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Archive for the ‘Pricing’ Category

I have a sweet tooth. I am rarely too full to pass on dessert. However, an article in Washingtonian magazine suggests that restaurants (at least those in metro DC) may inadvertently be saving people like me from ourselves by offering less attractive options for dessert or even foregoing offering dessert all together (Why DC Restaurants No Longer Care About Desserts, Feb 4). The interesting part of this is that the retreat from dessert is largely driven by economic and operational concerns.

In the post-crash economy, pastry chefs are no longer seen as essential employees but as pricey appendages.

“It’s not just saving the salary,” one restaurant owner told me. “It’s saving the space, too. To have a good pastry program, you need a designated area of the kitchen, you need a place to store the ingredients. The 10,000-square-foot restaurant has become the 7,000-square-foot restaurant. Everything’s smaller now. There isn’t the space.”

More and more, the task falls to chefs and line cooks who, lacking any background in baking, have contrived to fill their menus with simple, quick-fix solutions. Puddings, custards, panna cotta (an Italian term for what is essentially Jell-O made with cream) don’t require a lot of effort or expense; all can be made in the morning and stashed in the walk-in refrigerator.

Some restaurants have given up entirely. “More restaurants than you would think” are outsourcing their sweets to independent bakers, says Mark Bucher, who owns Medium Rare, with locations in Cleveland Park and Barracks Row. Bucher’s is among them. “You give them your recipes and they’ll make them for you. That way you can still say that they’re your desserts.”

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If you live here in the States, you may never have heard of the telecommunications company EE. But they are a major player in the United Kingdom with brands like Orange and T-Mobile. According to their Wikipedia page, they have around 28 million customers. EE has a new service offering that I must admit is kind of intriguing. Here is how it is described on their web page.

Priority answer service

From 6 August 2014 we’re also introducing a priority answer service. It’s available to all customers on pay monthly and SIM only plans.

Our priority answer service gives you the choice to get support even faster for just 50p per call when you call 150 and want to speak to customer services. It’s always available so if there’s a queue, you can be moved towards the front – ideal if you’re in a hurry.

How much it costs

The charge for this is 50p. If you’re on a plan that includes standard charging for customer services at 25p, you’ll only be charged an extra 25p for priority answer – so the total for the call with priority is 50p.

The 50p charge applies regardless of how long the call lasts.

To save the Americans the trouble of Googling this, 50p works out to about 84¢. So what do you think happens when customers are given the chance to jump the queue for less than a buck?

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What should determine how much it costs to ship a box? Clearly the weight of the package matters as does the distance it travels. But what about its physical dimensions? Does it matter whether a one-pound object takes up a cubic foot of space or two cubic feet?

Apparently, FedEx thinks it matters and has announced that it will be tweaking its pricing policies accordingly (Web Shoppers Beware: FedEx to Charge by Package Size, Wall Street Journal, May 7).

Instead of charging by weight alone, all ground packages will now be priced according to size. In effect, that will mean a price increase on more than a third of its U.S. ground shipments. …

[The change] would likely greatly affect bulky but lighter weight items like toilet paper and diapers, which many people have delivered on a regular basis, as well as Zappos.com shoes, which ship for free, including free returns. Indeed, shoe shoppers are encouraged to buy multiple pairs, keep what fits and return the rest. Avid Web shoppers do the same with sweaters, dresses, and jackets at retailers like J. Crew, Banana Republic, and Macy’s.

This graphic gives an idea of the kind of price increases that are in play. Clearly items that are not very dense are going to be seeing a stiff price hike.

P1-BQ051_FEDEX_G_20140507183305

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I have a long-standing interest in Black Friday — less because I want to go shopping but more because it poses some interesting questions on how firms compete and how they manage customers. The news this year is that Black Friday is creeping evermore into Thanksgiving proper as retailers keep moving up their opening times. So why are they doing that? Two posts on Businessweek.com put forward theories. The first posits that this is being driven by customer segmentation (The Game Theory Behind Macy’s Thanksgiving Opening, Oct 15).

Traditions are being trampled on by the Corporate Retail Complex! Of course, consumers don’t have to go. Some won’t, and that’s precisely what the strategy folks at Macy’s are betting on.

The purists scandalized by the thought of shopping on the holiday itself aren’t likely to avoid Macy’s altogether. And with the die-hard bargain-hunters swarming the stores on Thursday, Friday shopping will likely be much more pleasant for those who are a little less committed.

