Pricing & Experiments

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I find it interesting that there are so many Coca- Cola related studies to turn to.  It seems that through good and bad economic times, internal company mistakes and Coke vendor mistakes, Coke has been able to weather the storms and maintain its premier beverage status.  I used to think that Coke was so often referenced in my undergraduate studies because we (as a University) were so close to Atlanta,GA – I suppose I was wrong!  The articles we have discussed about the European Coke fiasco and the Coke pricing “experiment” mentioned in the pricing article are all very interesting.  The demand for Coke simply will not disappear because of a pricing or a scare, it may decrease for a time but I don’t think it will disappear.  I do not feel that Pepsi is a replacement for Coke (and although it was discussed as such in Economics class, I disagree).  In the article, Pepsi seemed to use the Coke automated machine trial as leverage towards their customers, but I am sure that Pepsi is doing something similar in a less obvious (or less talked about) way.

I also thought the writings about the airline industry were quite interesting – however, how do we really know what the “going price” for an airline ticket is?  True, we do set prices as the consumer based on when we purchase our tickets and through what outlet – however when I went to look at ATPCO to see what the published fares are, I had to purchase the information if I was going to get this info. So for now, I do not know!

In my Experience…

My experience with pricing at my former employer seemed to be based on an annual number “we had to hit” and then the sales person “calculates” the monthly number from that (in my situation, the annual number was just divided by 12).  The problem here was that we couldn’t possibly hit that number each month, some months would be low and some would be high (strictly because projects don’t begin and end on a monthly basis, many take several months to complete).  This caused a great deal of frustration amongst the packaging project managers because there was a great deal of un-needed stress added to the job at each months end.

In the not so distant past, artwork for a single label could earn as much as $20,000 for Diageo, a the largest client at Matthews.  This quickly changed once our 3-year contract was up.  In order to secure another 3 year contract, the average price for a label was now less than $900 due to the desire to keep the contract.  At this point, it seems that our beloved account was no longer the cash cow for our company.  The “contract” was often quite a mess and had many discrepancies causing a lot of confusion.  Pricing for the artwork was not consistent with the actual cost that would be incurred by Production Artist & Quality Control checking time that would be used.  For awhile, additional revisions were not taken into consideration either.  There was a large amount of work that would go through our system upwards of 5 times due to the client changing their mind.  This was not just occurring on the Diageo account, however, it also happened with several other client contracts – ‘do more for less’ seemed to be the theme.

Although artwork is a relatively intangible service, Matthews prices their printing plates at a premium.  We are able to calculate the materials, size, and time needed for each set of plates in order to come to a price.  The running joke and the real cash cow for Matthews seemed to be shipping costs.  With a special contract from FedEx, we were able to set a high price for shipping and that was probably the only cost that was full recuperated.  While the competition dictated our pricing to an extent, we were also guaranteed for a time period due to a contract.

Diageo’s perceived value was skewed; while many saw us as a valuable partner, some felt just the opposite.  It was much harder to have an approved estimate through those who were against using us to do the artwork because they did not see our value – only a contracted supplier that they had to use.  For those that recognized that we were willing and able to do just about anything, money was no object – we were approved to charge high prices for overtime and asked to do many design iterations at whatever we needed to charge to get the work done.  Ideally, you want the entire corporation to be on your team in this regard.

The best way that Matthews thought to improve profit (or create profit) without raising prices was to minimize mistakes.  There were several Six Sigma projects going on throughout various departments.  With regards to the artwork revisions, we found that internally, we were spending a lot of time revising spelling errors in the legend that we create (and does not affect the customer’s artwork, but of course these errors do not go unnoticed by the customer).  The ideal solution for this was to automate the process so that data was pulled directly from the job ticket into the legend.  To date, that has not happened.

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