September 07, 2015

Price


Sure, the paper folks were protected (just read any catalog trade article for examples of paper folks protecting their interests) ...  but customers said "no no no". As the price of an e-book closed in on the price of a physical book (omnichannel pricing strategy, no doubt, prices need to be the same in all channels), customers cut way back on the purchase of e-books. Ooops.

Customer spend is truth. If customers aren't buying, then the customer isn't the problem ... we're the problem. Yup, us!

So we learn that if we raise the price of a digital good, customers spend on the digital good decreases.

One of the most common outcomes of a Merchandise Forensics project looks like this:
  1. A catalog business struggles.
  2. Cataloger doesn't want to raise prices.
  3. Cataloger introduces new items that are more expensive, a version of price increases subject only to new merchandise.
  4. Customers don't like expensive new items, customer doesn't buy them.
  5. Cataloger must discount/promote to move inventory.
  6. Customer gets used to discounts/promotions and the deflationary impact on pricing.
  7. Cataloger raises prices on new items to overcome discount/promotion impact on gross margins.
  8. Fewer new items succeed.
  9. Cataloger has a long-term new product issue, which greatly hurts merchandise productivity.
  10. Only the long-time winners work - further driving the customer base older and older - further pressuring sales as long-time winners slowly die.
Your pricing strategy yields a lot of unanticipated consequences. Be sure to thoroughly analyze multi-year trends. Use the trends in other industries as a cautionary example of what happens when you want control over the customer experience.