Executives Zero in on Pricing
This was a timely article! I've been studying for my first BUS 501 test covering marketing, including segmentation and pricing and marveling about the potential complexity of pricing when I took a break to review the latest headlines. This article caught my eye. This is an article dated tomorrow with the subtitle "CEOs Search for Sweet Spot Amid Rising Costs and Tightening Purse Strings". The current economy is producing price-sensitive shoppers and companies are noticing. The article discusses how Starbucks Corp. plans to raise prices of "larger and hard-to-make drinks, while maintaining or reducing prices of some of its other drinks". Other firms are decreasing discounts or tailoring their price raises to particular markets -- for example, Pernod Ricard, maker of Absolut Vodka is raising prices in Europe, Asia and Latin America while keeping "prices flat in the U.S. because of weak consumer confidence". The article also cites Royal Caribbean Cruises Ltd. which has a total revenue growth of 7.1% over the same quarter one year ago -- the cruise operator may adjusts hundreds of prices in a single day!
I found this article interesting because it reinforced some of the concepts we've encountered in the last few weeks including pricing strategies and determinants of strategies such as the income effect, which is certainly in play during the current recession. Each company mentioned had a different approach to capture the market that has become increasingly sensitive to price.
Source:
WSJ.com, September 27, 2010
Sunday, September 26, 2010
Tuesday, September 21, 2010
Bridging the Gap: Creatively
The Economist this week ran a brief article about Mayor Richard Daley and his "experiment with privatization". Mr. Daley has been at the helm of the nation's second city for 21 years and "his most interesting legacy...may not be what he gave to Chicago, but what he sold off". The mayor has sold or leased huge public assets to help close budget gaps (or so was planned). In 2005, the city leased the Skyway tollway for 99 years at $1.83 billion, parking garages in 2006 for 99 years at $563 million and parking meters in 2008 for 75 years at $1.5 billion. Apparently a plan to lease Midway airport failed during the early part of the recession. While the tollway and parking garage deals were very successful, the parking meter takeover was very unpopular -- leading citizens to revolt against higher parking fees by filling coin slots on meters with glue.
While these moves were intended to fill a budget gap, the money has not gone very far. The article estimates that by 2011, "Chicago will have gobbled up nearly 75% of the proceeds from the 75 year (parking meter) lease". As most voters "want leaders to balance budgets without federal help, higher taxes or cuts to schools", more cities are looking to Mayor Daley's experiment. "Dana Levenson of the Royal Bank of Scotland counts about 50 pending deals in North America (for privatization of prior public services) worth between $35 billion and $40 billion."
I found this article quite interesting in light of our discussion in class last night regarding how governments raise money -- essentially taxes -- and how there are some goods that we don't trust to the private sector -- such as our public safety. It does however appear that certain public services can be successfully privatized -- parking and possibly even roads? It makes me wonder what the state of Illinois could sell -- the idea of pricing a public service is simply mind-boggling!
Source:
The Economist, September 18-24, 2010. p42.
The Economist this week ran a brief article about Mayor Richard Daley and his "experiment with privatization". Mr. Daley has been at the helm of the nation's second city for 21 years and "his most interesting legacy...may not be what he gave to Chicago, but what he sold off". The mayor has sold or leased huge public assets to help close budget gaps (or so was planned). In 2005, the city leased the Skyway tollway for 99 years at $1.83 billion, parking garages in 2006 for 99 years at $563 million and parking meters in 2008 for 75 years at $1.5 billion. Apparently a plan to lease Midway airport failed during the early part of the recession. While the tollway and parking garage deals were very successful, the parking meter takeover was very unpopular -- leading citizens to revolt against higher parking fees by filling coin slots on meters with glue.
While these moves were intended to fill a budget gap, the money has not gone very far. The article estimates that by 2011, "Chicago will have gobbled up nearly 75% of the proceeds from the 75 year (parking meter) lease". As most voters "want leaders to balance budgets without federal help, higher taxes or cuts to schools", more cities are looking to Mayor Daley's experiment. "Dana Levenson of the Royal Bank of Scotland counts about 50 pending deals in North America (for privatization of prior public services) worth between $35 billion and $40 billion."
