Meissner Research Group

The New York Times announced this week that they would again charge customers for online services. In this new system, non-subscribers (subscribers to the newspaper will have full access to online content) can read a handful full of free articles a month, but after using their allotment, will be forced to pay for an unlimited online subscription. Or, at least, wait until the next month.

This move comes as a form of déjà vu, as this is similar to a failed plan for The New York Times from 1996 that attracted only 4,000 subscribers. After several attempts at paid online services, the Times went free, hoping to attract enough advertisers to cover costs, but because of the recession, they’ve spent the last year developing new plans. The company released a statement containing the reasoning that this will enable NYTimes.com to create a second revenue stream and preserve its robust advertising business. Janet L. Robinson, CEO of The New York Times Company, added (The Times to Charge for Frequent Access to Its Web Site, New York Times, January 20^th, 2010):

We were also guided by the fact that our news and information are being featured in an increasingly broad range of end-user devices and services, and our pricing plans and policies must reflect this vision.

With the creation and mainstreaming of portable devices, like the Apple iPhone and the imminent iPad, that can read the Times anywhere and can fit in your pocket, the Times, and all newspapers like it, must evolve. This leaves the question of while the company will spend 2010 building an infrastructure for this program, can they ever hope to keep up with the changing ways newspapers are read and still manage to charge people. Arthur Sulzberger Jr., the company chairman and publisher, responded:

This is a bet, to a certain degree, on where we think the Web is going. This is not going to be something that is going to change the financial dynamics overnight.

The New York Times is taking what might be viewed as a risky move in the already embattled journalism field. However, the time of the announcement is to be lauded. With the announcement of the Apple iPad next week, this is the best timing to make users view content in a different way. This often is the key to a price increase, introducing a different version or modification of the product. Customers will, more often than not, walk away from raised prices, especially in the case of the Times, since the product used to be free. By allocating their content into something that the customer can see as having actual benefit (like being able to access it anywhere), then the Times may have a chance to attract customers while they were unable to do so before (when portable devices didn’t exist). So, while the timing is perfect, it remains to be seen whether the action pays off big or the free-for-all online culture will prevail.

While we teach in our pricing courses that valuable service components should be unbundled and attract an extra charge, Ryanair has once again been brought to the consumers’ attention for its unfair unbundling practices. The whistle blower this time was John Fingleton, the chief executive of the Office of Fair Trading, who said the following in an interview with The Independent (‘Puerile’ Ryanair under attack by OFT chief, January 4, 2010):

Ryanair has this funny game where they have found some low frequency payment mechanism and say: ‘Well, because you can pay with that [the charge is optional]. It’s almost like taunting consumers and pointing out: ‘Oh well, we know this is completely outside the spirit of the law, but we think it’s within the narrow letter of the law’.

Until last month, the VISA Electron card was the payment option that attracted no surcharge. Now the only payment option without a fee is a prepaid Mastercard, which of course is not widely available and quite inconvenient to use. Advertising rules in the UK (and possibly in the European Union) stipulate that an advertised price includes all non-optional charges. The charge is disclosed only on the very last step of the booking process, making it impossible to compare the total price for the trip upfront.

But even the chief executive of the consumer watchdog acknowledges that it will hard to change by regulatory action, but hopes his public outcry will to customer reaction:

It would be silly to go after something like that every time because they would quickly change it to something else, and it’s trying to establish a general principle that what’s not optional is not in there. Consumer anger and frustration, and an element of transparency, often changes these things much quicker than legal action.

If in case you wonder: usage of lavatories on Ryanair flights is still free at this time, at least on my recent flight back from Germany to England. Ryainair’s CEO Michael O’Leary had toyed with the idea of charges for a visit during the flight, too (Pilots aghast at Ryanair toilet charge, Times Online, February 27, 2009). I read somewhere Boeing had problems building the payment mechanism into the doors on short notice. So maybe I just beat the flight attendant with a credit card reader to the door.

Depending on which politicians and pundits you listen to, they will tell you that at the beginning of this new decade, the economic recovery has not only started; it has happened. Whether or not you believe them doesn’t matter. At the beginning of this new year, you and your company are going to face an upturn as the market slowly pulls itself from the recession.

Now that your company has survived the recession, your pricing will have to reflect the new market. As an executive, you must become your company’s watchdog, keeping an eye on the market, your product, and your company, all to discover exactly where your price point should be. Here are several ideas to keep you and your company in the black in the coming upturn.

1. Don’t Jump the Gun

   This isn’t the free-for-all market economy anymore. After the recession, customers are still weary of big, corporate business and are just as likely to walk over to your competitor as they were before (and during) the recession. If you lowered your price point in a price war to survive the recession, you’re still stuck with that price point. Price points rarely rise after they’ve been lowered for any amount of time, even if the market (or inflation) shows they should be raised. The one thing customers hate even more than faulty products are rising prices, and if you think you can return to pre-recession pricing, your customers will disappear more quickly then they did during the recession. You will need to be careful and if you feel there is resistance to accept a price increase, you might consider introducing an improved version of your product and phasing out the old one.

