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Strategic Movements August 2019

August 2019 Pricing

Online Grocer Pricing

Thrive Market requires a $60 annual fee and offers free shipping for orders over $49. Public Goods requires a $59 annual fee and offers free shipping for orders over $45. Brandless requires a NO annual fee and offers free shipping for orders over $48. All three of these companies focus on house brands, more like an online Trade Joe’s than a Costco. This pricing structure is best known as a two-part tariff.  Which will survive the Amazon threat in groceries?

Pricing strategy in the online grocery store market

Price Evolution in the Electric Scooter Market

BirdOne by Bird is priced at $1299. Boosted Rev by Boosted Boards is priced at $1,599. At the opposite end, a number of companies are coming in at a much lower range: Xiaomi Mi can be found at $399.  Swagtron Swagger can be found at $349. GOTRAX Rival can be found at $349. And then Ninebot Segway is priced in the middle of the band at $799. Just like other markets going through the growth stage in the product category lifecycle, the prices and points of differentiation on electric scooters are showing a broadening in price points, not a race to the bottom. Choose your strategy wisely.  https://www.linkedin.com/pulse/price-evolution-growing-industries-tim-j-smith/

Pricing strategy in the electronic scooter market

Big-Food Takes Price Increase

Labor Department data indicates that restaurants have been raising prices faster than the general inflation rate. Both Coca-Cola and Pepsi reported revenue gains driven by price increases in the U.S.  Dunkin’ Brands reported that revenue increased as customers ordered more expensive espresso drinks.  Chipotle reported a 10% revenue increase driven largely by price increases. And The Hershey Company CEO Michele Buck plans to raise prices on chocolate by 9% this year after driving a 2.5% price increase last year on bagged candies. When price increases drive revenue increases, you know they were priced below the profit optimizing point. Will they raise prices further? That depends on when big-food will stop chasing revenue and start chasing profits. Something is very wrong with decision incentives when revenue, not profit, is the metric of corporate health.

Pricing strategy in the restaurants and food/beverage industries

A Price Collusion Allegation in Chicken that has Ramification for Every B2B Company in the U.S.

Tyson Foods, Pilgrim’s Pride, Perdue Farms, and Sanderson Farms are all dealing with federal allegations of collusion to prop up prices. Among the lines of inquiry are the use of industry benchmarking services to evaluate production and the use of industry price indexing. Competitive supply and pricing intelligence are useful tools for executive decision making. While some hanky-panky could have been going on, it is not obvious to me there was any wrongdoing on the face of the facts I hold (and based on what I have learned through the personal interactions I have had with some of the professionals at some of these firms). This is a story to follow as the production, purchase, and/or use of competitive intelligence is standard operating procedure at most well run companies and necessary input to making informed pricing decisions.

Pricing strategy in the restaurants and food/beverage industries

Diaper Upgrades

In July 2019, Kimberly-Clark rolled out a new line of Huggies diapers called “Special Delivery” that was priced at $24.99 for a 42 count package at Target.com. That is 59.5 cents per diaper. Alternatively, a shopper could buy 328 Parent’s Choice diapers for $36.08 (11 cents per diaper). How could Huggies price Special Delivery more than five times higher than the price of a competing alternative? Special Delivery has a positive differential benefit: these diapers are made from plant-based material. Meanwhile, Proctor & Gamble is working with Google to develop the smart diaper. It’s promised differential benefit? Technology within the diaper to track when a baby sleeps, urinates, or defecates.   David Taylor, CEO of P&G, stated “There is evidence that if you provide a meaningful benefit, consumers are generally willing to pay.”  Couldn’t agree more.

Pricing strategy in the diaper and baby products industries

Beer Upgrades

Anheuser-Busch InBev NV, the worlds largest brewer, reported Q2 2019 profits of $2.48 billion, up from $1.94 billion a year earlier. That’s a 27% improvement. Drivers to the improvement include: (1) volume increases in Europe, Mexico, Brazil, Columbia, South Africa, Australia, and Nigeria, (2) price increases in the U.S., and (3) marketing more expensive beers in the U.S. While I fear Anheuser-Busch InBev is more enthralled with revenue goals than profit goals, their actions in the U.S. demonstrate that Big Food can drive profits with better products and better pricing.

Pricing strategy in the restaurants and food/beverage industries

BlackRock Downgrades

A pricing war in the money management industry is taking a toll. BlackRock’s Q2 2019 profits fell 7% despite roughly doubling money under management in iShares Exchange Traded Funds (EFTs) to $36 billion. How can business be up but profits down? Simple. BlackRock chose not to charge for investing in many of its EFTs.  Many iShares are priced at zero or near zero. Even in banking, it is hard to make money if you don’t charge customers. I would have expected Laurence Fink, CEO, to know that, but we all have things to learn.



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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