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July 2010

Giants Ticket Program a Home Run
Last year, a nosebleed ticket for a Giants game against a lowly team like the Pittsburgh Pirates would likely run you around $18. This year, as part of the Giants’ new dynamic pricing strategy, that same ticket goes for $5 — a selling point that is playing a major role in the team’s attendance figures rising 6 percent above 2009 figures.

Halfway this season, the team’s dynamic pricing program — which lowers or increases ticket costs based on opponent, weather, time and other factors — has been deemed a success, with average attendance for this season at 36,213 — nearly 2,000 people more than last year.

Despite this not being their best season so far, the Giants have been able to fill their stadium with fans more regularly by gauging demand for specific games. Team spokeswoman Shana Daum said “We definitely think our fans have more access with the dynamic ticket prices.”

Under the Giants’ dynamic pricing strategy, the team has offered 29 games this year where a fan could buy a $5 ticket. While the Giants experimented with dynamic ticket pricing last year, 2010 has been the first season the program has been rolled out in its entirety, and Daum said there is every indicator that the program will return next year. Currently, the Giants may be the only major professional sports team in America to offer dynamic ticket pricing, but Daum said she doesn’t anticipate that lasting long. “A number of teams have contacted us to inquire about our dynamic pricing,” Daum said. “We’ve been trailblazers in the past when it comes to innovative ticketing strategies, and I think this will be another example of that.”
Source: The San Francisco Examiner, July 4, 2010


What Lies Behind Microsoft’s “Kin’s Dead” Decision?
Microsoft announced they will stop producing their Kin smartphones after only a 6-week release, thus cancelling their European launches and terminating the project. Kin smartphone? I never heard of them either. They will supply Kin phones to their US carriers but the staff has already been assigned to the Phone 7 smartphone operating system project. So why did it fail?

There were rumors that the Kin sales reports were lousy. But how bad does it have to be, that the world’s biggest software company pulls the plug on its first smartphone in only six weeks? This is a huge public and technological disaster for Microsoft and at the very least signals major problems in professional management.

Everything indicated to a rosy reception of the Kin. The keyboard phone market is bigger than the touch screen phone market, especially in the USA; Microsoft’s home market. Even more, a third of American youth send 100 SMS per day. So the two models of the youth-oriented Microsoft Kin phones seemed to arrive perfectly at the right time in the right place. But what went wrong?

Apparently one of their main problems was pricing. With a poor pricing strategy they offered an overpriced product and reacted with price cuts once sales weren't going their way. Their initial deal with a carrier partner was soured after an 18 month delay on release, so they were no longer keen on offering a pricing deal. Because of this, the product was overpriced but also overvalued as they failed to do the appropriate market research. It seems as if this product was doomed from the beginning and it goes to show not even Microsoft is immune to the effects of an ineffective pricing strategy.
Source: Bright Side of News, July 06, 2010

Tesla IPO: Much Ado About Nothing
Tesla Motors' IPO has given investors and industry insiders much to talk about. The electric automaker raised $226 million as its shares rose above expectations to $18.11. However, in reality, Tesla's raising of capital won't mean much to the company's future success. This is because of a poor pricing strategy.

For a company that wants to sell tens of thousands of vehicles per year, the $178 million that Tesla Motors hopes to raise is a drop in the oil pan. Tesla is borrowing nearly three times that much from the Department of Energy to build the upcoming Model S sedan. For Tesla to reach its goal of producing 20,000 Model S vehicles per year, it will likely have to acquire additional funding as the company had just $100 million in the bank at the beginning of the year, and with a burn rate of $3 million per month it will take $108 million just to get through 2012.

That doesn't include the additional costs from the planned expansion from 10 to 50 dealerships, as well as any marketing expenses related to the launch of its first mass market vehicle. Tesla Motors must also spend $116 million to produce the Model S and manufacture battery packs to get full access to the DOE loan.

Tesla Motors may need to rethink the pricing strategy for the Model S, which is supposed to sell at $57,500. Of concern to investors should be Tesla's plans for producing up to 20,000 Model S cars in 2012. Pike Research estimates the entire U.S. market for EVs will only be 34,000 in 2012, and the Nissan Leaf and Mitsubishi I-MiEV will have a considerable advantage in coming to market sooner. When you consider that Tesla Motors has barely sold more than 1,000 cars in nearly two years in a market where the company was effectively alone, it will be a formidable challenge to sell 20,000 vehicles annually when contending with a field that will include fellow newcomers Coda Automotive and Fisker Automotive. If Tesla Motors significantly drops the price of the vehicle it may have difficulty selling the Model S at a profit, which would increase the challenge in finding other investors.
Source: Reuters, June 29, 2010

Media’s Two Tribes
Is it better to take a little money from a lot of people, or a lot of money from a few? In Britain the Times and the Sunday Times newspapers are about to take the latter course by asking people to pay for news online. Paywalls are rising across the media landscape as many firms conclude that revenue from online advertising alone is not enough to make ends meet. The Tallahassee Democrat starts charging from July 1st. Hulu said this week that it would begin selling subscriptions as well.

