Smart ideas about pricing from Trish Gorman
My good friend and colleague, and Dean of the Jack Welch Management Institute, Trish Clifford, had a very thought provoking post over at her Forbes blog on where Netflix went wrong in its latest strategy kerfuffle, particularly with respect to pricing.
She makes the point that one can either price cost-plus, price to market or price to value. One of the biggest challenges I see with growth businesses, in particular, is figuring out what that value really is and pricing accordingly. As Trish points out, Netflix committed some cardinal sins in this regard, particularly surprising its customers with a steep price increase and confusing them with an on again off again strategy to abandon DVD's by mail and switch to streaming. Worth a read!
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- Posted Rita McGrath on October 13, 2011
Early warnings of a bubble in housing from 2004
It's amazing, isn't it, how often we ignore sensible advice when it seems unfashionable or less than desirable? I was thinking of that when I ran across an article published in Money Magazine in 2004.
Among the author's observations:
- Owners have unrealistic expectations
- Housing is increasingly unaffordable (too many millionaire mansions)
- Signs of a slowdown are emerging in many areas
- Housing debt is getting worse
They conclude with the cautionary note: If something can't go on forever, it won't. Had we but listened!
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- Posted Rita McGrath on October 12, 2011
Link to Rita’s webinar on complexity is now live
If you missed my September 28, 2011 webinar on "Learning to Live with Complexity" and would like to see it in recorded version, you can do so by clicking on this link.
The webinar discusses why complexity is different from the merely complicated because you can't predict the outcome by knowing initial conditions, and how living with complexity calls for somewhat counter-intuitive management practices.
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- Posted Rita McGrath on October 06, 2011
Rita Gunther McGrath short-listed in strategy category by Thinkers50
Rita Gunther McGrath was short-listed in the strategy category by Thinkers50, a one-every-two-years compendium of the world's top business thinkers. The category considers who CEO's would turn to for practical and imaginative strategic advice. Awards will be announced at a major event in November, 2011.
The complete shortlist can be downloaded here.
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- Posted Rita McGrath on October 05, 2011
So much for “Keep the Change”
In 2005, Bank of America did something very unusual - they introduced an innovation in financial services that customers actually liked! Called Keep the Change, the program targeted young women who were terrified of running up credit card debt and so used their debit cards for everything from coffee to the newspaper. Consultancy IDEO helped with the design of the program, by observing how the target customers kept track of their spending. Rather than noting each amount precisely, they would round up to make the record-keeping easier, then reconcile their accounts once in a while. The innovation was to 'round up' the purchase to the next dollar, and put the difference between the cost and the next dollar into a savings account linked to the card. Brilliant. It won a design award in 2007, attracted reams of new deposits and has been, I'm told, really good for customer loyalty. I thought the example was so great that I've been using it as an illustration in class.
Well I guess it was fun while it lasted. B of A has just announced that they are going to levy a $5 monthly fee for its customers that use debit cards. Swipe it once, swipe it 50 times, same card fee, with some exceptions for certain higher worth accounts. I think this has every indication of being what my colleagues and I call an 'enrager' - a move by a company that is highly emotionally charged in a negative direction. Seems to me that the very customers "keep the change" attracted (and to whom BofA, like every bank on the planet, is paying virtually nothing to hold onto their deposits) will flee in droves to avoid the fee.
It also violates a number of basic principles in the contract between a company and its customers. Firstly, it is not proportional to use. Even telephone operators (themselves not the most beloved of organizations) allow you to some extent to pay for what level of service you think you will use! Further, and this is just simple business, the company is adding no more differentiation or value, but expecting customers to pay more. BofA, for the time being, stands alone, so there is nothing to prevent enraged customers from yanking their deposits and walking across the street. In the 5 mile radius around where I live, there must be branches of 20 banks, quite happy to take that money. I wouldn't be surprised if the bad vibes this produces have a negative effect on those customers BofA wants to keep, meaning that they aren't just going to lose expensive to maintain low-balance customers but possibly the higher end ones as well. Finally, the profile of people who tend to use debit cards - like my daughter, a college student - are really going to notice that $60 disappearing over the course of a year.
Note to self: Perhaps change our daughter's bank.
I guess I'll be rewriting my slide deck.
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- Posted Rita McGrath on September 30, 2011
