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Business901                    Podcast Transcription Implementing Lean Marketing SystemsThe Death of List Price   Guest wa...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systems                                   ...
Business901                    Podcast TranscriptionImplementing Lean Marketing SystemsJoe Dager: Welcome everyone. This i...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systemstelephone service area. Well, I hel...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systemshave any price you want as long its...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systemsevidence and experiments that show,...
Business901                    Podcast TranscriptionImplementing Lean Marketing SystemsRob: One of the most interesting on...
Business901                    Podcast TranscriptionImplementing Lean Marketing SystemsThe context in one case is, youve g...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systemsrequirement they have, you will go ...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systemseach page. Unfortunately, thanks to...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systemsprices in many cases. Then there ar...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systemswhat were selling is, will pay less...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systemsimportant decision theyve got on th...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systemsgetting is higher or lower." But it...
Business901                    Podcast TranscriptionImplementing Lean Marketing SystemsJoe: If I need to change my pricing...
Business901                    Podcast TranscriptionImplementing Lean Marketing SystemsIBM has done for years, which is th...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systemscomputer was dumber than my Apple C...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systemsthey measure supply and demand. In ...
Business901                    Podcast TranscriptionImplementing Lean Marketing Systems                                   ...
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The Death of List Price


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Rob Doctors was interviewed in the Business901 podcast, The Irrelevancy of List Price. this is a transcription of the podcast. Rob is a co-author of Contextual Pricing: The Death of List Price and the New Market Reality. Rob believes that pricing decisions need to be driven by customer context rather than simple list prices. Pricing is more than just an issue of margin and production costs, but rather a complex set of contextually factors best defined as an outcome.

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Transcript of "The Death of List Price"

  1. 1. Business901 Podcast Transcription Implementing Lean Marketing SystemsThe Death of List Price Guest was Robert Doctors Related Podcast: The Irrelevancy of List Price The Irrelevancy of List Price Copyright Business901
  2. 2. Business901 Podcast TranscriptionImplementing Lean Marketing Systems Robert Docters is the managing partner for Abbey Road, LLC, a consulting firm specializing in pricing strategy. He previously served as a senior vice president of strategy and pricing at LexisNexis, and before that was an SVP at Ernst & Young. A few leading companies have jettisoned ideas about pricing that other companies believe areindispensable. The result has been superior performance againstcompetitors who persist in a simplistic 1990s belief in “value.”Contextual Pricing describes how buyers are influenced bycomparison points and contextual messages more than by actualprice levels. Identical products can sell at radically different pricesto the same target customer—if context is strategically managed.This fact is how Procter & Gamble, GE, Coca-Cola Company,Amazon, Google, Microsoft, and others make sure they get thebest possible price. The use of context is changing the waycompanies price and sell in the new global economy.Through its illuminating case-by-case studies, Contextual Pricingdelivers a wide range of pricing techniques and customer insightsthat you won’t find anywhere else. You’ll learn how to avoidcommon pitfalls when raising or lowering prices and discover howyou can compete in traditional or emerging digital marketplaces—and beat the competition through superior tactics, not throughlower margins. The Irrelevancy of List Price Copyright Business901
