Setting prices have always been a breeze for us ever sinc we started the business.  I never could recall us working on executive committee meetings and discussing how we set prices.  For most items, we had a standard cost plus some markup which was set by people not even in the managerial level.  Most of the time, if mention were made on prices, it was generally on feedback that either some models were hitting end of life ( new models coming out) or our competitors were aggressively pricing certain products, and in response we would approve some markdowns.

However, as we expanded the business especially unto retail, we have started to understand more about pricing as a competitive strategy, and I found myself recounting a favorite comics strip I saw about 25 years ago during my high school day which I believe highlighted much of what price setting is all about.

The main character in the strip had just procured a lot of great artwork for $25, and he proceeded to display his wares at the marketplace and selling it for $35 apiece.  After a few days he was hardly moving the merchandise, and in desperation, he decided to try a different tack.  He put the price up to $80, and then scratch it out, and marked it down to $55.  After doing so, the artwork started selling briskly.  He not only increased his profit per piece, but he was able to sell them much faster!

Here is another piece which talks about how to set prices using a new breed of price optimization software, but generally, I would like to recount also their  example on price setting.

The store was selling three different power drills:  an entry level one for $90, a mid range one for $120, and a top tier one at $130.  The price conscious people went a lot for the $90 model, while the customers who wanted the best got the $130 one.  The $120 one was hardly moving.

After much debate, they decided that the middle drill be sliced down to $110.

By pricing the mid range at $110, they were concerned that it made the top drill seem more expensive, but it was not affected.  The drill aficionados were fine shelling out $130 and continued to get the top model.   However, by pric ing down the mid range, it did made the entry level drill seemed less of a bargain, and more and more people were fine putting out an extra $20 for the slightly better model.  As a result, the store purportedly sold 4 percent fewer entry level drills, but 11 percent more of the mid-range, and thus profits overall rose.

Is price setting an art or a science?  The article recommended buying price optimization software to maximize that. Of course, we all know that when you buy airline tickets and/or hotel nights, you are endlessly bombarded and seduced by variable pricing optimization software that seemingly crank out bargains and changes every minute.  But maybe we always thought it did not apply to our business, but maybe it does.  In almost all industries, effective pricing strategies is certainly turning out to be one of the most important competitive weapons a business should wield!   Maybe if you have not, high level meetings should more frequently discuss and review with how you price your products and services.

Related Posts:

- Profits Straight to the Bottom Line 

-If Somebody Bargains … 

- Necessity never Made a Good Bargain     

I got this cool quote from an ad of a local japanese restaurant Mizu, which had its Japanese chef Ken Imamura prominently announcing:

“I create original, delicate Japanese dishes, Because I Ken.”

This is an interesting insight…  Sometimes, we see so many women in dept stores that we tend to think otherwise, but according to this article, women still earn only 77% of what men got, though this is an improvement over 1985 when women on average earned only 65% of what men get.

Yes, they spend more on clothes and personal care, but men tend to spend much more on other things.

Lay Off, Suze Orman! | TIME

                                 Men Women
Car ownership            $2,000 $1,154
Eating out                  1,847   1,095
Entertainment             1,459  1,075
Clothes and related       823   1,069
Audio and visual           632     489
Personal-care products  196     458
Alcoholic beverages      501     221
Tobacco and smoking    266    137

Source: Bureau of Labor Statistics

I had always told myself as a writer that the last thing I do is to use my writing to rant, or say something negative.  I had always thought myself that it is still good fashion to be a gentleman, and if you don’t have something nice to say, it is better not to say anything.  So I think when I complained generally on attitudes of impolite sales people or cab drivers,it was generally because as a tourist visiting the Eastern United States, I encountered some amount of discourtesies.

This is especially true in areas where there are a lot of tourists, and the shop people or cab drivers in general know that they may never do business with you again anyway.  I can give in that many of them are very pressured or harassed by sometimes insensitive tourists asking somewhat stupid questions as well, but I would rather think also that we always remember that as a rule, our best character is showed by our ability to inconvenience ourselves to convenience those who may never be in a position to return our favor or who may never do business with us again.

