says people don't want to just see the number, like $6 or $10 they would prefer to buy and more likely to buy if you put $9.99, or $5.99. So if you're going to put just the number like $6 or $60, remember you've got to take the pound sign off and take the tens and the units off as well to make it completely abstract. At that point, they're more likely to buy but if you're going to have 10s in units, then put the 99 on it, or the point 47 which is another psychological price point.

Related to this, you'll also sometimes see the numbers not written or the prices will not be on the far right side of the page, whereas traditionally it would have been all aligned so you can compare prices. Often you will see the number will just be, Chicken Maryland and then little space and then number 5 or number 15 or whatever the price is, so that makes it a little bit harder to compare prices. The actual psychological mentality behind this, I'm a bit uncertain about it but it is supposed to make you not compare prices as much and just pick the meal that you'd like the sound of.

In terms of the actual price points, and the distance between price points this isn't really important because what people often do say if they're looking for a glass of wine, you may have five or six bottles of wine that are got bought by the glass so what people tend to do is they look at all of those by the glass drink prices in a line, and look at the lowest price point and the highest price point, and what they're doing is that they're making a value judgment about your restaurant based on that relativity. You have to make sure that the space between those numbers represents not just good value, it's not cheap, we don't want it to be cheap, this is where you need to know where you fit in the market. So, yeah, just think about that in relation to your brand and your price positioning and in relation to other people's competitor's price points too that will be a good reference point, but always think about who you're trying to target when you're thinking about that glass of wine because that glass of wine is an anchor point for the rest of the drinks menu so be very careful about how you price that glass of wine.

When people go out for dinner, they often like to believe in their free will and they're very interesting individuals but it's amazing how frequently we don't want to choose, we want to be guided, or we are open to being guided as to what to choose. Very smart menus, they will highlight certain items and they will call them house specials, chef specials, and special of the day, they highlight them in a certain way that even if you don't know they've been highlighted, you'll be driven towards them, your eyes will move towards that selection, and you will end up choosing something that the house wants to sell. It could be because they've made a lot of it, it could be because the chef made too much of it and they need to get rid of it, be aware that you can be guided, even without being suggested, you can be pushed to a certain product or service that the host wants to sell.

I can remember a good example about the wine concepts and what price points were right when I went on holiday to Fraser Island. I went to a very nice Fraser Island's quite a chic place and people go there, I would say it was an expensive holiday. Very exotic centre, the standard night's hotel accommodation would be from a thousand plus in some of the hotels, and often it's like an all-inclusive sort of deal but the restaurant you would have to pay for. When I went into the restaurant, and looked at the menu prices, especially at the drinks price, I looked at the range of prices for a bottle of wine, and it was something like starting from $47 up to $150. And I thought to myself, how strange that they only went up to 150? Surely people in this hotel spending at least $1,000 a night would be prepared to pay more for a bottle of wine, and at that point, I realised that they hadn't thought through their menu pricing and that they were underselling the value of their drinks menu. But also the whole experience of the holiday in the resort made me think oh maybe the resorts are not as good as it supposed to be or maybe they were thinking, oh you know what, it's an expensive resort we'll discount off the drinks menu. But they don't necessarily have to do that, people are already willing to pay so here you've got to think about your menu pricing, your drinks pricing in relation to your target market.

I think that is a form of segmentation. An example I think that reminds me of is, probably more famous as a restaurant critic than as a movie director Michael Winner, who used to write a restaurant column in the London Times. He also made a number of forgettable movies called Death Wish but forget about those. He famously was in a restaurant and so a very expensive bottle of wine at like 2000 pounds per bottle, he was an expert and he knew that he could sell those over 5000 pounds a bottle so he famously bought 10 of them. And again, that highlights that the restaurant is not segmenting their customer base, and potentially they're just not knowledgeable about what they're selling.

So with all of this yes there are tips and tricks with menu pricing as there are in pricing in general. But to make the most of them, to be strategic and make money from all of these things without gouging your customers and without underselling yourself, you've got to think about your customers and segmentation. Unfortunately, there's no silver bullet solution but there are things like those tips that we've just gone through like the psychological threshold, pricing and even thinking about the weight of the menu itself, apparently, people will buy more if it's a heavier menu. Things like that do work and have been proven over time but it's always better to think about your customer group in detail, rather than applying tips.

I'll finish up with an anecdote because I'm better at anecdotes than in actual detail sometimes. But infamous Parisian restaurants in years gone by, I don't know if this is true but the story was there were two menus one for the lady and one for the gentleman, and the lady's menu would have no pricing at all and then gentlemen had to face the pricing, obviously is 2020 and so that those times are gone. But the question I'd like to ask is if we could do a statistical analysis, if the lady didn't know what the price was, would she order more expensive products? or would she order less? And what would that say about the date and how much he liked the partner?

Good point Aidan, who knows it depends on where they are in the relationship, would she even bother? Would she even raise the comment? or would she just pay the bill herself nowadays?

Time has changed and it is now 2020 So yes, I suppose she would.

Alright well, I hope that's helped you learn a bit more about menu pricing, and we look forward to speaking again so thanks for listening and goodbye.