  3. 3. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe Dager: Welcome everyone. This is Joe Dager, the host ofthe Business901 podcast. With me today is Rob Docters. Rob is arecent co-editor of Contextual Pricing. Rob could you go aheadand tell me about what youre doing, right now and a littlebackground on why you wrote a book on Contextual Pricing.Rob Docters: Sure Joe. I lecture and have been speaking at anumber of conferences where people have been interested inpricing. Sometimes in an academic way, sometimes we reviewhow they should improve the pricing in their businesses. Actually,there is some increasing interest in the topic.Pricing hasnt always been a popular topic as you havementioned. In fact, you could say that in some cases, its viewedas an alien topic and you can understand why. Thankfully pricingis not really a popularity contest. There is a cartoon strip calledDilbert. They had a pricing discussion in one of those cartoons.The lady with the funky hair said, "Well, lets give customers whatthey want." Then one of the other ladies at one of the tables said,"OK, what they want is a better product for free." That sums upwhat a lot of people think about pricing is that its an insult to thecustomer to charge a price. I dont agree with that.Joe: What do you agree with then?Rob: Well, its interesting because pricing has to wear a numberof hats. Its how our capitalist system runs. Its the invisiblehand. Its the thing that frankly anybody who goes out to thesupermarket has to face day in day out. Its so many things. Ithas been a bit of a mystery for a lot of buyers. It is certainly anotion of higher prices is a familiar enemy to many.My now-wife introduced me to her mother and her mother asked,"What do you for a living, Rob?" I said, "Well, I help companieswith their pricing." She was baffled and she said, "What does thatmean?" and I said, "Well for instance, you live in the Verizon The Irrelevancy of List Price Copyright Business901
  4. 4. Business901 Podcast TranscriptionImplementing Lean Marketing Systemstelephone service area. Well, I helped them stick the bundle thatgives cellular plus land line and I helped them price it."She frowned a little bit, I said, "Well, for instance I helped the USPostal Service the first time they did a jump in price that wasmore than one penny." I helped them do that. Then our firmbecame deeper, at which point my then-fiancée, now-wifeintervened and said, "I believe its time for dinner," and she cutthat conversation right off.The point is its not a popular topic, but its a really importanttopic. Not only is it important at a macro level of how oureconomy works, but its the difference between life and death fora lot of companies.Joe: I think it is a mystery for many and Ill take it really to thebasics here for me. It used to be pretty simple, that you build aproduct, you added up the material, the labor in it, and you putyour overhead in it, and how much profit you wanted. There wasyour price. It was that simple. You might put in for discount,distribution and a few other things, but it was what it was.I think thats in a world that we lived in where there was excessdemand. Now, I always look at that you have to create demand,and one of the ways you create demand is through pricingstrategies. Pricing has taken a whole different context. Not tosteal from the book. I think to me it has. Am I way off basethere? Have I any foundational truths to what Im saying?Rob: I think there is a foundational truth there. For instance,there was a time when, if your name was Henry Ford and youhad just invented the car or made it popular for the first time,you set the price. The Model T Ford was the price you set, andthat was good for a good 15-20 years. The Model T dominatedautomobiles. Then Henry set the price, and his attitude was "Youcan have any color you want as long as its black, and you can The Irrelevancy of List Price Copyright Business901
  5. 5. Business901 Podcast TranscriptionImplementing Lean Marketing Systemshave any price you want as long its the one Ive set." That was,of course, a long time ago. Henry got to do that for 20 years.Apple, of course, released the iPhone, and they didnt get 20years of non-competition. There was already competition twoyears, two and a half years later. For some of their otherproducts, the interval has been even shorter. Now, those havebeen very profitable brief periods of time, but considering thatthats one of the most innovative new products that weve seen ina while, its amazing how little price insulation there is.So, really, the differences between the model of “build it, price it,and they will buy" is the difference between a more competitiveworld and one thats less competitive. So, that leads to thequestion, OK, so how do you price them?Joe: Lets just take a second, and can you define what youmean? Is there a simple definition of contextual pricing?Rob: We view pricing, or contextual pricing, as really anassimilation of a lot of thoughts on pricing. If we had been havingthis conversation in the 60s, we would probably be talking aboutcost base pricing because the economists obviously worried aboutpricing and they really only saw two things. They saw the cost ofthe good and then they worried about the special case ofmonopoly, and that in turn binge somewhat on pricing.We would be saying, "OK, the way youre price is, you figure outhow much it costs and then you try to add as much of the bonusto it as you can. In the late 70s and early 80s, there was thethought of hey, its not only the cost, not even mainly the cost,its the value that it brings. How do people perceive this thing?How much is it worth to them?Then in the late 80s, it started running out of gas, or actually theearly 90s. There was a whole group of academics saying that itreally varies a lot. They came up with all sorts of marked The Irrelevancy of List Price Copyright Business901
