Executive Times

Volume 1, Issue 9

December, 1999

Variable pricing

Many companies develop creative ways to improve earnings through delivering variable pricing to individual consumers or business partners. Airlines have sold comparable seats at different prices for years based on demand. Supermarkets now deliver discounts at checkout to holders of their “club” cards. Executives who implement variable pricing plans need to consider the long-term impact of this approach on the management of the business and the reputation of the company.

Sunday Drivers

Risk-based pricing makes sense for insurance companies, and various approaches have been used for years. We were fascinated to read about Progressive Insurance Company blending the use of cellular and global positioning technology to price auto insurance based on exactly when and where a vehicle is driven. (The Washington Post, 11/28/99). For drivers who sign up for Progressive’s program, equipment installed on the car records the position of the vehicle every six minutes. Monthly, Progressive makes a cell call to retrieve the logged data, and generate an auto insurance bill based on a rate schedule that takes into account when and where the car was driven. Some consumers have saved over 50% in premium costs. Insurers without such technology might find themselves left with the riskiest drivers.

Do changes in technology allow your company to do or know things that had been impossible in the past? Are your competitors deploying new ways of doing business that create threats for your business? Are you able to deploy changes in business processes that create sustainable advantages over your competitors? How do you stay current on what processes are possible? How do you find the pricing that works well for you and is accepted readily by the consumers you want as your customers?

The New, New Coke

We heard rumblings about variable vending machine pricing earlier this year; it turns out there’s some truth to it. At the end of October, stories hit the media including The New York Times (10/28/99) and Morning Edition on National Public Radio that Coke is testing the ability to increase the cost of the pause that refreshes when demand rises, as on hot days, and decrease it when demand falls. Come to think of it, when was the last time you saw an ad featuring a standard price for Coca-Cola? Prices already vary based on location. For many years, in an effort to decrease competition at locations, both Coke and Pepsi have entered into exclusive relationships with restaurants, hotels, schools and other institutions. We read of a new development in The New York Times on November 29. It seems that Coke has negotiated with selected municipalities to be the exclusive provider of soft drinks on municipal property.

In the meantime, both Coke and Pepsi have announced a willingness to forego volume for profit and implemented 7% increases in the price they charge bottlers. Count on a variable markup from there, and if there’s no competition in sight, expect an even higher price.

Do you use variable pricing of your products? How do your customers react? Do your customers expect the same price for your products at different locations? Have you ever thought about ticket price differences while sitting in an airplane, with a higher price to your left and a lower price to your right?

Go away

Banks have long promoted the use of ATM machines for the convenience of customers and the reduction of bank operating expenses. Networks of banks have agreed on standards so the customer of one bank can use an ATM card at as many machines as possible all around the world. Fees are charged or waived for individual customers by the card issuing bank and the ATM owner. Non-bank companies like EDS own an increasing number of ATMs. In mid-November, on the effective day of a Santa Monica, California city ordinance outlawing ATM bank surcharges, Bank of America and Wells Fargo banned the use of their ATMs by non-customers. (San Francisco Examiner, 11/12/99.) The banks called it a matter of principle, and they’ve received support from the Office of the Comptroller of the Currency and the Office of Thrift Supervision who say the banks have the right to charge reasonable fees for the deposit access services they offer (American Banker, 11/23/99). It’s amazing that a fee of about $1.50 has generated a firestorm of controversy across the country, including calls for legislation in other municipalities to ban surcharges.

How do you get paid for the services you provide? Does that method match ways that consumers prefer to pay you? If customers complain, but pay you anyway, is that acceptable to you? How much of your corporate time do you want to spend wrapped up in controversy? Can you win customers by matching their expectations about fees? Do your policies drive away or attract profitable customers?

Try our other company next door

Some companies use subsidiaries and cross selling as a way of delivering variable pricing and services to customers. A community group called attention to lending practices at Citigroup, according to American Banker (November 3, 1999). Members of the Association of Community Organizations for Reform Now (ACORN) claim that while Citibank sends rejected applicants to a sub-prime affiliate, CitiFinancial, consumers who would qualify for lower-rate financing at Citibank are not referred by CitiFinancial. The expectation of ACORN seems to be that a company needs to ensure that its subsidiaries remain competitive with each other, and that the institution acts in a way that provides the best terms to each consumer.

Have you examined the possible consequences of your current pricing methods? When do you need to provide uniform pricing? Do you feel an obligation to deliver your best terms to each customer? How do you differentiate customers, and is that method defensible?

