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Do you want that now, later or whenever? James Cryer on the virtues of variable pricing

Tuesday, 05 May 2015
By James Cryer

Our resident industry sage ponders ways and means of solving that most vexatious of all printing questions: how to maintain margins in an increasingly competitive market?

I know it’s normally not good form to adopt the ‘bad guys’ as role models but sometimes we can learn from those who view the world through a different prism. Currently, there are two high-profile corporations copping flack and widespread condemnation.

I refer to Australia Post and UberX.

Putting aside the question of whether they are under any obligation to perform a public service, or whether they are simply commercial creatures striving to make a profit, they do have one thing in common. They are both exploiting the benefits of ‘variable pricing,’ although in Australia Post’s case it is charging a higher price for a slower service, something only a government-owned monopoly could do.

UberX has been accused of predatory pricing and of taking advantage of passengers, although these accusations seem to come exclusively from the NSW Taxi Council, another cosy, self-appointed near-monopoly.

They may be doing it clumsily, without adequate explanation, but what they are doing, in principle, makes perfectly good sense.

In fact everybody’s doing it; airlines do it, hotels do it  (last minute dotcom) gas/electricity utilities do it with off-peak rates, even public transport does it (off-peak fares)… the list is endless. The practice is not new and it goes on in many guises and under different names, from Australia Post’s ‘two tier pricing model’ to more imaginative ones like UberX’s ‘dynamic pricing’ or ‘surge pricing” to its detractors. But whatever you may call it, it’s simply ‘demand management’ by any other name, i.e. matching demand to available capacity and using price as a marketing tool.

But if it’s that good, why isn’t everybody doing it?

Because some traditional, craft-based industries, like building and printing, still operate on the premise that you first must cover the cost of your raw materials, then put a mark-up to cover overheads – and that’s it!

What about emerging new technologies, like 3-D printing? If they followed that approach, they’d sell a model of a new kidney that would save a life, or a model of a building that will net a developer a few million for a few dollars! In this era where the cost of materials is going down and the value of IP is going up, it makes more sense to price according to ‘capacity to pay ‘ than the old ‘cost plus’ model.

But how to do it in our industry? You can’t ring up every client and ask, ‘How much do you reckon you’ll make out of the marketing campaign we’re printing these inserts for?’ There is, however, a compromise technique. We can base the price more around the sense of urgency that attaches to each printed job, while not forgetting it still has to cover all our costs in the long term.

All pricing sends signals. Why not employ ‘pricing signals, the way UberX does, to better manage demand for taxis, which fluctuates wildly during 24-hours – rather than the way the Taxi Council does, which is to have not enough taxis when you want one and too many when you don’t.

Or, the way Australia Post does it: ‘pay a bit less if you don’t want it in a hurry.’

Now I know it irks us to admit it, but that’s not a bad idea, which could easily be adapted to our industry. For years, when it comes to ‘delivery performance’, we’ve been over-promising and under-delivering.

We’ve created a monster where we don’t give the client any incentive to wait a little longer for his job, during which time we can more efficiently gang it up with others. And clients play the opposite game where they say, ‘I may as well pretend it’s urgent, they’re not going to charge me extra for a rush job. There’s no penalty for ‘crying wolf” by saying I need it in a hurry.  So I might as well, and impress the boss! ‘

The printing industry is a messy business at the best of times. We have constantly changing press capacities combined with an alarmingly erratic order intake. This is a recipe for ‘variable pricing’ if ever there was one. But what do we do? Persist with quoting each job on how much paper and press time it takes, regardless of capacity!

We don’t have to ask each client, ‘How urgent is your job?’ We just do what the rest of the world does and charge more if you want it urgently and less if you don’t. Even the photo-kiosk across the road (a machine, mind you) asks me: ‘Instant’, ‘Same Day’ or ‘Next Day,” before allowing me to proceed.

With modern quoting software it’s easy to provide three price breaks – depending on whether the client chooses ‘Urgent’, ‘Normal’ or Not Urgent.’  It’s up to each printer to determine what defines each of these groups and what price differential should apply. But that doesn’t detract from the principle: in our service-based industry, with its limits to capacity, and where demand is variable, it’s absolute madness NOT to have some form of price signal to regulate demand.

I’ve run this proposal past many people and a common refrain is: ‘It wouldn’t work, because all clients would demand urgent delivery but refuse to pay the premium.’

Firstly, that probably would NOT be the case.  We may be surprised to find out how many clients will go for the slightly lower rate, because the job isn’t urgent after all. They think they’ve won a price reduction

But, if we give in to clients who would bully us into demanding urgent delivery without paying some premium, it says more about us not understanding our true costs! We all know rushed jobs are notorious for incurring additional costs in all sorts of ways – from mistakes, to extra overtime, to the risk of annoying other customers whose jobs get pushed back.

Perhaps this sense of every job being a rushed job is simply our own self-inflicted injury because we don’t provide any incentive for non-urgent customers to wait at the back of the queue where their jobs can be mixed-and-matched with others. This may provide the ultimate irony: ‘low price’ jobs delivering the highest margins!

One-size-fit-all pricing is a thing of the past, particularly with software systems that monitor and predict press-loadings. Variable pricing may be the missing link that will deliver better margins without increasing prices.  If it’s good enough for hotels, airlines and taxis, it should be something we put to the test.

One Response to “Do you want that now, later or whenever? James Cryer on the virtues of variable pricing”

  1. May 06, 2015 at 9:54 am,

    said:

    Great post James, this is exactly the sort of strategy discussion needed. The skill of the sales person, sophistication of the organisation and their ability to identify the right pricing for the right client is indeed an important factor.

    Strategic selling involves moving up the hierarchy from product, to solution and then to strategic partnership. Value then becomes highly linked to unique capabilities and cannot be as easily commoditised. This requires the organisation to have far more sophisticated sales teams that can truly add value in strategic discussions and campaigns.

    Not sure about the linkage to turnaround time… There could be many unintended behaviours encouraged perhaps. For example, customer X: “well we got it cheaper and faster from Y print, thanks for the call though.” There are few monopolies in print around product similar to Aus Post.

    Thanks once again for this.

    Lance White

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