Pricing Kudos to Two Industries

Last week was a travel week for some family business.  So, this morning is “writing catch up”.  There were quite a few pricing articles in The Wall Street Journal and there are two that are worthy of a brief mention.

In Recession Specials, Small Firms Revise Pricing points out that “discounts and lower-end offerings” improve the performance of small firms.   What the article really talks about is that small businesses have flourished even in a downturn when they continually innovate their offering and look for ways to offer low value flanking products.  One example was a limousine company that expanding their offering to include larger capacity vans–smart move?  Yes.  But that is an offering move more than a pricing move.

Small firms can move fast, even in a downturn.  But, even big companies can learn from them.  Continually evolving the offering (remember–Innovate for Growth?) provides the revenue and profits needed to survive in a downturn and flourish in an upturn.  Don’t be afraid that you’ll canibalize your offering–be afraid that other firms will.   What the large firms need to do is to constantly anticipate the need to evolve so that they can move fast when they have to.   Failure to do this leads to the pricing death spiral that we see so many firms in today.

Fixed Costs Chafe at Steel Mills talks about how stainless steel makers have finally learned that price discounting in a downturn doesn’t work–it just chews up profits and doesn’t provide more revenue.  And, it leads to going out of business.  The six primary players have moved in lock step with price increases during the downturn.  Customers have accepted the price increases because they have heard about the high cost structure and the need for lots of process improvements in their suppliers.

This is a great example of the major players in an industry recognizing that price competition would be devestating for all.  And that not competing on price would be good for all.  To support that end, the major competitors spend a lot of time communicating about how their costs are going up.  When they increase prices, they pre-announce the move so others can follow.  It’s a great example of an ideal point for pricing communications systems that we talk about in Rule 7 of our book Pricing With Confidence.   The intent of such a system is to be able to better accomodate the need for smart pricing moves and pricing communications in highly competitive industries–especially ones that are going through dramatic downturns.  This article is a great example of firms that are doing just that and are using the press to signal both their concerns and their moves.  I should point out that while it is illegal to “conspire” to fix prices with competitors, it is perfectly legal to communicate your pricing intentions to a market which includes competitors. 

My guess is that the Justice Department will look at this one since uniform moves like this, also called conscious parallelism, is often an indication that illegal activities might be taking place.  My hope is that there isn’t and that this is just a great example of good competitive pricing strategy.  Thanks to Dave Phillips for forwarding this article.