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In the basement of the Kellogg School, there is a cafe. It’s a busy cafe, which says more about the available alternatives than about its absolute quality. Because it gets busy and because a good number of its customers are polite enough to walk out of class five minutes early to beat the crowd, I and my colleagues have learned that it is a much better to plan to go down for a sandwich a little before noon than a little after noon. According to CNBC, Goldman Sachs faces similar issues with queuing in its cafeteria and it actively tries to manage the system (The creepy capital efficiency of Goldman’s cafeteria, Oct 17).

The most crowded time of the day to eat lunch is, naturally, during lunch time. For most people, this falls around noon. This creates the phenomenon of the lunchtime rush hour. You know this all too well if you’ve ever tried to stop in your local chopped salad place at, say, 12:30 in the afternoon.

Goldman didn’t like the idea of its people waiting on long lines to get their lunch. People are capital to Goldman. It wants to use its capital efficiently. Standing on line waiting for dumplings or salad or a burger is not an efficient use of Goldman’s capital. …

The cafeteria has a set of timed discounts. If you show up in the cafeteria before 11:30 or after 1:30, you get a 25 percent discount on your food. Goldman incentivizes employees to avoid the rush hour.

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Congestion is a common problem in services. A large number of customers put demands on the system all at the same time and delays ensue. A few weeks ago we posted about GymFlow, an app that tries to address congestion at health clubs by providing better information. GymFlow doesn’t tell you can’t go to the gym at 5:30. It just points out that the gym is going to be a whole lot less crowded if you got 3:30.

Now the Wall Street Journal has an article on a different way to ease congestion by relying on games and lotteries (Gaming the System to Beat Rush-Hour Traffic, Aug 1). It reports on the work of Balaji Prabhakar, a Stanford Computer Science professor, who has tested out various systems to get commuters to tweak their travel habits. The article’s author discusses his approach here:

Here is a summary of one of Prabhakar’s at his place of employ.

His team recently brought the technique home with a federally funded experiment to help Stanford keep its promise to Santa Clara County to alleviate rush-hour traffic. The 3,900 participants—a significant share of the relevant pool of 8,000 parking-permit holders—installed devices on their cars (soon to be replaced with a smartphone app) and got points for arriving and leaving an hour before or after the rush hour.

The popularity of the Chutes & Ladders-like game stunned Stanford’s director of parking and transportation, Brodie Hamilton. He doubted people would take the time to spin the electronic dice to play it, and insisted that Mr. Prabhakar include an auto-play feature. But, Mr. Hamilton says, “I have people on my staff who play it regularly. People are really into it. Balaji was right!”

About 15% of the trips taken by participants have shifted away from rush hour. Students tend to come and leave later; staff tend to come and leave earlier. Smartphones make all this easier to implement: A new mobile app tracks bikers and walkers and gives them points, too.

Those who commuted off-peak got points to play in the on-line game with a chance to win cash. We are not exactly talking a year’s tuition here. The program’s website touts “random cash rewards from $2 to $50.”

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Check out these two images from the Wall Street Journal (Airline Seats Available for Elite Fliers Only, July 12). Both show available seats on an American Airline flight from LA to New York. The first shows what’s available if you lack any status in American’s frequent flyer program. The second shows what seats are offered to a flyer with sufficient status in the frequent flyer program.

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Untitled copyTo be clear, these seating charts are for the same flight at the same time — all that differs in one’s frequent flyer status. Further, while this example comes from American, other airlines play similar games.

Unlike American, Delta Air Lines shows the Preferred seats it has held back for elite customers, but doesn’t allow regular customers to book them until 24 hours before departure. At that time, Preferred seats are offered for a fee to nonelite-level customers.

US Airways also blocks seats for elite-level customers and labels them Preferred. The airline sells what it calls Choice seats in rows near the front of the cabin for $5 to $99 one-way that don’t have extra legroom but do have early boarding privileges. On the whole, US Airways says 9.5% of its coach seats are labeled Choice. Preferred, Choice and exit-row seating, which is sometimes sold for a fee, account for an average of 30% of coach seats on the airline’s planes.

Those seats open up to customers without seat assignments who don’t want to pay starting 24 hours before departure, US Airways said.

Not to surprisingly, a lot of customers find these games rather annoying. In the American example, there is one seat to be had for free for a non-elite flyer in what can only be described as a crappy location. The article has this wonderful quote “American says it doesn’t think blocking open seats from view pressures customers into paying for extra-legroom or Preferred seats.” which makes you wonder whether the folks at American are naive or dishonest.

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