I found this article quite interesting in light of our discussion in class last night regarding how governments raise money -- essentially taxes -- and how there are some goods that we don't trust to the private sector -- such as our public safety. It does however appear that certain public services can be successfully privatized -- parking and possibly even roads? It makes me wonder what the state of Illinois could sell -- the idea of pricing a public service is simply mind-boggling!
Source:
The Economist, September 18-24, 2010. p42.
Saturday, September 18, 2010
UPS New Marketing Strategy
This is more of an observation of a new advertising campaign by UPS -- "We <heart> Logistics" -- a reflection of the firm's move to total supply chain management for the businesses it works with.
This is an interesting move and one that reflects UPS's use of IT to gain success by providing an IT utility to those businesses it services. In my MIS course, we just read Nicholas Carr's article "IT Doesn't Matter" in which he argues that IT is losing it’s strategic importance. The reasons he cites for this assertion mostly reflect the rapid growth of IT to the point that IT has become essentially a form of infrastructure. He likens the growth to the spread of other infrastructural commodities such as electricity and the railroad. When a technology expands robustly, it becomes better shared than used alone. For example, companies found that they became more efficient (productive?) if all invested collaboratively in expansion of the railroad industry. This changed the face of mass production in the mid-1800s. Likewise, IT has become “ubiquitous” and as Carr points out, “what makes a resource truly strategic…is not ubiquity by scarcity. You only gain an edge over rivals by having or doing something that they can’t have or do” (Carr p.42). These points are quite interesting and given the rise capital expenditure to nearly 50% related to IT at the time of Carr’s paper (and book), quite important.
What I took away from the Carr article is that IT does in fact matter, mostly in the way it is managed. Thus for UPS, their expansion of IT to a utility function is a strategic advantage. For the companies that utilize this supply chain management service by UPS, this allows them to minimize their IT expense and focus on the core objective of the firm.
More information on the UPS evolution can be found at thenewlogistics.com -- very interesting!
Source:
Carr, Nicholas. "IT Doesn't Matter": Harvard Business Review, 2003.
This is more of an observation of a new advertising campaign by UPS -- "We <heart> Logistics" -- a reflection of the firm's move to total supply chain management for the businesses it works with.
This is an interesting move and one that reflects UPS's use of IT to gain success by providing an IT utility to those businesses it services. In my MIS course, we just read Nicholas Carr's article "IT Doesn't Matter" in which he argues that IT is losing it’s strategic importance. The reasons he cites for this assertion mostly reflect the rapid growth of IT to the point that IT has become essentially a form of infrastructure. He likens the growth to the spread of other infrastructural commodities such as electricity and the railroad. When a technology expands robustly, it becomes better shared than used alone. For example, companies found that they became more efficient (productive?) if all invested collaboratively in expansion of the railroad industry. This changed the face of mass production in the mid-1800s. Likewise, IT has become “ubiquitous” and as Carr points out, “what makes a resource truly strategic…is not ubiquity by scarcity. You only gain an edge over rivals by having or doing something that they can’t have or do” (Carr p.42). These points are quite interesting and given the rise capital expenditure to nearly 50% related to IT at the time of Carr’s paper (and book), quite important.
What I took away from the Carr article is that IT does in fact matter, mostly in the way it is managed. Thus for UPS, their expansion of IT to a utility function is a strategic advantage. For the companies that utilize this supply chain management service by UPS, this allows them to minimize their IT expense and focus on the core objective of the firm.
More information on the UPS evolution can be found at thenewlogistics.com -- very interesting!
Source:
Carr, Nicholas. "IT Doesn't Matter": Harvard Business Review, 2003.
Sunday, September 12, 2010
How Much Will You Pay For a Movie?