  6. 6. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsevidence and experiments that show, for instance, people valuethe same thing very differently. For instance, if I tell you "Joe, Ihave allocated 30,000 frequent flyer points to you and if you donot take a flight in the near future you are going to lose them."That actually has a very different impact on you than if I say"Joe, if you take a flight in the near future, I am going to give you30,000 frequent flyer points." The research has shown all sorts ofinteresting things, like people fear loss more than they valuegain. You would actually resent losing your 30,000 points morethan you really valued gaining them.There is a whole series of interesting situational, sort of narrowexperiments conducted by Academia. So, as my co-authors and Iwere thinking about this book, we were saying, weve got thisone group of people who are thinking about in cost terms,another group who are thinking about in value terms, a third whois thinking about it in reference terms, but sometimes each ofthose are right.Sometimes cost matters. Ive done work for steel mills and Iassure you cost is incredibly essential to their pricing. Ive donework with some fashion items and some high tech work and valuematters a lot and Ive done work for some online entertainmentand I assure you that context matters or reference matters. Ifyou pull them all together, what I would say is, the contextdiffers.In some contexts, cost matters, in some contexts, value matters,in some contexts, the reference matters. So, this is an attempt tosynergize those three views into something that works almost allthe time. What we found was that there are a number ofcompanies that have already been moving in that direction. Not alot, but a few leaders have already started to do what we callcontextual pricing.Joe: Can you give me an example of one? The Irrelevancy of List Price Copyright Business901
  7. 7. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsRob: One of the most interesting ones we thought was TheCoca-Cola Company. They were amazed, themselves, at thisexperiment. What they did was, they did a promotion atWal-Mart, and Wal-Mart let them put some Coca-Cola, not only inthe beverage aisle where its always been, but in the sportinggoods aisle.They had a promotion where they had taken all the Coca-Colaplastic bottles and recycled them and provided that to someclothing manufacturers who created some sporting gear, somesweatshirts, sweatpants, that sort of thing. To complement thoserecycled goods, they gave crates of Coca-Cola.Now, what was really interesting was, the prices that they got, byputting 6-packs and 12-packs of Coca-Cola in the sporting goodsand clothing aisle, had been among the highest theyd evergotten in retail.Consumers could simply walk over a few aisles and get the sameCoca-Cola, and one thing you know is one bottle of Coca-Cola willcontain exactly what another bottle of Coca-Cola will contain. Fewthings we are sure of in this world, but one of them is theconsistency of Coca-Cola. They would pay much less in that otheraisle. So it was in this case, the context of, "Are you next toPepsi, or are you next to some clothing?"That was a very inspirational experiment, which we had nothingto do with, but we thought that that was a harbinger of otherinteresting possibilities. Then we looked further and we found outthat, for instance, with many goods, it matters who youre sellingto; same goods, same everything, but a different person.So, for instance, if you sell long-distance phone services, likevoice services, selling it to people who have to pay for their ownaccess, their own broadband access, you actually get moremoney than if youre trying to sell it to people who get freeaccess. The Irrelevancy of List Price Copyright Business901
  8. 8. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsThe context in one case is, youve got this broadband bill, andpaying for the voice on top of it is just a small increment. But ifyou pay zero for broadband, the increment is now the entirefocus of your attention, for voice, and you become very pricesensitive. The same way that a car radio in a BMW is highly priceinsensitive, a car radio in an economy car is very price sensitive.Joe: You alluded to that, but a definition of contextual pricing, Ithink in your book, was defined as an outcome. You based it onfour factors. Could you touch upon those four factors?Rob: Contextual pricing is a function of the frame of referenceas seen by the customer. In other words, he looks at it from thepoint of view, "Well, what do I know about this service or good?What are my alternatives?" These may include competition, ormay include just not doing it, or something in quite a differentcategory. He or she looks at their own minimal effort, they lookat their different emotional reactions.Its the amalgam of all the perspectives that they have on aparticular purchase choice thats come together. Usually, theresone that predominates. Its usually not that theyre thinkingabout certain things. It just varies, what the thing is that drivestheir purchase. The important piece, of course, is that if you knowwhat that perspective is, then, in fact, you have the right pricing.If you dont know what that perspective is, you base it onsomething that happens within the four walls of your company,be it costs, be it whatever your advertising was, and that sort ofthing. Youll probably have the wrong price and you will miss theopportunity to get a really remarkable return.In some industries, failing to get that remarkable return is fatal.Interestingly enough, sometimes its the most competitivepricing. For instance, in commodity plastics, if you dont takeadvantage of rush orders by your clients, or some special The Irrelevancy of List Price Copyright Business901
