ALTI's Apprentice Boardroom Report For 4/29/05 (Episode #15)

Practical Lessons From The Apprentice
The Classic Battle Over Price: How To Select The Best Pricing Strategy

The final four candidates in Donald Trump's 16 week "job interview" and reality TV series, The Apprentice took on their 14th task in this weeks 15th episode.

AudioReactions
Allan's 2
Why Alex Was Fired
running time 3:45


Fantasy 
Game Analysis
Strategies for Episode Sixteen
running time 4:02
Syndicate This Site


LiveMessage Alerts





Subscribe in NewsGator Online


I Want Your Feedback
Call The Voice Mail Feedback Line...
(800) 598-1338 
ext. 9915
or
 

 

Go Back to 
ALTI's Insights 
Past Issues
Episode # 1 
(Burger King)
Episode # 2
(Hotel Renovation)
Episode # 3
(Nescafe Promo)
Episode # 4
(Dove Commercial)
Episode # 5
(Business on Wheels)
Episode # 6
(PlayStation Graffiti)
Episode # 7
(Mini-Golf)
Episode # 8
(AIDs Celeb Auction)
Episode # 9
(recap - no news)
Episode # 10
(Home Depot Clinic)
Episode # 11
(Domino's Pizza)
Episode # 12
(AE - Wearable Tech)
Episode # 13
(Pontiac Brochure)
Episode # 14
(Staples Office Organizer)
Episode # 15
(Hanes T-Shirt)
Not Getting Our Newsletter?
Sign-up here to get updates, news, findings and ideas in your inbox.
First Name
Email Address
 

The task was to work with highly recognized pop culture artists to create a commemorative 50th anniversary t-shirt that celebrates its role in pop culture for the Hanes Shirt Company (with sales over $2 billion annually). The winner was determined by sales and thus the key to success would rest on marketing, promotions, and pricing. Neither team executed flawlessly, and in fact the winning team could have won by a greater margin with a better pricing strategy. I have pulled together some practical pricing lessons that you can apply to your business today.

--- SIDEBAR ---
Listen to my brief audio analysis that exposes why the fired candidate would have been better served to focus on winning as opposed to banking on someone else's failure plus some more great practical tips that just might keep you out of the boardroom. 

PRACTICAL PRICING STRATEGIES
My father used to tell me, "The price is whatever someone is willing to pay". Which is very true, and when the goal is to optimize sales, the price is whatever will yield the greatest revenues. This is where we get into various pricing strategies, when applied to the right situation, can maximize revenues.

Applying Pricing Strategies
The key is to effective apply the appropriate pricing strategies to maximize sales, profits and return on investment. To do this, you must have absolute clear understanding of your market, your product, your costs and your competition.

Let's have a look at some pricing strategies and try to understand the best strategy in various situations.

Premium Pricing
Use a high price where there is uniqueness about the product or service. This approach is used where a substantial competitive advantage exists. Higher prices are charged for luxuries such as Lamborghini high performance sports cars.

Penetration Pricing
The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. AOL used this approach in order to attract new online customers.

Economy Pricing
This is the no-frills low price. The cost of marketing and manufacture are kept to a minimum. Supermarkets often carry generic brands economically priced. 

Price Skimming
Charge a high price when you have a substantial competitive advantage. However, if the advantage is not sustainable, the high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital calculators used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and calculators were produced at lower unit costs, other marketing strategies and pricing approaches were implemented.

 

Your Turn... Have you taken away any valuable lessons from watching The Apprentice?  
I'd like to hear your feedback. Just call the Apprentice Feedback voice mail line (800) 598-1338 ext. 9915 or email
If you make a good point you could be featured in this newsletter. 

Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. However there are other important approaches to pricing as follows:

Captive Product Pricing
Where products have complements, companies will charge a premium price when the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades that fit the razor.

Geographical Pricing
Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.

Optional Product Pricing
Companies will attempt to increase the amount customers spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example automobile manufacturers charge for optional extras such as leather seats, sports detailing and high performance tires.

Product Bundle Pricing
Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach.

Product Line Pricing
Companies will use product line pricing where there is a range of product or services the pricing reflect the benefits of parts of the range. Car washes use product line pricing where the basic wash is $4, wash and wax $6, and the whole package $8.

Promotional Pricing
There are many types of promotional pricing strategies; most are typically designed for short-terms sales boosts for a variety of reasons. Some examples of promotional pricing include BOGO (Buy One Get One) and discounting through one day or white elephant sales. 

Psychological Pricing
This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 99 cents is not one dollar.

Value Pricing
This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at fast food chains.

--- SIDEBAR ---
Neither team effectively used pricing, Kendra understood the promotional value of her product by tapping into the artist's collectors and touting the "limited edition" nature of the shirt, however, failed to translate that into the appropriate pricing strategy which would have been a blend between premium, promotional and psychological pricing.  

Tana understood the premium value of her shirts, in fact might have priced them a touch too high.  However, her failure was more directly related to poor promotions and marketing.

My research indicates "collectable" t-shirts start at $30 and climb to $50, Magna could have set the shirt price to $38.99 and the long sleeve to $48.99 to evoke the collectable premium, and the psychological pricing strategies.  Further, I would have used the promotional strategy to encourage greater sales volume, with a "buy a second shirt for $10 off" promotion.

The promotional strategy would resonate with collectors who understand the principal behind "limited editions" and would encouraged to sell out the edition and reap the reward for their investment.

Using all three strategies, in conjunction with their marketing efforts, its very conceivable team Magna would have sold slightly fewer shirts, but would have increased revenues by at least another 25 to 30%.

The consequence of not applying appropriate pricing could have meant a trip to the boardroom, however in your business, could mean thousands of dollars in profits!


Shameless Plug: 
Have you thought through your pricing lately?  
Are 20% (or more) of your profits slipping through your fingers? 

Consider retaining ALTI's team of specialists who can objectively review your pricing strategy and make suggestions to improve pricing to yield greater profit retention. To get started give us a call or shoot us an e-mail for ONE free hour of complimentary consultation. (206) 984-9560 or

Its nothing personal, its just business...

Marketing - Management - eBusiness - Funding - Strategies

Web:
 http://www.ALTIconsulting.com
Phone:
 206-984-9560
Fax:
 775-261-2477
E-mail:

© 2002, 2003, 2004, 2005 ALTI Business Upgrade Consulting - all rights reserved