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Strategic Movements April 2019

April 2019 Corporate, Pricing

Kia Niro EV Takes Lead on EV SUVs over Tesla

The 2019 Kia Niro is an EV (electric vehicle) SUV (sports-utility vehicle) fit for the family, according to Dan Neil.  Expected Price of $37,495 prior to the $7,500 federal tax credit in the U.S.  Features: sunroof, parking sensors, heated/ventilated leather front seats, navigation and infotainment. This is much cheaper than the touted Tesla SUV, and is one of many products sold by a relatively profitable company.  Tesla will have to share the road with others …

Ford Is Also  in the EV SUV Game

Ford is gearing up its Flat Rock, Michigan plant to produce an EV (electric vehicle) SUV (sports-utility vehicle).  Intended sale date of 2020.  This is market is hot.  Good luck Joe Hinrichs, President of Global Operations.

Andrew Choe Cleans a Mess

StarKist Co. settled with Kroger Co. last month, admitting that it conspired with other companies to raise prices on canned tuna. This comes after it settled with Walmart for $20.5 million.  A similar settlement also was struck with Target.  And, StarKist faced a a potential $100 million U.S. Federal fine for violating the Sherman Antitrust Act. Simple rule to follow in the U.S. and E.U.: don’t price collude, and don’t let your employees price collude. Expensive mess Andrew Choe had to clean up.  (Andrew Choe became CEO after the period when price collusion occurred. Good job Choe!)

General Mills Priced for Profit over Volume

General Mills posted profits of 83 cents per share, above expectations of 69 cents per share. How?  They raised prices on some well-known products. Downside: those products lost volume. Not surprised by the the economic elasticity of normal products, but by the willingness to focus on profits over volume. That is usually hard for managers to do even though it is usually the best decision.  Well done Jeff Harmening CEO.

Rafi Mohammed’s Value Barometer

What generates value?  What detracts value?  Basic questions.  Rafi Mohammed offers a “Value Barometer” in thinking about Good-Better-Best versioning in his September-October HBR article.  It’s a decent template to get your mind thinking.

AttributeGoodBest
VolumeLowUnlimited
ServiceBasicHigh-end
ExperienceRegularOver-the-top
Time PeriodOff-peakPeak
Waiting TimeStandardNone
SpeedSlowFast
BrandGenericDifferentiated
WarrantyLimitedExtended
Number of RestrictionsHighNone
RelationshipDistantClose
CertaintyLowGuaranteed
FlexibilityLowHigh
Skill LevelBasicExperienced

 

Incremental or Big Bang Innovation?

Marcel Corstjens, Gregory S. Carpenter, and Tushmit M. Hasan took at look at R&D expenditures against revenue growth. Their finding: A Lorenzian Strategy of taking small investments “on marginal improvements in their most valuable brands, aimed at solving real consumer problems, that consumers value and would pay a little more for” deliver a positive correlation between R&D spend and revenue growth.  Large investments on major, blockbuster innovation, however, did not have a material impact on future revenue. Key moderating factor: culture. “When R&D has a respected voice and collaborates with marketing, firms have more success with innovation.”  In the game of turtles and hares, Aesop bet on the testudines.

Stack or Bundle those Discounts?

Should you stack discounts (10% off on top of a 20% standard discount) or have a single discount (28% off)?  Research on retail jewelers found: Stacking increases sales but also increases returns, making stacked discounts overall less profitable. “On the profitability of stacked discounts: identifying revenue and cost effects of discount framing,” Necati Ertekin, Jeffrey D. Shulman, and Haipeng Chen, Marketing Science.

NYC Congestion Pricing

‘Bout time…yet unknown when. Congestion pricing has long been supported by economists as an efficient and effective means to manage street traffic in major cities.  Democratic governments have been reluctant, fearing public revulsion and non-reelection. Andrew Cuomo and Bill de Blasio have found the backbone to support it in one of the worst congested cities in the U.S.: NYC.  Now they are quibbling about the price and implementation.  Announce implementation time:  2021.  Expected implementation time: A known unknown.

Whole Foods Price Cut

Amazon plans to cut prices by an average of 20% on more than 500 select items at Whole Foods in the spring of 2019 to compete with Walmart and Kroger. “Yea! Lower prices on premium groceries,” I say as a consumer.  “Boo, more bad pricing in Amazon retail again,” I say as a pricing professional.  Have you noticed that neither Bezos nor Elon make money in their core businesses, but both are making rockets to go to outer space?  Forget the corporate jet as an indicator of executive excess.  These guys are to the moon, and beyond.

Insurance for Rims?

With car dealership margins shrinking on their core value proposition due to online shopping and price comparisons, dealerships are now loading on the extras: Car loans and extended warranties. Sales of extended warranties by dealers were up from 40% of new car buyers in 2013 to 46% in 2018.  Average financing and warranty margin: $908 per car.  Average dealars car margin: $420.  No wonder they delay the paperwork in the finance office as they go through a list of options.



About the author

Tim J. Smith, PhD is the Managing Principal of Wiglaf Pricing, and an Adjunct Professor at DePaul University of Marketing and Economics. His most recent book is Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures.

Tim J. Smith, PhD
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