And now Price Match Guarantees at JCP

JCP recently announced a change in its pricing strategy, which now includes a price-match guarantee.

I see two basic issues in taking this approach:

> I don't know how much the customers will trust Price match guarantees, especially when the items you are dealing with are NOT "signpost" items. Certainly such guarantees work very well with competition, as you want to signal to your competition that any price reduction war by the competition will be matched. It's a clever strategy when you yourself don't want to go low price / price war route. But hey, here JCP is the company that is going the low price route.

> With Price Match guarantee, JCP is making a conscious choice of attracting price sensitive customers -- who rank very low on loyalty. The stores will have to rely on volumes, and PMG will probably assist towards it. But now the stores will get crowded with not so profit generating customers, and due to factors like "butt-brush" effect, the experience conscious customers will seek other avenues.

Some of the pricing experts have expressed that JCP's strategies are turnaround, courageous, revolutionary, decisive, etc.; certainly JCP's strategy is very bold - as it challenges some of the traditional wisdom. I am now very curiously looking forward to Q2 and Q3 results.

Pay What You Want - Is it Honor Code that makes this work, or is it something else?

95%+ students participate in some form of Plagiarism during their academic careers. This statistic holds across the globe. Some even argue that this number is in excess of 99%; honor codes exist in books, in real life it's a wishful thinking.

Wait a minute, I am not saying that Name your own price, which is more commonly referred to as pay what you want (PWYW) is a bogus concept. There are several examples of companies that have successfully used this approach; certainly there is more than honor code to it. Restaurants like Little Bay and Just Around the Corner in London, Pay As You Please in Ireland, SAME Cafe in Denver, One World Everybody Eats in Salt Lake City, or Annalakshmi in Perth, or Apparel stores like Brand Alley and LastWear, and many more companies across industries are successfully practicing the PWYW model.

People give money in charity, but not any charity. People always help each other, but not anyone who needs help. When buying a house, if the seller is asking for $500K, there will be many buyers who will try their best to have the seller lower the price down to $490K, even when the fair market price of the house is $510K. But a large majority of the buyers will not pick a $100 bill lying on the floor of the house being sold during one of their visits. These same people were trying to underpay by a much larger amount that $100, but this $100 bill that comes with no strings attached does not attract their love. Why?? (of course there will be some exceptions who will quietly pocket that $100 bill and will never show up again at that house, but we are taking about the majority who will not)

Honor code and personal references are very confused subjects. I showed the following set of gymnasium membership options to my students (Weights only for $20 per month, Classes only for $40 per month, and Weights and Classes both for $40 per month), and majority of the students opted for Weights and Classes both for $40; no one opted for Classes only for $40 per month. When I showed another set ofgymnasium membership option (Weights only for $20 per month, and Weights and Classes both for $40 per month) to another set of students, taking out the Classes ($40) option out as no one opted for it in the first set, this time majority of the students opted for the Weights only for $20 per month. What happened to their personal references???

More than the honor code, it is the embarrassment of being seen as misusing an offer that makes people pay an non-unreasonable price at PWYW avenues. Let's say you go to one of these restaurants on your first date, you don't want to be seen as a mean person, so you'll try to be fair. If You know that the place gives money to charity and at the time of payment people are watching you (some of these places even announce your name when you pay a good price), you don't want to go through the embarrassment of being seen as a mean person in society. I bet, at the very same place if no one is watching, customers will pay much less amount than what they pay when they feel that someone is watching'em.

It is the fear of embarrassment that makes most people pay a fair price, honor codes were buried way back in school days!!

Netflix 2011, oh boy!!

Last week Netflix announced it's new pricing structure, and within a day it received 60,000 + negative comments from its fan community on Facebook. That's about 4% of it's fan base. A BOTE calculation, equating every negative comment received within the 24 hours of the announcement with losing 10 subscribers will tell you that about 40% of their business is at stake. Now, that's a lot!!

If you look at the new pricing structure, it is not so bad as it appears. Customers who were subscribing to Netflix for mail-ins and paying the price of the combo deal, now will get a chance to pay just for the mail-ins. Mail-ins business is the real strength of Netflix, and customers anyways didn't like the streamings from Netflix for several reasons. Now they have an option to chose a better streaming service provider and use Netflix just for mail-ins. Certainly not all that bad for the customers. But the value of the pricing structure is lost somewhere, and the company is noticing a strong backlash from the fan community.

Now let's look at Netflix's communication strategy in context of this price change. Netflix is telling the customers that if they opt for both mail-ins and streaming and pay $15.98, it is an increase of about $6 and it is same as the price customers pay for a cup or two of latte. This is where Netflix is missing the point. First of all not every old $9.99 combo customer is going to opt for both mail-ins and streaming; customers will probably stick to Netflix for DVD mail-ins, while many will opt for Amazon or Hulu streaming services. More importantly, that's a pretty lame argument to give to the customers for raising prices. So what if the price increase is same as the price of a cup of latte, what's that got to do with movie rental price.

Netflix had a wonderful opportunity to push a value message to the customers, stating the customer benefits of the new pricing structure. It could have told the customers that now they won't have to pay the combo price if they were only interested in the mail-in rentals. I think customers would have appreciated that thought. Netflix should have kept the combo offer, albeit at a higher price ($11.99 will be the best price for combo), and made the combo offer look attractive given the separate subscriptions costs $7.99 each.

If Netflix decides not to change it's pricing structure, there will be a great case study for me to include in my pricing strategy course outline for next year, on how poor pricing destroys established market leaders!!