When the Lobster Goes Bad

 

Above: Facebook ad for The Hill Store 

You gotta wonder why any sane marketer would discount a $1,200 product by 97%.

Maybe the lobster went bad.

Norma’s, a tony Manhattan brunch spot, is famous for its $2,000 omelette—the world's most expensive, according to Guinness World Records. 

Norma's omlette commands that price because it's larded with fresh lobster, and because "playful extravagance is the whole theme of our menu," according to the restaurant's VP of marketing. 

Were Norma's suddenly to cut the omlette's price by 97%, you'd likely suspect the lobster's gone bad.

Why some marketers are so stupid about pricing eludes me. 

Rock-bottom pricing makes no sense for quality brands. Never ever ever.

Quality brands are about value and trust. Value comes not from price, but from the brand's ability to deliver on its promises; and trust comes from the brand's legacy. 

When a brand trumpets a rock-bottom price, it confuses its customers—both prospective and past.

However, with the goal of driving easy sales, misguided marketers will discount, sometimes deeply.

But a 97% discount? Why not a 100% discount? In other words, a free sample. Now you're talking. Who can resist a free sample?

While not every quality brand's position is "playful extravagance," no quality brand's position is "rock bottom." 

Rock bottom only says the lobster's gone bad.

Price Wars

While shares of retailers like Macy's and J.C. Penney continue to plummet, shares of Apple climb. Apple is not only the world’s most valuable publicly traded company, it has generated better investor returns than any since 1926, including blue-chip stalwarts like Dupont, GM, and Procter & Gamble.

Why? The answer's simple.

Whereas mass retailers like Macy's layer flash sales on top of loyalty programs on top of coupon discounts on top of even more discounts for using their branded credit cards, Apple sticks with price integrity (and a premium price, at that).

While retailers engage in relentless price wars, Apple enjoys peaceful prosperity.

Retailers brought the wars on themselves.

"Retailers could have chosen to focus on deep customer insight to deliver more relevant personalization," says consultant Steven Dennis. "They could have invested in product innovation. They could have seen their physical stores as assets to leverage in creating a more harmonious and remarkable customer experience, rather than as liabilities to cost reduce and shutter."

Meantime Apple and its shareholders flourish.

There's a lesson in this―or 10 lessons.

HAT TIP: Many thanks to Ellie Summers for offering me her infographic.

If You Have to Ask, You Can't Afford It

A new study from Cornell's Center for Hospitality Research shows restaurants will soon start charging diners for reservations.

"This is a logical extension of the revenue management principle of pricing a service to match demand," says Sheryl Kimes, co-author of the study.

Some app providers already charge a premium for hard-to-get reservations at trendy spots; and some auction off those reservations.

Demand, surge and dynamic pricing in fact surrounds us (think of your electricity company, local toll roads and summer rental properties), even though—as Uber recently learned—it's considered inhospitable.

Only restaurateurs and economists—who insist it boosts supply—would say demand pricing isn't just plain, old-fashioned price gouging.

What would you say?

How to Make a Bundle

New research from Harvard Business School and Carnegie Mellon University shows that bundling products can increase purchases significantly if customers have the option to buy the products separately.

Studying sales of video consoles and games, the authors of The Dynamic Effects of Bundling as a Product Strategy found that bundling in fact increases product purchases.

However, if customers cannot compare the prices of the products when sold individually to the prices of the same products when bundled, many will undervalue the bundled products and postpone their purchases. 

That's because they assume the products must drop in price eventually, so savings will be theirs by waiting.

So if you want to drive sales of bundled products, be sure to also price and offer the products individually.