If you’re thinking about making a major change in your pricing, products, merchandising, or store operations in a retail chain, it makes sense that you would want to find out first if customers would like it.

One obvious approach would be to do focus groups and surveys to find out what customers say they want. The problem is: often what customers say they want does not predict well what they will do in real life when faced with a change in the prices or products they see in front of them. For instance, customers often say they would like more healthy options on the restaurant menu, but then when they’re actually making a purchase decision, they go for the bacon cheeseburger over the salad.

The solution is to conduct a controlled experiment. In this week’s episode I dive into how we conducted controlled experiments in the Quick Service Restaurant industry, and what sort of considerations you might take into account if you’re trying to figure out testing in a retail environment.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.pricing-evolution.com

In today’s episode, I talk about the challenge faced by retailers — from fledgling startups to large Consumer Packaged Goods brands — trying to sell through Amazon when Amazon simultaneously wants to match the lowest price available through brick and mortar retailers and also receive a low enough wholesale price to compensate them for their shipping costs to consumers.

The issue that that the consumer actually does some very valuable work in picking up the shelf from the store shelf and driving it home. You can see this if you look at the cost of having a gig economy driver go pick up that product at the store for you and drive it to your porch.

Amazon is trying to recoup the cost of taking your product off the warehouse shelf, putting it in a box, and sending it out with a delivery drive to be dropped at your door. For a consumer packaged goods type item, that can easily cost 30% to 40% of the retail price of the item. And yet, the customary prices in retail stores are not designed to cover such heavy delivery costs.

The solution is to differentiate the product you sell on Amazon from the one you sell to retailers, such as having a larger multi-pack size you sell on Amazon.

Tune in to hear all about it.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.pricing-evolution.com

Companies often claim that they are disrupting some particular market, however in his classic book The Innovator’s Dilemma, Clayton Christensen talks about market disruption in a very specific way that has a lot to do with pricing.

Market disruption is when a new player enters a market with a new product which is lower quality than the dominant products, but still good enough to meet the needs of some current or potential customers. However, it’s also much cheaper than the existing products.

At first it seems to the dominant players in the market like this entrant is no threat because their product is much lower quality and they are only picking off the least profitably business in the market. But as their technology improves, the take over the whole market.

I discuss some of the classic examples from Christensen’s book, talk about personal computers disrupting the market for mainframes and minicomputers, and then branch off into something Christensen doesn’t talk about: the disruptive effect of Chinese manufacturers on the US manufacturing market.

Here the disruption is cost based, not technology based, and I talk about some ways the US manufacturers might fight back against that threat with their pricing and value positioning.

All this was in part inspired by all the discussion of tariffs the last couple weeks. If you’d like to read my recent article on tariff pricing, you can see it here.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.pricing-evolution.com

A listener asked why video game makers sometimes discount as much as 50% to 75%. Are they making money? Why don’t they just lower the everyday price?

I’m not a video game player myself, but I enjoyed diving into the research about how games are priced.

In this episode I talk briefly about the “freemium” model that many mobile games use, where the game itself is free but the user is then encouraged to make in-app purchases.

I chart out the lifecycle pricing which major video games follow, and how that lifecycle varies for successful games like Elden Ring vs less successful ones like Battlefield 2042.

Then we discuss lifecycle pricing (and discounting) is different for a product like a video game which has no or low margin cost as compared to other product that have lifecycle pricing such as fashion, home goods, and electronics, but where there is still a significant cost to manufacturing more units to sell, even as the product moves into the lower priced later stages of the lifecycle.

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This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.pricing-evolution.com

How did mega-bookstores disrupt the world of local bookshops only to be destroyed in turn by Amazon?

How did we reach a point where the #1 selling book on the Amazon kindle store was not published through a publisher?

The travails of the modern book industry have a lot to do with pricing. In this episode, I look at the multiple pricing driven disruptions of the bookselling and publishing world.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.pricing-evolution.com

OpenAI’s pricing was in the news last week, after CEO Sam Altman admitted on X that he had personally set the price for the company’s Chat GPT Pro package at $200/mo, and that he was surprised to discover that they were losing money on it.

Many professional pricers questioned both why the CEO was personally setting prices and also why the company was not using a pricing model which billed more directly for usage rather than offering a virtually unlimited top tier for the relatively modest price of $200/month.

But OpenAI is not just pricing a product, they’re trying to nurture a whole new industry. The viability of AI will be determined not by what OpenAI charges for the top product tier right now, but rather how quickly other businesses using the OpenAI platform develop new products that produce huge amounts of value. Once there are thriving industries making money from OpenAI’s products, it will be easy for them to charge those customers based on the value they are getting. But until customers spend enough time with OpenAI’s products to figure out how to make lots of money using it, OpenAI will have limited ability to truly monetize their products.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.pricing-evolution.com

In Episode 2, I expand on my explanation of the three layers of pricing: Macro, Strategic, and Transactional

These were the topic of a recent text post: Three Levels of Pricing

However, I expand the the discussion in the podcast and use additional examples. If you haven’t had a chance to read the post, this a great chance to catch up on it. But if you have, I don’t think you’ll find it’s just a repeat.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.pricing-evolution.com

In the first episode of the Pricing Evolution Podcast, I tell the story of how I went from a Classics major studying Greek and Latin to a VP of Global Pricing.

I also talk about why I’ve come to love pricing and you should too: because in order to do pricing well you need to understand both how your own company creates its products and also how much value those products truly deliver to customers.Posts you may find useful in reading more about these topics:From Classics Major to VP of Global Pricing

Why I Love Pricing

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This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.pricing-evolution.com