  9. 9. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsrequirement they have, you will go bankrupt, because theaverage commodity plastics sale is below full cost.Its above variable cost, but its below full cost, and what they dois, they live on this stuff, the crummy below-full-cost sales,basically to keep the wheels going, and then every so often acustomer walks in with the magic words and says, "Rush order, Ireally need it now. Can you please make the following tweaks?"Then, yes, they will command a nice premium, even though its acut-throat nasty business because thats the moment when thecontext has changed and they can command a nice priceJoe: I have been talking to a couple people about it, and I hadto come up with a way of remembering what I call the definitionor the factors that you talked about there. I just use C.O.P.S.Capabilities, objectives, perception, and situation. But you usedsome great terms in your book that I really enjoyed. One of themthat I thought was rather unique, that you say that life withoutlist price is easier. That probably grabs a few numbers’ guyswrong.Rob: It does, its funny. I stand by that statement, but I alsoknow why they are not so happy with that idea. The fact is notonly do people like certainty, and sure it is convenient to have alist price. But the truth is, its believing in something that justdoesnt have the reliability that people ascribe to it. Because thefact is almost never do people get their list price.I mean, as you mention, Henry Ford got it for quite a while, Applegot it briefly. But thats a very small minority of the total range ofcompanies in the world. Most of us, unfortunately, have a verybitter experience of being out priced by a competitor.The fact is the times we can get our list price we value highly. Itsfunny, one of the things I wish my editor had done at McGraw Hillwas put the footnotes where they should be at the bottom of The Irrelevancy of List Price Copyright Business901
  10. 10. Business901 Podcast TranscriptionImplementing Lean Marketing Systemseach page. Unfortunately, thanks to the advent of E-Books, thereis no such thing as the bottom of a page anymore, so they allended up being in chapters.I think some of the more interesting aspects kicked below themain text, were in the footnotes, and one of them was, the NewYork Times reported, that there was lot of superstition in pricingand they gave a great story. Eric Claptons guitar, used for Laylaand lot of other songs, recently sold, and it sold for over a milliondollars. The person who bought it said, "Well, of course, Ive nowgot Claptons guitar. I cant wait to start playing."Whats even weirder is there were many replicas of that guitar,they were selling for $30,000 and $40,000 even though Eric hadnever touched them. The Times quoted a number of psychologistswho said that is superstition. In primordial times, people believedthat if they have a replica of something like a voodoo doll, theycan control some of the power of that.I really believe that there are a lot of residual beliefs that the listprice is what will bring people profitability. I think theyrecompletely wrong, and I think theyre out of date. In fact, someof the companies that cling most tenaciously to list price fairrather badly, if they no longer have the market power to supportit. But the truth is people change slowly.There is a great quote in my book. One of the things Im veryhappy with is quotes at the beginning of each chapter. Its aquote by Max Born, the famous German physicist. What he saysis, "The way science progresses are not that scientists learn anew truth. Science progresses by all the scientists dying becausea new generation comes behind that never learned the falsetruth." In this case, the reason its simpler is because list price isa myth in most companies.For instance, marketing may set a list price, but immediatelythats split up by channel. Different ways of selling it get different The Irrelevancy of List Price Copyright Business901