Upon reading this article, I realized I didn't see a single movie in the theater this summer.... Hollywood reported it's biggest "box-office haul in history" but with the lowest ticket sales in 13 years. Easy to understand when you see movie ticket prices these days! The Wall Street Journal reports that ticket prices have risen 20% in the last 5 years from an average of $6.41 to $7.88 this summer (averaging in matinees, children and senior rates). Some of the 3-D movies hailed ticket prices up to $15 for "3-D fees". Last summer I recall reading that with travel down, movie ticket sale were up - in fact by 5%. This years attendance has decreased by 3%. The article indicates that people are spending more time playing videogames, watching television or surfing the internet.
Industry analysts cite a host of reasons for our decline in movie attendance. This was a summer of sequels including "Twilight", "Toy Story 3" and "Iron Man 2" which drew significant audiences but there were no "surprise" hits or "sleepers" to round out the numbers. It seems that 3-D movies were all the rage, after "Avatar" (which I watched at home). However, the ticket sales were not impressive. In fact, some of the high profile 3-D movies including "Cats & Dogs: The Revenge of Kitty Galore" and "Piranha 3-D" (what a terrible idea for a movie!) bombed. Interestingly, these movies were rushed to 3-D format at the "last minute" to replicate the success of "Avatar". This appears to have the industry rethinking the future of 3-D films. Analysts also cited a shorter summer season -- by a week as a source of weak ticket sales.
The revenue side of this Hollywood season rose 2% over last year -- $4.35 billion compared to $4.25 billion. This article means to me that we will most likely continue to pay more for that movie theater experience -- we'll all have to decide the value of that experience for ourselves...
Source:
The Wall Street Journal: Friday, September 10, 2010
Upon reading this article, I realized I didn't see a single movie in the theater this summer.... Hollywood reported it's biggest "box-office haul in history" but with the lowest ticket sales in 13 years. Easy to understand when you see movie ticket prices these days! The Wall Street Journal reports that ticket prices have risen 20% in the last 5 years from an average of $6.41 to $7.88 this summer (averaging in matinees, children and senior rates). Some of the 3-D movies hailed ticket prices up to $15 for "3-D fees". Last summer I recall reading that with travel down, movie ticket sale were up - in fact by 5%. This years attendance has decreased by 3%. The article indicates that people are spending more time playing videogames, watching television or surfing the internet.
Industry analysts cite a host of reasons for our decline in movie attendance. This was a summer of sequels including "Twilight", "Toy Story 3" and "Iron Man 2" which drew significant audiences but there were no "surprise" hits or "sleepers" to round out the numbers. It seems that 3-D movies were all the rage, after "Avatar" (which I watched at home). However, the ticket sales were not impressive. In fact, some of the high profile 3-D movies including "Cats & Dogs: The Revenge of Kitty Galore" and "Piranha 3-D" (what a terrible idea for a movie!) bombed. Interestingly, these movies were rushed to 3-D format at the "last minute" to replicate the success of "Avatar". This appears to have the industry rethinking the future of 3-D films. Analysts also cited a shorter summer season -- by a week as a source of weak ticket sales.
The revenue side of this Hollywood season rose 2% over last year -- $4.35 billion compared to $4.25 billion. This article means to me that we will most likely continue to pay more for that movie theater experience -- we'll all have to decide the value of that experience for ourselves...
Source:
The Wall Street Journal: Friday, September 10, 2010
Friday, September 3, 2010
Whopper of a Deal?
The Wall Street Journal reported today that Burger King Holdings, Inc. has agreed to a leveraged buyout. This is a $3.3 billion deal by the private equity firm 3G Capital Management.
Because of my limited business background, I had to review the meaning of a "leveraged buyout." BusinessDictionary.com defines a leveraged buyout as "acquisition of a firm by raising its purchase price mainly through borrowing secured by the same firm's assets...after the purchase, the loan is paid from the firm's cash flow and/or by selling off its assets." The Wall Street Journal further describes that 3G has debt financing almost $2.8 billion from JP Morgan Chase & Co and Barclays Capital, describing this deal as "highly leveraged." It is also noted that Moody's Investors and Standard & Poor have placed Burger King's debt rating under review, thus reflecting for me the potential risk in this buyout.
