One area of pricing strength

While the economy as a whole risks deflation, there was one area with strong pricing power. According to PNC's annual survey the cost of hiring lords a'leaping, buying partridges, pear trees, and other accoutrements of the 12 Days of Christmas rose 8.1% to $21,080. The swans account for about 25% of the overall cost, which leads me to ask "does your true love really want swans?" They look nice, but they are tempermental. And who wants to clean up after them? Notably, if you want to avoid the malls and shop online, the cost is over $30,000, driven by shipping charges, and perhaps convenience pricing.

2008 was a wild year for pricing. Surging commodities prices were threatening to drive companies out of business if they could not pass along the cost increases quickly enough. Then, just when some businesses were getting around to passing along some of those cost increases, the financial meltdown sent commodity prices tumbling.

One of the critical issues for 2009 will be how business handle this type of volatility. In general, we expect a tough environment with soft demand, but businesses will need to capture differential value when the opportunities present themselves. Companies that have done an about-face on price increases and are now locked into bargain mode will have trouble doing this.

You need a strategy to guide actions that will impact every part of the company. You don't want one group in fire-sale mode and another in value-capture mode. Everyone will end up unhappy.

You need the analytics in place to monitor what's happening and alert you to situations that require course correction. This could be a price change, a surcharge adjustment, changing discount guidelines, or just a warning that certain pricing policies are not performing effectively. In some cases, you can change the price, in other cases you will need to make deeper changes in product offering or customer interaction.

And of course, you need a process to make it happen.

Thank you to all of our customers who have made 2008 a successful year for Mimiran. We are happy that our efforts helped make 2008 more successful for you, and will better prepare you for 2009.

Happy holidays!

The real end of the line for airline fees

Back in August, I wrote a post titled "What Other Fees Can Airlines Charge?" Well, as several alert readers pointed out, The Onion has the ultimate answer.

When it comes to airlines' pricing power, the good news is that the economic meltdown has slashed the cost of fuel and should lead to lower costs as current fuel contracts expire. The bad news is that the economic meltdown means fewer people want to fly. I think we'll see some lower fares, and even lower fees. While charging customers extra to check bags makes sense at a certain economic level, it hits price sensitive leisure travelers harder than business travelers, pushing them to airlines like Southwest, which proudly advertises its "No Hidden Fee Zones". While the major carriers make the bulk of their profit on business fliers, they still need the incremental revenue from leisure travelers to be in the black.

Pricing Lessons from the Detroit Bailout Fiasco

With consumers shunning gas-guzzling SUVs and easy financing gone the way of $1.00/gallon gas, Detroit is in trouble. Some people have called for government intervention. Others have suggested that the best thing to do is allow the big carmakers to go bankrupt. (Mitt Romney managed to do both, naturally.) The policy debate aside, what pricing lessons can we draw from this debacle?

First, if you don't understand what customers value in your car market, you are in deep trouble. The Big Three carmakers are called carmakers for a reason. Their primary market is cars. However, the massive profits from trucks masquerading as SUVs covered up for a lot of sins. With a few exceptions, Detroit didn't make cars that people really wanted. Unlike Toyota and Honda, which managed to make Corollas, Camrys, Civics, and Accords perennial best-sellers (and money makers). Fixing this is about fixing the culture at the Big Three, which could take volumes.

Second, if you look at a report of your promotions over time and you see a line that goes up over time, that should be a big red flag that you have to deal with point number 1.