  11. 11. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsprices in many cases. Then there are special circumstances likevolume purchases. Then you get the final level of insult upon it,which is sales discounting. So, for instance, its quite frequentthat you have companies who end up with many more timesprices than they actually have customers because it justproliferates.Thats, of course, a disaster on all fronts. It destroys the value ofthe message. Obviously, you lose revenues that way. It makes itconfusing, and youre going to see a problem for like their listprice, find it annoying that the price that they think is the listprice has no relationship to what the revenues are coming in thedoor.Joe: When I first looked at the book, I thought, "Here we go.Heres another one of these feel-good approaches that......we price it over here. We price it over there, and then we justjustify everything, of why we did it that way. Are there tools? Isthere a process you can use that a normal company can reallyachieve contextual pricing?Rob: There are. There are actually some very simpleframeworks, and its interesting because some companies as Isay, like Proctor and Gamble, have been doing this all bythemselves without any consultants help. That is, I honestlythink that product developers need to come up with a single pricebecause, frankly, theyre busy developing the product. Thats thelast person who should ever be granted that rather self-indulgentluxury.Marketing knows that in some markets theyre going to be strongand in some theyre going to be weak. Lets acknowledge thatright up front. Lets say, "Heres the price that we would expectwhere were strong, and heres where we expect where wereweak. Heres where loyal subscribers will pay more, and weexpect that new customers, with no idea of what the value of The Irrelevancy of List Price Copyright Business901
  12. 12. Business901 Podcast TranscriptionImplementing Lean Marketing Systemswhat were selling is, will pay less. In large bids, were going toget less, in other cases were going to get more."There usually arent more than half a dozen or so circumstances,which are pretty well known to everyone in the company, thatrepresent the range of prices. Once you get a dozen prices thatactually work, you can stick with them.Primitive approach, which is saying, "Heres one price," but noone will stick with it, means that every time anyone touches ittheres a new price. Better to start with a dozen or maybe 20prices and just hold the ground, because you can. Youve alreadygot your price in case you have low market power. Youve alreadygot your price in case youve got high market power. Just stickwith them.What literally happens is a proliferation into thousands of pricesoccur from larger companies, if they pretend, initially, that theresone price and then "wink, wink," allow it to proliferate into amillion prices.Joe: Do you stand the risk of alienating a customer, though,when he sees that, "I could have bought it over here for this, andI walk into this store, like the Coca-Cola example, the next aisle Icould have bought it for that." Do you stand that risk of alienatinghim?Rob: The answer is, let me be blunt, yes. Any time you haveprice variation you have that risk. But of course youve got pricevariation now, so lets not kid ourselves in thinking, "I am perfectnow, and whats the consequence of being imperfect?"I also have another theme in the book, which is, not only doesthe circumstance of being in a strong position versus a weakposition suggest a high or a low price, one of the things that wesee over and over again, is that inside the company they focus onthe actual price level when in fact thats not usually the most The Irrelevancy of List Price Copyright Business901
  13. 13. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsimportant decision theyve got on their hands. Its often the pricestructure.What do I mean by price structure? It means the terms underwhich I sell. For instance, lets talk about one of the most brilliantpricing innovations in a long time. It doesnt come from Apple, bythe way. Its singularly product-oriented in how they price ratherthan brilliant in their pricing, but a highly competitive area, jetengines.For a long time, if you wanted a jet engine, Joe, youd haveplunked down $2 million and good news, that was your jetengine, they carved your name on it. But then they came up witha really cool idea, which was, airlines dont really care if they ownthe engine, all they want is an engine to be working as the planechugs from point A to point B.What they did was instead of selling by the engine, they startedselling by the hour of jet engine time. Instead of paying $20million for a big jet engine, you might pay $20 million for 5,000hours of jet engine time.Actual numbers in both cases would be no more than a fewmillion dollars. In any case, the point was a lot of airlines said"Wow that was exactly what we wanted! We now dont have toworry about spare parts, or all the other stuff with ownership."We just know our fleet will be in the air X many, hundreds ofthousands or millions of hours in the next year that is how manyhours of jet engine time we will have to buy, and its now RollsRoyces problem on how to get that done. The result was RollsRoyce picked up market share and when all the math was done,they got a better pricing on their engines.So, yes, at a given moment someone at another airline wouldlook over at Delta and said "I wonder whether the price they are The Irrelevancy of List Price Copyright Business901