Measure twice; cut once

Oops

Some time during the 1980s or 90s, we may have used a Toshiba laptop. There’s a vague memory of a beige Toshiba machine wedged between the dozen or so IBM, Compaq, Dell, and even WANG portable, luggable and notebook computers that we’ve hauled from place to place. Thanks to another class action lawsuit, we might be entitled to a rebate, a software fix or other free goodies. We read The Wall Street Journal (November 1) that it will cost Toshiba $2.1 billion to repent for five million laptops that some claim to be defective. The problem involves something to do with the chip controlling the floppy drive and data corruption. Toshiba denies liability for the problem, but chose to settle instead of face a jury trial where the damages could have been three times this settlement. When it comes to data integrity, the market wants suppliers to behave like good carpenters who are uncompromising: measure twice, cut once. We’ll let Toshiba keep our $443 (or less), since it would cost more than that to find the documentation on our old computer. The lawyers who brought the suit will take home about $147.5 million.

In what areas must your work be right all the time, every time? If you let down your customers, what are the likely consequences? If you thought, as Toshiba did, that you were not liable, would you have gone to trial? How do you make tradeoffs in product, delivery or settlement?

Follow Up

Here are selected updates on stories covered in prior issues of Executive Times:

Ø Citigroup announced in late October that Robert Rubin will join the office of the chairmen, becoming the third co-chair. We discussed the co-chair approach in the August and September 1999 issues of Executive Times. We called attention to Bob Rubin’s legacy in the June 1999 issue. Mark Sirower challenged the effectiveness of co-CEO arrangements in an article in The Wall Street Journal on October 18 titled “One Head is Better than Two.” We wonder what he thinks about three heads. Meanwhile, The New York Times reported on November 18 that a coalition of consumer groups has called for an ethics investigation into Rubin’s decision to work for Citigroup.

Ø We called attention to Herb Stein’s legacy in the October 1999 issue. His son, screenwriter Ben Stein, wrote a moving article in Slate on October 25 about the legacy his father left at his death and another in The Washington Post on November 8.

Legacies

Mourning the loss of an ordinary hero

In so many ways, he was just an ordinary person, with some extraordinary talents that he worked hard to use as best he could. When he died at home outside Chicago in early November, Walter Payton was remembered (by Mike Ditka) as “the very best football player I’ve ever seen, period, at any position.” Back when he was inducted into the Pro Football Hall of Fame, his son, Jarrett, called him “my biggest role model and best friend.” The Chicago Tribune (November 2, 1999) selected some of Payton’s own quotes as a tribute to the man. Here are a few of those quotes: “I don’t perceive myself as being better than anyone. I shovel my driveway. I go to the grocery store. I pump my own gas. Some athletes don’t do that.” (1993) “I’m not a role model. I’m just Walter Payton. If kids see some good in me they can utilize and emulate and make their lives better, so well and so good. But they have to realize I’m human just like anybody else. I’m capable of making mistakes. I’m capable of making the wrong decision. They should realize that. Nobody’s perfect. Please don’t put that on me, because I’m not perfect.” (1981)

We read in The New York Times (November 2, 1999) that he avoided football in high school, partly so as not to compete with his older brother, Eddie, a star running back. After Eddie graduated, the coach asked Walter to try out for the team, which he did on the condition that he could still stay in the band. He earned his bachelor’s degree in three and a half years, and began work on a master’s in education for the deaf. There was more to Walter Payton than fans ever saw. He was more than a football hero, and will be missed.

Reading

As promised in our November issue, we’ve expanded the Reading section this month. You can order these books easily through links to amazon.com in the Book Shelf section of the Hopkins & Company website. Just visit www.hopkinsandcompany.com/bookshelf.html.

