Getting Hammered by Pricing

by Steve McCall, Vice President of Strategic Marketing

I was at an airport bar recently, drinking a pint that cost roughly the amount of money I have remaining in my 401k. While I would normally never pay $11.50 for a beer that didn’t promise additional flavor, a new life, or at least come with a burger, or SOMETHING, and I mean anything as an added benefit, a few things led me to this decision. First, I had just learned that I would be spending the next 4 hours in the airport, so I had some unplanned extra time on my hands. Next, the reason provided for my additional 4 hour wait was “mechanical issues” of the plane I was to later board, a detail I wish I had not been privy to. Lastly, in addition to being a rather large fan of beer, I had enough money in my wallet to pay for said beer.

In addition to this perfect storm of suds which had brewed up for me personally, there was something larger at play behind this lager pricing. It was either the beer speaking to me directly, or it was a flashback to a marketing class somewhere preaching about the economic theory of supply and demand. Of course they will charge $11.50 for the beer, because they know that air travel these days drives people to drink, and there are limited options at that moment in time when you find out that you will be spending the next 4 hours of your life in an airport waiting to board a plane, that may or may not get you to your final destination. While this is a relatively elementary example of the theory and the airlines have been operating on a pricing model built on up to the minute market factors for years, there have been some really interesting recent examples of product pricing on a micro level. Products priced strictly on a consumer generated cost, a number of specific market criteria at a moment in time, or via an escalating value scale for the consumer with an escalating price point. Worth checking out if you, you know, find yourself waiting for a plane some day:

Radiohead – Pay What You Want
In November 2007, Radiohead launched the album “In Rainbows” in digital format, with the offer to consumers to “pay what you want”. A groundbreaking model at the time, giving consumers full control of the price they wanted to pay for the album. From a sales perspective, there’s some interesting comScore data that suggests approximately 40 – 50% of consumers who downloaded the album paid some level of value for it beyond free. Since not much is known about the profits, it’s hard to tell how Radiohead fared with this model, which cut out the middle man/record label in the process.

Josh Frees – Former Nine Inch Nails Drummer
In all candidness, I had never heard of this guy before, but that is partially the beauty to the approach he’s taking to launch his new album, “Since 1972” via digital download. For the base price of $7, consumers get the digital download of the album and 3 videos. For $5,000 you get the album, a private tour of Disneyland, and to get drunk with Josh. For $75,000 you get the album, and Josh in your band for a month. There’s a lot of other rather funny pricing options, and while it’s not entirely clear if this is a real offer, or just designed to get publicity, it’s a very interesting concept.

San Francisco Giants – Dynamic Ticket Pricing
Based on a number of factors ranging from weather, to opposing team, day of the week, to starting pitchers, the San Francisco Giants this year will offer on demand pricing for 2,000 of their hardest to sell tickets at a cost anywhere from $5 to $50. I wonder if the beer price will fluctuate based on the score of the game?

So, particularly in a down economy, what types of things are you doing to ensure your product or services are priced appropriately? Are you conducting research to understand the consumer demand for your product? Brainstorming with creative people to generate new price-based promotional models? Developing the most cost efficient media plan? We’re always open to discussing and brainstorming new ideas, regardless of your category or industry. And the beer is always on us.