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The Ford Files - (Mis)Understanding Market Pricing - February 2024 Edition

The Ford Files – February 2024
“(Mis)Understanding Market Pricing”

Dear Readers, I must confess that I am sometimes confused as to how, what, and why some consumer pricing strategies are formulated. I get volume discounts. I get seasonality. I get the supply versus demand relationship. But occasionally, I’m just dumbstruck… there isn’t any obvious logic or rational explanation. That happened this week at a home improvement retailer, where I purchased a gear tie (see picture). I bought the 12” model because it COST LESS than the 6” model. This was not a special, a discontinuation, overstock, or anything like that. The model that used twice the materials cost less. Wassup wi’ dat?

Anyone besides me admit to “skip lagging”? That is when you buy a multi-stop flight because it is cheaper than flying direct, and then skip the second flight, because you only intended to go to the connecting destination. I recall doing that when booking a flight from Binghamton NY to Richmond VA that connected through Dulles. I ditched the second flight because my intent was to go to DC only. But it cost LESS to fly to Richmond than to DC. Go figure. A buddy and I once did the same thing when flying from upstate NY to Houston TX, where we planned to meet his mom and drive her back to NY in her car. It was cheaper to book a roundtrip flight than just to Houston, so that’s what we bought. Hope they didn’t hold the plane for us (they never do when I am late!).

I recall a comedy skit from a Bill Cosby record (LP, vinyl… young folks google this) in which Cosby was ranting about the price of room service breakfast at a hotel. He could not believe a one-egg breakfast cost $9.99 (1960’s pricing my friends). Cosby riffed “that egg better show up with a song-and-dance routine, for ten bucks I’m getting entertained!” More shocking was that a two-egg breakfast cost $10.99, only one dollar more. Cosby wondered… “what the hell is wrong with the second egg???”

I recently booked a flight and hotel for an upcoming conference in Orlando, specifically in the Disney Resorts neighborhood (read: $$$). The internet offered several cheap direct flights by discount carriers such as Frontier and JetBlue out of Syracuse, 75 miles from my home. But I knew from experience there is a price to pay for being cheap: charges for seat selection, carryon bags, and checked bags. Not to mention that flying on a discount carrier is the high-altitude equivalent of riding Greyhound. I instead selected Delta out of Binghamton (10 miles from home), which involved a connection through Detroit, but overall would add a bit more cost and only a little more time, for a much better experience.

Last week I delivered a full day workshop that was covered by a grant, meaning it was free to eligible attendees. As is typical in this scenario, several registrants were no-shows, some were late, and some left early. They lacked the proverbial “skin in the game.” The best attendance, and best effort, that I have witnessed in my training classes is when participants pay out of their own pocket. When the company pays, the effort and attendance is somewhat variable, depending on the learner’s motivation. But when it is free, the perceived value is zero.

Joe Shedlawski and I noticed this when we were on APICS Region 2 staff, in the positions of Region VP and Education Director respectively. We were responsible for scheduling instructor development workshops such as Train-the-Trainer, which historically cost $50, just to cover the book. We recognized the value perception that was implied and jacked up the price to the $350-$400 range. It worked great!

This was like my experience as Education Director for Southern Tier APICS, based in Binghamton. When I first got involved, we were charging only $150 for a ten-week certification course and drawing low attendance. Eventually we doubled, and ultimately tripled the price… and attendance increased! The value perception!

Yours in ASCM,

Ford

Ford is here to help. If you have any follow up questions or comments, or if you or your company are facing any unresolved challenges, feel free to drop me a note at [email protected]