Yet there is a strong drift in the opposite direction, too. Britain’s Daily Mail’s website, which is heavy on pictures and celebrity news, has grown rapidly in the past two years, both at home and abroad. It had 42m unique monthly visitors in May, according to the Audit Bureau of Circulations—more than any other British newspaper website. Martin Clarke, who runs the Mail’s website, reckons people simply will not pay for general news on the web, and is happy to maximize viewers and advertising.

There is clearly a difference on how certain companies chose to price their media. It is a divide between a strategy based on “up-selling” people to premium subscriptions, and a strategy based on scale and market-share. More fundamentally, it reflects different views about the extent to which consumers can be steered towards the most profitable products.

The big media firms are not wholly consistent. Although News Corporation champions subscriptions, it is not yet erecting paywalls around its tabloid newspapers. Disney makes its broadcast TV shows available free but does not do the same for ESPN, its lucrative sports network. Other outfits are fence-sitters that believe they can both take a little money from a lot of people and a lot of money from a few people. But the drift is towards the extremes. Few believe the future lies in premium-ish products and middling scale.

Online advertising is picking up, encouraging firms that have hitched their fortunes to it. As others erect paywalls, the audiences for free sites will probably grow. The Times will surely lose online readers when it begins charging. The mere act of asking people to register caused its market share to drop by half.

This lack of consensus worries many in the media industry. Those who pursue scale, claim that premium strategies are doomed. The other side retorts that the practice of giving stuff away undermines the value of all content. But it is likely that winners will emerge on both sides. Some will find a way of profiting from scale, while others will carve out dedicated audiences and lucrative niches. There need not be a single right way to price things.
Source: The Economist, July 1, 2010

Horticulture NZ Seeking Inquiry in Fruit and Vegetable Prices
Horticulture New Zealand has said that there's a need for someone, who investigates retail pricing of fresh fruit and vegetables.

The release of the grower study by the Green Party over the weekend brought into light the issue of price that growers are not being paid any more the amount that they had been receiving five years ago thus indicating they do not count with a proper pricing strategy.

Horticulture NZ Chief Executive, Peter Silcock says that at times, it appears the prices which are paid to growers, and the prices paid by consumers, appear off center, and probably, it means that a definitive fraction in that lot is losing money, while somebody is gaining that lost money.

Growers and consumers at the similar plane need be confident that there is enough transparency in the pricing system, which they are entitled to see, so as to ensure a reliable and acceptable mark up range, which is totally the opposite, since at present, the system is not very effective in delivering appropriately to all the fractions, the proportions in the best way.

An inquiry, perhaps led by Justice Minister, Simon Power, would give details where the costs are in the supply chain, and in whose pockets the profits are falling.
Source: Top News , July 5, 2010

The Click and the Dead
Everywhere people bemoan the replacement of the local and the quaint by outposts of big, homogeneous chains. But how true is the notion that the internet in particular has hastened the demise of some retailers, and that those it hurt were overwhelmingly small? A new study on this subject by four economists at the University of Chicago looks at three industries—bookshops, travel agencies and new-car dealerships—for answers.

In the past, economists have paid most attention to the effects of the internet on prices. These fit snugly into a standard economic model of competition. The internet acts mainly as a mechanism that reduces consumers’ costs of acquiring information about products and prices. Before the online age, someone looking to buy a fridge, say, might have gone into one or two local shops, and perhaps rung a few more, to compare prices. The web, however, made it easy to gather more information. Theory suggested that as more and more retailers and customers went online, customers would become pickier. It would become more difficult for a retailer to continue to sell overpriced goods because people would have more knowledge about other options.

E-commerce ought therefore to lead to intensified price competition and through it to lower variation, or “dispersion”, in prices. A large scholarly literature has found that this is true. For a real-world example of the effect of lower search costs, think of today’s e-reader price wars. On June 21st Barnes & Noble, a bookseller, dropped the price of its Nook e-reader to $199 in America. Within hours, Amazon cut the price of its Kindle product to $189.

The new study tests another expected consequence of e-commerce. Intensifying competition should lead not just to price convergence but also to a round of creative destruction. Companies that are unable to cope with the demands of consumers in the internet age should be wiped out. Those who can ought to thrive.
Source: The Economist, July 1, 2010