  14. 14. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsgetting is higher or lower." But it is really hard to compare $Xmillions per engine to $X per hour of jet engine time.There are consumer examples as well. In cars, one gets rentedby the mile and one by the day, and who knows whos payingmore. The same thing with bananas in the store, some sell by thebanana and others by the pound. Whos getting the better deal, ifyou have a calculator and you got the time for checking, youcould figure it out. I blame sellers for having the same structurethey ought to vary it with the situation and concept.Joe: This goes along with what I talk about, and most of mylisteners will recognize this with the service design and the valueand use concept. There is little value to a product or service; it isjust an enabler of use. The easier you make use and the highervalue of the use, contextual pricing supports that. Doesnt it?Rob: Completely. The non-business example is a life jacket isworth a lot to you, Joe, if you are on a sinking ship. However, it isworth nothing to you at your next fancy dress party. In fact, it’sworth is negative. Same goods, same everything, its the context.In a business example, for instance, we found that a provider offinancial information...When we actually looked at their numbers, it turned out whenthey sold that financial information to an individual manager orsomeone who was an analyst; they werent getting as muchmoney as when they sold it to someone whos managing a hugeportfolio.The reason is, in the case of the huge portfolio, that piece ofinformation is important to optimizing that 100 billion whateverdollar portfolio. If you send it to an individual money manager,you might produce a $10,000 trade or some advice to clients buteven though its exactly the same information, the context in onecase is far more valuable than in the other. The Irrelevancy of List Price Copyright Business901
  15. 15. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe: If I need to change my pricing structure and look atcontextual pricing, what would be the compelling reason for meto go that direction, right now?Rob: Better margins in a nutshell. Because, think about it, onceyouve set a list price, the traditional way of doing it. Its reallytough for anyone in your organization to sell above that list price.Ive set a list price on, whatever, my plastic clam shells forholding food in a supermarket. The next moment a customer runsin saying "Rush order, rush order, I desperately need clam shells.Ill pay you a million dollars per clam shell!"You look in your book and you say "Im sorry. I can only chargeyou $0.30 for this clamshell because thats our list price." Youimmediately cut off the benefits by setting a list price. By theway, whats amusing is, weve found in a lot of investoral -- thisjust shows that the world has many different types of people in it.There are some sales people who enjoy selling above list price.The first few times, I thought that was just flukes in the data, butevery time Ive run into this I just have to chuckle because Ivetalked to these guys -- not really guys but a lot of gals -- andthey said "Yeah, I like the challenge of selling at the highest pricepossible." Its a little tougher for them to do that with a list pricein the works, but they do it anyhow. Most dont bother and theysell at list price or below. So dont forget when you set a listprice, youre depriving some people of aspirational pricing.The first part is, I would say, youre now suddenly going to get abunch of add-ons because people understand the situation whentheyre in it. Somebody, whos coldly setting up a price schedulethats harder for them to do unless they think about context andmost dont.Thats one aspect. The second aspect is you tend to change a lotof other behaviors because suddenly your sales force isnt goingto be measured on their adherence to list price. Theyll do what The Irrelevancy of List Price Copyright Business901
  16. 16. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsIBM has done for years, which is they measure sales forces bytheir total revenues. So if Im the IBM account rep selling toSmarter Blog Corporation, Im being measured whether my $20mthat I got last year went up or down. Again, list prices can onlybe an impediment to that.Joe: Is there something that youd like to add that maybe Ididnt ask you about?Rob: Its interesting, because I think everything goes full cycle.There was a time when all pricing was contextual. What we needis an harmonica in the background and some nice Country andWestern music maybe, but think back to the wild west, or, if youlike, early England, et cetera.There was one store in town, and what happened was, youwalked in, and you picked up your frying pan, or your brandingiron, or whatever you were buying, you walked up to the counter,and you said, "How much is this?"The clerk, who was usually the owner, looked at you and thought,"Looks like Joe the cowboy, and youve had some successfulcattle runs lately, Im going to charge more. Furthermore, that isthe last branding iron, better charge more."That was contextual pricing, because the person staring you inthe eyes really understood where you were coming from, whatmotivated you, what was important. That was very successful asa business model.At some point, actually it was a Quaker, who decided that wasunfair, and it was actually a Quaker who invented the idea ofprice tags. Suddenly prices tags started going into stores. Again,you had a move away from contextual pricing.Then you got stupid computers, by that I mean that computerswerent very smart for a lot of their history. In the 1960s, a huge The Irrelevancy of List Price Copyright Business901
