#pricing

Schumpeter:

A third route to charging more is to manage customers’ expectations better. In the early 2000s executives at General Motors were told to wear badges with “29” on their lapels, as part of a disastrous plan to get back to a 29% market share in America. This merely reinforced car-buyers’ assumption that GM would offer them whatever discounts it took to shift its metal off the forecourts, putting the firm on the road to bankruptcy. (Last year its market share fell to 17.5%, its lowest since the 1920s.) Once customers know that a firm’s price list is a work of fiction and that it will resort to discounts as soon as sales dip, it will be a long haul to get them used to paying full price, let alone accepting increases. Simon-Kucher’s consultants praise DHL, a logistics firm, which spent years drilling into its customers that whatever the economic conditions there will be a rate rise each year.

Two thoughts:

1) The “29” badge was clearly a disaster waiting to happen.

2) As someone who spent the early 2000s in the Detroit-metro area, I remember thinking the massive price cuts were a huge mistake. Why would I ever buy one of their cars at the regular price when I now knew that regular price was a work of fiction that evaporated when times were tough? Why not just postpone buying until times got tough again? Especially since my lack of purchase was directly related to the return of tough times.