Interestingly, 3G Capital Management is a company primarily backed by Brazilian businessman (one a former surfer and Wimbledon tennis star). The company has had holdings in several fast food chains including Wendy's, Jack in the Box and in Anheuser-Busch InBev. Burger King would be the company's first acquisition and would take the Burger King brand private once again.
Relevant to this week's classroom discussion, it appears that Burger King may be suffering from lack of effective marketing. In Thursday's Wall Street Journal, it was reported that franchisees were displeased with Burger King Holdings, Inc. for "scant menu development...focusing on so-called super fans" or a narrow range of potential customers. In contrast, McDonald's has an "expansive menu" that appeals to a broad base of consumers. Analysts and franchisees point to revenue and net income differences. In the last quarter, "McDonald's revenue rose 5% and its net income was up 12%, while Burger King's latest quarterly revenue fell 1% and its profit was down almost 17%." It appears that Burger King needs to create more "want" for its products and more effectively identify potential customers if it is to remain competitive in this industry.
Also interesting to me is the anticipated strategy of 3G to accomplish a more competitive firm. Apparently only 35% of McDonald's revenue is generated in the United States and Canada, compared with 69% of Burger King's revenue. Thus, 3G plans to expand the Burger King brand internationally, in particular to South America, which it seems naturally poised to do. The accompanying editorials seemed to identify this as a lucrative deal for 3G, that will most likely be completed late this year.
Sources:
1. The Wall Street Journal, Thursday September 2 and Friday September 3, 2010.
2. www.BusinessDictionary.com
The Wall Street Journal reported today that Burger King Holdings, Inc. has agreed to a leveraged buyout. This is a $3.3 billion deal by the private equity firm 3G Capital Management.
Because of my limited business background, I had to review the meaning of a "leveraged buyout." BusinessDictionary.com defines a leveraged buyout as "acquisition of a firm by raising its purchase price mainly through borrowing secured by the same firm's assets...after the purchase, the loan is paid from the firm's cash flow and/or by selling off its assets." The Wall Street Journal further describes that 3G has debt financing almost $2.8 billion from JP Morgan Chase & Co and Barclays Capital, describing this deal as "highly leveraged." It is also noted that Moody's Investors and Standard & Poor have placed Burger King's debt rating under review, thus reflecting for me the potential risk in this buyout.
Interestingly, 3G Capital Management is a company primarily backed by Brazilian businessman (one a former surfer and Wimbledon tennis star). The company has had holdings in several fast food chains including Wendy's, Jack in the Box and in Anheuser-Busch InBev. Burger King would be the company's first acquisition and would take the Burger King brand private once again.
Relevant to this week's classroom discussion, it appears that Burger King may be suffering from lack of effective marketing. In Thursday's Wall Street Journal, it was reported that franchisees were displeased with Burger King Holdings, Inc. for "scant menu development...focusing on so-called super fans" or a narrow range of potential customers. In contrast, McDonald's has an "expansive menu" that appeals to a broad base of consumers. Analysts and franchisees point to revenue and net income differences. In the last quarter, "McDonald's revenue rose 5% and its net income was up 12%, while Burger King's latest quarterly revenue fell 1% and its profit was down almost 17%." It appears that Burger King needs to create more "want" for its products and more effectively identify potential customers if it is to remain competitive in this industry.
Also interesting to me is the anticipated strategy of 3G to accomplish a more competitive firm. Apparently only 35% of McDonald's revenue is generated in the United States and Canada, compared with 69% of Burger King's revenue. Thus, 3G plans to expand the Burger King brand internationally, in particular to South America, which it seems naturally poised to do. The accompanying editorials seemed to identify this as a lucrative deal for 3G, that will most likely be completed late this year.
Sources:
1. The Wall Street Journal, Thursday September 2 and Friday September 3, 2010.
2. www.BusinessDictionary.com
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