  17. 17. Business901 Podcast TranscriptionImplementing Lean Marketing Systemscomputer was dumber than my Apple Computer today. You haddumb computers who couldnt handle much complexity, soeverything got dummy downed even further.Now, were at the other side of that valley of profit death. Wenow have smarter computers, smarter systems, and I think anincreasing realization that pricing had better be smart or youvegot problems.So, you have people doing very clever things. One of my favoriteexamples is Toys"R"Us. Toys"R"Us, as we all know, is a toy storethats facing just crushing competition from Wal-Mart, who havemanaged their supply chain and other things really well. Theyvelowered costs. Theyve got more throughput, blah, blah, blah.In response to smart other things, Toys"R"Us got smart, and oneof the things they do in some of their stores is, there are no pricetags on the toys, which brings us right back to the 1850s. Whatyou do is you pick up the toy you like, and there are little kiosks.You take the toy over to the kiosk, the kewpie doll or whatever,you scan the bar code and it says "kewpie doll, $13.00 orwhatever."Why is Toys"R"Us doing that? What theyre doing is varying theirprices over the time of the day. Sometimes that kewpie doll willcome up as $8.00, sometimes its $20.00, whatever. Theymeasure how many of those kewpie dolls make it between thescanner and the checkout counter.If none of them make it to the checkout counter, they knowtheyre priced too high, and if too many of them do they knowtheyre priced too low. Its a clever way of getting around all thedumbifying assumptions of a list price by measuring demanddirectly.Lots of industries do that. The airlines do it. Every six minutesairline prices are recalculated on most major airlines, because The Irrelevancy of List Price Copyright Business901
  18. 18. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsthey measure supply and demand. In other industries, theresincreasing sophistication of sales force tools, sales forcepsychometer. Theres a lot of information that previously wasknown to the salesperson, but thats sometimes where it ended.Increasingly, I believe, businesses are smarter and smarter, andwe have a whole chapter that talks about how systems getsmarter. I think contextual pricing has become easier and easierin addition to some of the reasons I mentioned why its easy.Joe: I have to tell you that I did enjoy reading the book. Imsomewhat of a numbers guy. When I read it, that part of it wasfine, but even since then Ive had more time and Ive rereadseveral other chapters, and its amazing how much more Iacquired from it.I wanted to compliment you on that. Though I think when youfirst read it, it comes across as a good read, some goodinformation to go forward with, but theres a deeper side to it thatI dont think you get in the first read. I want to take my hat off toyou on that, it was a very good book to read.Rob: Thats very kind of you. We tried to pepper it with a littlebit of humor, we quote comedians like Mitch Hedberg and a wholebunch of other folks, So hopefully, it breaks up that a little bit.Pricing books are not known for being great reads.Rob: Thereve been some very nice reviews that said, "Hey, thisisnt what I expected out of a pricing book."Joe: No, it certainly isnt, but I think its got the depth forsomeone really to spend some time with. Again, I want tocompliment you for it. The Irrelevancy of List Price Copyright Business901
  19. 19. Business901 Podcast TranscriptionImplementing Lean Marketing Systems Joseph T. Dager Lean Marketing Systems Ph: 260-438-0411 Fax: 260-818-2022 Email: Web/Blog: Twitter: @business901 What others say: In the past 20 years, Joe and I have collaborated on many difficult issues. Joes ability to combine his expertise with "out of the box" thinking is unsurpassed. He has always delivered quickly, cost effectively and withingenuity. A brilliant mind that is always a pleasure to work with." James R.Joe Dager is President of Business901, a progressive company providingdirection in areas such as Lean Marketing, Product Marketing, ProductLaunches and Re-Launches. As a Lean Six Sigma Black Belt,Business901 provides and implements marketing, project and performanceplanning methodologies in small businesses. The simplicity of a singleflexible model will create clarity for your staff and as a result betterexecution. My goal is to allow you spend your time on the need versus theplan.An example of how we may work: Business901 could start with aconsulting style utilizing an individual from your organization or a virtualassistance that is well versed in our principles. We have capabilities toplug virtually any marketing function into your process immediately. Asproficiencies develop, Business901 moves into a coach’s role supporting theprocess as needed. The goal of implementing a system is that the processeswill become a habit and not an event. Business901 Podcast Opportunity Expert Status The Irrelevancy of List Price Copyright Business901