At any rate my wife just returned from thailand, and related to me with much indignation something she experienced in a fruit market in Thailand.  She went to buy some fruits, and even carefully selected these.  The shopkeeper got the selected fruits from her, and weighed it.  She even offered to put in 4 pieces for free.  Apparently whileshe was counting the money, the shopkeeper ( who looked like a nice old lady) switched her bag of fruits in the package with another package which contained the same fruits, but almost rotten.  So when she reached back her hotel, she found out to her indignation that she has just paid for  a bag of rotten fruits.  Only the 4 pieces the shopkeeper offered to add for free was any good.

I can imagine the shopkeeper. Probably she ended up with some rotten fruits she could not sell, and knowing some customers to be tourists, she apparently saw no damage to pass on these rotten merchandise to somebody who may never returned, or who may not take the trouble to complain, and just call it a bad day.

How about you.  Have you similar experiences, in which you feel you just had nowhere to go, and just bear it?

Here are the top 500 franchises for 2007 as per Entrepreneur.com

Top Franchise Opportunities

The top is Subway, and the second is Dunkin’ Donuts.

I guess one of the most complained about aspects in visiting many cities are the discourtesies of taxi drivers.  This is prevalent whether it is New York, Manila, or any major cities, especially cities with a heavy component of tourists.

The question, I think, is what motivates them to be courteous?  What does not motivate them to optimize and ask as much as they want to?  Should they care about customer satisfaction? In that business, there is probably no repeat business - especially in tourists areas where you practically deal with a person you may never meet again. 

If you are a manager, or owner of such a business, and you still believe that customer satisfaction count, how do you manage the people so that they will be courteous and customer centric? 

She spent a lifetime earning and accumulating her wealth.  Maybe she hardly spent a few moments thinking what to do with it.  Being able to be blessed with wealth means you have to be more careful in responsibly using it in giving back.   

Isn’t that story a familiar refrain for many of us who similarly was not able to do it well?

Asian tycoon left legacy to fortune-teller: report

Asia’s richest woman left her wealth to her fortune-teller in her last known will, Hong Kong media reported Thursday, predicting a costly legal battle to control her multi-billion-dollar estate.

Nina Wang, who died aged 69 earlier this month and had no children, left a legacy estimated as worth at least 4.2 billion US dollars after transforming her company Chinachem into a real estate empire.

I noted this quote from Fortune Magazine on a special report on technology outsourcing to Novosibirsk, capital of Siberia.  It shows probably that some of the biggest decisions in corporate thrusts may come from subjective street smart generalizations.   The quality of the decisions of course will hinge on how these perceptions converge with reality.

“Inside Intel, we have an expression. If you have something tough, give it to the Americans. If you have something difficult, give it to the Indians.  If you have something impossible, give it to the Russians.”

Steve Chase, President of Intel Russia.

This was an announcement I gathered in an IKEA store.

Simple and effective. Obviously a business has every interest to smooth out peak traffic and lean hours.  It should constantly advise people to patronize the store when there are least number of customers.  Much akin to Happy Hour in many bars.  However, not a lot of businesses do that.

IKEA does this very effectively.  Why don’t more stores do it?
 

The last two weeks I have been on a trip to the US East Coast and have not updated my blog as much as I wanted.

Anyhow, just a short note and query.  I am sure American drivers will know what to advise me on this one. I was with some friends driving through the US freeway, which has a speed limit of 65 mph.  At any rate, they said that I could go as fast as 65-70 mph legally which I did.  But they also asked me to do something which I did not quite comprehend.  They say the innermost lane is supposedly a fast lane, and is to be used only when you overtake cars.  So I should not be in that lane constantly.

But if I am going to already as fast as the limit allows me, should I still allow or expect other cars to overtake me?

So, if I am going almost 70 mph in a 65 mph speed limit zone, do I have the right to drive in the innermost lane all the way?