Advanced Pricing Strategies From The Movie Business

For as long as I can remember the movie business has been reported to be in trouble. When I was teenager it was the VCR that was supposed to kill it. Most recently it has been online piracy – how can you make money when anyone with an internet connection can steal your product.

But Hollywood keeps making money, in no small part because of great pricing strategies. In fact they provide so many great examples of different pricing tactics that they are often featured on the Beyond Cost Plus site.

An article was recently added that summarizes some of the best examples and highlights how Hollywood effectively uses concepts like hurdles, anchoring and more to increase sales and profits.

Few of us might be in the movie business, but almost anyone that sells or prices products can learn from them.

Price Discrimination & Differential Pricing

There is some new content on the Beyond Cost Plus site that looks at the concepts of Price Discrimination and Differential Pricing.

The two have a lot in common, and the terms are frequently used interchangeably, but there are differences. Generally speaking price discrimination is the practice of charging different prices for the exact same, or at least very similar, product. A differential pricing strategy can include product differentiation which allows for a wider variety of product and pricing options.

It can be tricky so there are lots of examples and links to case studies that better illustrate the subtleties.

Cheap Tuesdays – The Best Pricing Hurdle Ever

There is a new post on the Beyond Cost Plus Blog about the tradition of "Cheap Tuesdays" at the movie and how they aren't just an effective pricing hurdle, but a self-propagating pricing hurdle – one that becomes even more effective one implemented.

The basic idea is the promotion appeals to one type of consumer – those most focussed on saving money – which in turn further deters those likely to be willing to pay full price. Since the goal of the original hurdle was to avoid discounting to those customers the whole thing becomes even more effective.

Hurdles As Part Of A Price Discrimination Strategy

Some new content has been added to the Beyond Cost Plus website that looks at the concept of hurdles and how they can be an important part of a complete price discrimination strategy.

In addition to a definition of hurdles (in the context of price discrimination) the new content includes a detailed look at the way a product attribute (in this case color) is effectively used as a hurdle in a promotion that offers special discounted pricing on a specific color or digital thermometer.

It's the specific color part that makes it interesting. If the discount was applied equally to all colors it wouldn't be so fascinating. The fact that the discount only applies to one specific color – which is convincingly described as the least popular color – that makes it a great example of a hurdle used as part of a differential pricing strategy. By limiting discounts to the least desirable color the seller makes sure that only customers who are very focussed on price – and less likely to pay full price – get the discount.

The ad is also interesting because it so beautifully employs some of the concepts explored by Dr. Robert Cialdini in his published works on persuasion and influence.

Diminishing Marginal Utility

Late in the week I was speaking with some florist clients reviewing some content for new pricing sessions scheduled for early in 2015. One thing kept coming up...

What is "Diminishing Marginal Utility" again?

It does sound kind of abstract and complicated but the idea is pretty simple – the more you consume of something the less utility (use, benefit, enjoyment, etc. - it depends on the nature of the product) you get from it.

It applies more to some products/services than others. A classic example is movie theater popcorn, the first few handfuls are great but soon each handful (the increased consumption part) offers a little less utility (in this enjoyment) than the once that came before it. That's part of the reason why the larger sizes are discounted so aggressively (on a per-unit basis, relative to the smaller sizes).

It doesn't really apply to something like gasoline, where each unit of fuel offers the same benefit as the unit that came before it.

There is a good definition of diminishing marginal utility, along with some interesting real world examples (of it and other common pricing terms and concepts) at the Beyond Cost Plus website.

Beyond Cost Plus Sessions For 2015

The first two Beyond Cost Plus sessions have been booked for 2015. They'll take place in March at the Great Lakes Floral Expo in Grand Rapids and the Wisconsin/Upper Michigan Florists Association in Green Bay. More details on dates and times can be found on the Beyond Cost Plus website.

These pricing sessions will be a little different than what we did in 2014. Those sessions focussed primarily on pricing the standard fixed price "catalog" type products that florists typically offer off-the-shelf.

The new sessions are going to look at different but very important part of the retail flower business – quoting weddings and events. It draws on our experience in the industry, the collaboration of a focus group of forward thinking and very successful flower shops, and an approach to quoting successfully used by (believe it or not) software developers as they price jobs from $500 to $500,000.

It really is a new take on quoting flowers for weddings and events – one that should mean fewer missed quotes and higher profits.