Canny pricing in a slowdown

There is a super feature on pricing strategies from Adam Jones’s management blog on the Financial Times web site - available here

Canny businesses are willing and able to adjust their pricing strategies to suit ever changing business consumers. The key seems to be in having good market intelligence about which consumers have a demand that is sensitive to price and those who spending on goods and services is affected more by changes in real take-home income. Deep discounting is often observed in an economic slowdown or outright recession as businesses look to shift unsold stock, maintain sales volumes and generate extra cash to tide them through the tough times. But as the FT blog points out, offering discounts to consumers can risk unleashing an unwelcome price war (which damages profit margins) and overly-aggressive discounting can ultimately damage the brand.

There is a bit more on pricing do’s and don’ts in a recession here

Asian Rice Crisis

The credit crunch is rivalled, arguably, by increasing food prices as a cause of economic (and human) concern in 2008.

This article from the BBC looks at some of the implications and you can watch/show videos on the rice crisis here.

Inter-related markets: Farmland prices

There is an excellent example of the inter-relationships between markets in today’s Independent.

“The price of farmland is rising at its fastest rate for more than 30 years ....Arable land, in particular, has become so profitable that its average price has soared from £4,000 an acre in January last year to £5,500 an acre today.....The increases are being fuelled by the astonishing demand for agricultural holdings at a time when food prices are at an all-time high and when very little farmland is coming up for sale ....The price of wheat and other cereals has more than doubled in 12 months. While that means the cost of food is going up, it has also improved the profitability of arable farming and made it an attractive investment. At the same time, Britain’s agricultural land is attracting interest from abroad.” The rest of the article can be found here

Plenty of microeconomics here - the inelastic supply of farmland coming onto the market; the relationship between returns from financial markets and the demand for other assets including farmland; the impact of rising food prices on the profitability of owning and farming arable land. Will this help to stop the flight from farming in the UK? Or are there dangers in amateur landowners looking to buy up land as a lifestyle choice?

Competition or informal price fixing?

Sainsbury’s is completely awash at the moment with price check stickers on hundreds of branded grocery items from rice to sauces, from pizzas to soups. On the surface a sign that the supermarkets are competing with each other to keep down the prices of basic items at a time when household budgets are being stretched (the big marketing push at Sainsburys at the moment is the idea that you can feed a family for a fiver). 

Battle of the energy drinks

I popped into my local Sainsbury’s this morning for the groceries and I came across a staggering price differential between Red Bull - 250ml individual cans on sale for 88p or a pack of 4 for £3.29 - and Sainsbury’s own-brand caffeinated drink Blue Bolt which has been on sale for some time at just 26 pence for a 250ml can - less than one third of the price of a can of Red Bull.

Goodbye to White Goods?

Cast an eye round your kitchen appliances - how many of them are white? For years I have been teaching about the white goods industries - those that manufacture dishwashers, freezers, washers and driers - students have taken the mick and accused me of teaching a spoof lesson (I try to do this once a term!). Well perhaps they are right for there seems to be a distinct change in the demand for appliances of different colours if the USA household goods market is any guide.

Deflation in Goods

I have an admission to make. A few weeks ago I inadvertently dropped my digital camera and my Blackberry into a toilet during a rest-stop at Portsmouth FC’s training facility! The camera is now useless but the Blackberry survived intact and working fine!

Having decided to replace the camera I find on Amazon.co.uk that the same make is available for twenty per cent less than at the same time last year and perhaps a good example of the heavy rate of annual price deflation in the prices of household goods in the UK. In part this helps to explain why the official measures of inflation captured by the CPI and RPI remain relatively low despite sharply rising food, fuel and utility bills. But critics of the RPI and CPI calculation retort that few households replace their household goods every year – so price reductions have little direct impact on their annual cost of living. The Times covered this trend in an article in yesterday’s paper.

“According to Pricewaterhouse-Coopers (PwC), the accountants, the prices of everything from a kettle to a camera have tumbled by nearly 50 per cent since the early 1970s…..The biggest price-cuts have come in the past decade, as retailers have taken advantage of improvements in technology, the manufacture of products overseas and, most recently, the depreciation of the dollar against the pound.”

How long can this price deflation last? The pound is falling against the Euro and marking time against the US dollar, there is plenty of evidence of surging cost and price inflation in China and other emerging market countries.

A new era for air travel

Today marks a momentous triumph for competition over protectionism. Anti-competitive practices dating back to the 1944 Chicago Convention will finally be scrapped for the new Open Skies agreement between the European Union and the United States. Currently, only British Airways, Virgin Atlantic, United and American Airlines are legally allowed to offer direct flights from Heathrow Airport to the US. But after the deregulations of transatlantic air travel, the market will at last be open to competition from challengers. 

Potatoes - The Crop of the Future?

In a world of agflation with grain prices continuing to climb higher as developed nations prolong a love affair with bio-fuels, perhaps the humble spud provides a credible and viable solution to the crisis that rising food prices is having for hundreds of millions of the world’s poorest people.

Demand for recycled steel

One of the beneficial side effects of the boom in commodity prices is that the economcis of recycling materials has changed. This BBC video clip looks at the booming market for recycled steel, 95% of an old war ship can be used again as it is ripped apart in a shipyard in Belgium.

On the other hand, the soaring price of copper and other metals has seen a rise in theft - this article from the Guardian last week says that up to two dozen people have died in crime related to the stealing of copper in the USA over the last two years: “With copper prices rising from 80 cents a pound five years ago to $4 a pound, the wiring and pipework to be found in transport, buildings and electrical infrastructure is suddenly attractive booty for thieves.” Schools, hospitals and churches have not been immune to the rise of copper stealing - it is all a question of incentives!