Price Right: Profits Right

In Conversation: Jon Manning & Michael Hardiman

Michael Hardiman runs a business called ZenBus Advisory, specializing in economic and demographic insights and forecasts for the retail industry and beyond. We sat down recently to discuss the intersection of his business and the world of Pricing. What follows is a transcript of that interview…

Michael: Can you tell us exactly what you do?

Jon: What I do is advise companies on their pricing, monetization and business model strategies. Pricing is the most powerful profit improvement lever any company, large or small, has at their disposal, and I assist in monetizing the value they provide via optimal pricing strategies.

A lot of people don’t realise that when you take a deep dive into pricing, it’s more than just the dollars and cents on a price tag. A pricing model is at the heart of every business model, and we all know what happens if your heart is not in good shape, don’t we?

Michael: What is some exciting work you’ve done recently?

Jon: I’ve done some work with FinTech and eHealth start-ups recently, and what has excited me about this work is the paradigm shift towards pricing that is happening in the start-up space.

There are so many start-ups founded by know-it-all under 25’s who don’t believe in investing in professional services (such as accounting, legal or coaching / mentoring services, or pricing advice for that matter), and are so emotionally attached to their product that they are blind to outside opinion that they might not be the world’s next unicorn.

The start-ups I’ve been working with recently understand how important pricing is. They know that one of the first three questions they are going to be asked when pitching to investors is “what’s your pricing strategy”, and they seek assistance earlier, rather than later, plus they listen, embrace and act on that assistance and guidance.

Michael: What are some challenges that you see often, and how do you help clients to get past them?

Jon: One of the common things I see is businesses not creating the right environment to support their pricing strategy. Put simply, if you want to charge five star prices, you need to have a five start environment, regardless of whether that environment is a retail space, a website or a one-on-one meeting or sales pitch.

An accountant I know recently said to me that he thought one of his clients, the operator of a health food shop, would benefit from some pricing advice. Rather than hound the accountant for an introduction, I decided to drop into the store and see for myself. The environment was very confusing, to say the least.

As I walked past the front windows of the store, I noticed the very ordinary, gluten-free chocolate Easter egg promo, featuring some pretty cheap crepe paper and not much else. “OK…this store is playing the price game” (like JB Hi-Fi or the Reject Shop), I thought to myself.

But then three feet down the first aisle I’m surrounded by beautiful products on wood-panel shelving. I could almost be in David Jones rather than JB Hi-Fi or the Reject Shop. But looking up, I see yellow and black signage telling me what products are in what aisle. Now I feel like I’m in IGA.

Maybe the price points will clarify what space this store is playing in. There’s a one litre bottle of camel’s milk left in the camel milk fridge. It’s $25 a litre. Now that’s pricing! But there’s also dried Juniper Berries (an essential ingredient for a Gin & Tonic Tart, which I’ve been looking everywhere for) for the bargain basement price of just $3.50.

At the back of the store, in one corner, a door resembles the entrance to a Godfathers office in the back of a Brooklyn restaurant, rather than the entrance to professional services suites upstairs. In the other corner is the ramp coming in from the car park…which would be great for ‘click-and-collect”, yet despite this store having a considerable inventory available to purchase online, there is no sign of omni-channel retailing here just yet.

Michael: We’re obviously big on using data here, how do you see businesses changing to take advantage of better information available to them? How do you help out in this?

Jon: Lets stick with the health food store, for the time being, to answer that question. They will have point-of-sale data and they will have eCommerce data from their website. They’ll be able to identify slow-moving and fast-moving items. They’ll be able to identify products they can increase the price of, as well as products that might benefit from a price decrease.

They may find similarities or differences in slow and fast-moving online items. They’ll be able to develop new metrics (e.g. look-to-buy ratios) and eventually they maybe able to establish a loyalty program as a stepping stone to personalized pricing.

“Personalized Pricing”, is one of the hottest topics in pricing circles at the moment, and its is facilitated by big data. We’re probably going to see this materialise in air travel or insurance first, before we see it in health food stores though.

Lets look at air travel first. For many years now, airlines have had these sophistical black boxes called Revenue Management Systems (RMS) that have ensured their inventory was optimally priced to minimize the consumer surplus (aka money left on the table) and maximize occupancy.

The problem was this was all about the inventory and had nothing to do with the passenger. Now, the airlines realise if they match their booking data with their frequent flyer and website data, they can start to provide a more personalized service to their passengers, including pricing. Now (finally), its not about bums on seats, its about who owns those bums.

In insurance, thanks to the proliferation of Location and Navigation (L&N) data and services, as well as the internet of things, expect to see house and contents insurance policies priced not just by suburb, but by side of the street and maybe individual property address.

Michael: Are there changes in your industry that are coming along?

Jon: I think the biggest change we’re seeing is the end of the era of fixed prices. Prior to the 1860’s, everything was dynamically price, because price depended on how well you could haggle with the store owner.

Then the Bon Marche Department store in Paris put all its goods on tables (rather than behind counters) for shoppers to inspect, as well as adding a price tag (so shoppers didn’t have to go back to the cashier and ask how much something was). This marked the start of the era of fixed prices.

Today, the internet is facilitating the return of dynamic pricing, not only in aviation, but also in accommodation, car rentals, adverting, ride-sharing, concerts and sports, toll roads, public transport, fast moving consumer goods…this list just goes on and on.

Michael: Thanks for your time, Jon