And yes. This is a quote I have stolen from Warren Buffet. For me, this quote is constant reminder that we always have to look at our products and services from our guests perspective. And our guests will only continue buying these, if they believe that the value they receive, are greater than the price they are paying.
Being in the middle of price-hike-season, I think this quote is worth remembering. And it is very much in line with how I look at pricing. My thoughts on this issue has been formed by two, very different personal experiences the last 25 years:
The first took place in the late 90’s. I was on this big US theme park trip, that I had been saving up for. And on this trip, I went to this particular park, that I had been looking very much forward to visiting. I drove for hours. Parked. I went to the ticket booth, and wanted to buy a ticket.
And here, I had this weird experience. The – very kind – ticket sales assistant asked me, if I was a member of AAA? No. Had I rented my car through AVIS? No. Did I stay at a Marriott Hotel? No. Did I fly with Delta? No. Finally she gave up, and reached in her drawer, and found a discount coupon, which I guess she had cut out from a newspaper. Because she really wanted to give me that discount. And in her mind, she could not believe that I was prepared to pay full price.
I saved seven bucks, but learned something far more valuable. That discounts can hollow out our pricing structure. And do lasting damage to the way the guests – and in this case, staff – perceive our prices. In short I learned, that if the price we list is not the price people pay, we shouldn’t list it. And I learned that discounts have to be handled very carefully. Discounts are a bit like a drug – very easy to get hooked on, but very difficult to clean up afterwards.
The second experience that formed my view on pricing is very related to the Warren Buffet quote above.
When I came to Liseberg in 2011, it was in many ways a very well-oiled machine. Strong brand, robust finances, experienced organization. But we also had some challenges. And one of them was pricing.
Because we had a dominant position in the marketplace, we had over a period of time used the pricing tool a bit to enthusiastically. It was, a little simplified, easier to add an extra 2-4% to our lead prices, than it was to find the same 2-4% in cost-savings. And the guests seemed to accept these continuous price-increases.
Until one day they didn’t.
And we were reminded about the old rule, that every day, every guest, cast their vote at the ticket booth. And this 2011-referendum wasn’t pretty.
It was, however, a very valuable wake-up-call for us. And we had to look very carefully at our pricing strategies and structure. I guess that we had fallen in trap that most of us do: We price inside-out, not outside-in. We usually justify price increases with investments, quality improvements or rising costs. But instead we should always look at value. Take the guests perspective. And be honest about it.
Today we constantly challenge ourselves, when we price our products. We try base our decisions on data – typically guest surveys on price elasticity. And – first and foremost – we use the price-tool with great deal of respect: Just because we can, it doesn’t mean we should.