2. The Market Still Fluctuates

   The thing about our current market era is that everything changes and will be likely to continue to change until further notice. Every day is a new battle. The coming months, overall, will be marked by a slow rise of growth. But the stability in that growth hasn’t happened yet. We no longer live in a period of continual growth, and your pricing should reflect that. Just because your profits are up last quarter thanks to a boost in holiday sales, doesn’t mean that your market is back to what it used to be (or even close to what is used to be). Any particular market could still come crashing down. Be wary that data about consumer demand, such as elasticity, might be outdated faster than you would wish, and customer preferences can quickly shift. As such, it is important that you run constant price trials to be ahead in these time of change.

   Resting on your laurels will only lead to frustration and money loss. As the executive, it is your job to watch the market and predict when the rises and the falls will happen. And then price accordingly.

3. The New Pricing

   Throw away old ideas about price wars and simply having the lowest price. Customers, themselves having survived a recession just like your company, are smarter and far more savvy than they used to be. Instead of creating a price war that is bad for everyone but the customer, take your services and your products and find new ways to market and price them.

   The first step is to keep your existing customers. In a scramble for new customers that may have more extra capital then they did six months ago, don’t forget about the people who got you through the recession. Look for reasons why they stayed with your company and reward them with services and products that reflect those reasons. If you’re an internet and telephone company and your customers chose you over a competitor because you promised them a free phone line for signing up, then give them that free line for another year if they decide to stay. Keeping these core customers should be priority one.

   For new customers, add tangible value to your offerings. Instead of raising the price on your old products and services, add new services, upgraded products, or something else that the customer can actually see as being beneficial to them. Once a customer sees the benefit in your offerings, they will be more than happy to pay a higher price. Just remember to offer these new deals to your old customers, as well.

Essentially, creating a healthy profit from the upturn is as much a challenge as surviving the recession. As the executive, you must take responsibility for your prices and be aware of everything that happens in your market. The market is in flux, and while your prices can’t be constantly changing to reflect that, your pricing strategy must. Be prepared to implement a new strategy the moment the previous one no longer works. By doing so, you’ll create a precedent that will help your company take advantage of the upturn and generate more profits. The market fluctuations might even offer a rare chance for well-prepared pricing managers to get a greater market share without compromising profitability.

The number of applicants to graduate programs, including MBA and other business programs, are skyrocketing thanks to the recession and the continued high unemployment rate. Added in to the normal mix of business-minded professionals who are either looking to advance their careers or change career paths entirely, a large portion of MBA applicants are in heavy competition to land a job to get them through the next few years of trying times.

But for those who believe once they have gained admission to the MBA program of their choice, I have some bad news, just getting into an MBA program may no longer be enough. In particular, job recruiters, especially in these high unemployment times where each job is getting hundreds, if not thousands, of qualified applicants, may still request to see an applicant’s GMAT scores before deciding to interview her/him.

While the GMAT score might not truly represent a person’s qualifications, it is widely accepted that there is a correlation between a person’s score and a person’s ability, especially in quantitative intensive work. Therefore, job recruiters use it just like many MBA programs: as a bottom line to quickly eliminate the weakest applicants.

Job recruiters might see this as a complete win, as they can now immediately disqualify any resume, without even reading the rest of it, that either doesn’t have a GMAT score listed (if it had been requested) or doesn’t hit a certain number score. It saves time and money, essentially making the employer happy. If it means they might miss out on interviewing one or two great candidates who just don’t take tests well, most recruiters are all right with that. Job markets and job searches are so tough right now that some recruiters have openly quoted a desired GMAT score at 700, in other words, a result within the best 10 percent of all test takers.

I have always advised those MBA students at Lancaster University Management School to retake the GMAT if their test score is below 720 and if they aim to apply for competitive positions, for example management consulting or investment banking. The job recruiter doesn’t care if you got your best GMAT result before your MBA admission or after, just as long as you can prove you’re just as good, or hopefully even better, than the next guy.

In a recent interview with German business newspaper Handelsblatt, Lufthansa’s Deputy Chairman Christoph Franz mentioned that the airline will implement several strategies so far employed by flow cost competitors (Lufthansa will Billigflieger kopieren, Handelsblatt, November 17, 2009). On certain short routes, the pitch between seats will be reduced. Kitchen and wardrobes will be completely removed to create more space for passengers. Franz mentioned that Lufthansa will have to let go of the old strategy that the profitable long haul business is subsidizing the less profitable short haul routes.

Most importantly, Franz admitted that Lufthansa has underestimated the competition by the low-cost carriers. After some initial panic following the arrival of Ryanair, Easyjet, Air Berlin and others on the scene, most incumbent full-service airlines had settled on the thought that low-cost passengers are a different bread and that their current customers will stay with them not matter what. They now realize that this leniency is dangerous.

For us this is good news, as this might spark some renewed industry interest in choice modeling in network revenue management. Doctoral candidate Arne Strauss and I have been working on improvement in this area for some time now. See for example our articles ‘Pricing Structure Optimization in Mixed Restricted/Unrestricted Fare Environments’ and the upcoming ‘Improved Bid Prices for Choice-Based Network Revenue Management.’