Books Mentioned in Executive Times in 1999

Title	Author(s)	Issue Date	Executive Times Advice
Midnight Champagne	Ansay, A. Manette	10/99	Consider packing this book for a coast-to-coast flight, or enjoying it as a great weekend or evening break.
The Art of Napping at Work	Anthony, Bill	11/99	Looking forward to reading this.
England, England	Barnes, Julian	9/99	Recommend for those who enjoy satire. Barnes develops great characters and carries off the depths of illusion and reality with aplomb.
Ol’ Strom: An Unauthorized Biography of Strom Thurmond	Bass, Jack and Thompson, Marilyn W.	10/99	Recommend, especially for those who may have pigeonholed Strom Thurmond.
Soaring With the Phoenix: Renewing the Vision, Reviving the Spirit and Re-Creating the Success of Your Company	Belasco, James A. and Steed, Jerre	11/99	Give this book a try.
Beat the Millennium Crash	Bernstein, Jake	10/99	Skip it.
First, Break All the Rules	Buckingham, Marcus and Coffman, Curt	9/99	Buy this book and pick and choose some approaches used by great managers that fir your individual style.
The Redhunter: A Novel Based on the Life of Senator Joe McCarthy	Buckley, Jr., William F.	8/99	Recommended. Nobody except Buckley could succeed in putting such a human face on a character portrayed in a single dimension for the 40+ years since his death.
When the Dow Breaks	Cassidy, Don	10/99	Skip it.
Ethics for the New Millennium	Dalai Lama	11/99	Recommend this book highly. One of the best books we’ve read all year.
Wrong Information Is Being Given Out at Princeton	Donleavy, J.P.	9/99	Take a pass.
Management Challenges for the 21^st Century	Drucker, Peter F.		This book will excite executives who are prepared for action. (More comments on Drucker in 7/99 Executive Times).
Dow 40,000	Elias, David	10/99	Skip it.
The Lexus and the Olive Branch	Freedman, Thomas L.	8/99	Recommended. Friedman helps readers gain insight into how the post cold war system operates, and how some individuals and countries are fighting against the system, and where America fits into the puzzle.
Business @ the Speed of Thought	Gates, Bill	5/99	If you’re still wondering about the changes that the Internet and networks can bring to companies, go ahead and plod through his book. Gates contributes proceeds from this book to charity.
Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market	Glassman, James K. and Hassert, Kevin	10/99	Skip it.
The Testament	Grisham, John	6/99	Recommended as a perfect vacation novel.
East of the Mountains	Guterson, David	6/99	Wait for his next book.
Net Worth: Shaping Markets  When Customers Make the Rules	Hagel, III, John and  Singer, Marc	6/99	If you’re a senior executive with any interest at all in capturing customer information effectively, read this book.
Dow 100,000	Kadlec, Charles W. and Acampora, Ralph J.	10/99	Skip it.
Bag of Bones	King, Stephen	7/99	Recommended as a haunting tale with better character development than we can recall from his horror stories of the past.
Dutch: A Memoir of Ronald Reagan	Morris, Edmund	11/99	Take a pass.
The Hundred Days	O'Brian, Patrick	7/99	Recommended. This is the latest in the Jack Aubrey-Stephen Maturin series of historical fiction set in the British navy during the Napoleonic era.
The New Pioneers: The Men and Women who are Transforming the Workplace and Marketplace	Petzinger, Jr., Thomas	4/99	Buy a copy and read this book on your next flight. If you really love your current business plan, be sure to read it right away, because what he says will likely cause you to make some significant changes.
All Too Human: A Political  Education	Stephanopoulos, George	4/99	Pick it up for light reading and imagine that George was on your staff.
Morgan: American Financier	Strouse, Jean	5/99	Strouse took 15 years to write these 800 pages. We’ve read 250 pages so far and have found it interesting, but not captivating.
Rewards That Drive High Performance	Wilson, Thomas B.	11/99	Read this if you’re interested in finding out more about what other companies are doing about reward systems.
Shadow: Five Presidents and the Legacy of Watergate	Woodward, Bob	8/99	Take a pass.

Some other books we’ve read in 1999 and recommend

Title	Author(s)	Comments
Comrades	Ambrose, Stephen E.	Stories of friendship from a great historian.
Turn of the Century	Andersen, Kurt	Compared favorably to Tom Wolfe, Andersen writes a funny book about the media set in February 2000.
Big Trouble	Barry, Dave	His first novel doesn’t carry the sustained chuckles of his columns, but this zany story is fun to read.
Little Green Men	Buckley, Christopher	Not as funny as Thank You for Smoking or God is My Broker, but still a pleasure to read.
Peel My Love Like an Onion	Castillo, Ana	We liked So Far from God, and found this one even better.
The Innovator’s Dilemma	Christensen, Clayton M.	Helps executives find ways to adapt to change, especially technological innovation.
Moab is My Washpot	Fry, Stephen	If you’ve enjoyed his acting, you’ll like his writing.
N is for Noose	Grafton, Sue	More than half way through the alphabet, these Kinsey Millhone novels are well written and quick to read.
Now and Then: From Coney Island to Here	Heller, Joseph	You don’t have to be from Brooklyn to enjoy this, but it helps.
The Perfect Storm	Junger, Sebastian	Great writing and a gripping story.
Isaac’s Storm	Larson, Erik	Hurricane destroys Galveston at turn of the century. Not as well written as Sebastian Junger’s The Perfect Storm.
Paradise Postponed	Mortimer, John	If you enjoyed Rumpole, you’ll love this third volume of the Titmuss series.
Hard Time	Paretsky, Sara	V.I. Warshawsky returns for new adventures.
One More Time: The Best of Mike Royko	Royko, Mike	Another chance to revisit the best columns of one of America’s best writers, the late Mike Royko.
Ground Rules for Winners	Torre, Joe	He won the World Series, and his 12 Keys may help you become a better manager. 3 of the keys involve working with tough bosses.

Books we’re thinking of reading in 2000 (may appear in Executive Times)

Title	Author(s)	Comments
Shakespeare in Charge: How to Lead and Succeed on the Stage of Business	Augustine, Norman R.	We enjoyed Augustine’s Travels and expect this new book by the former chairman of Lockheed Martin will be well done.
Stiffed: The Betrayal of the American Man	Faludi, Susan	She explains what’s wrong with men. Yeah, right.
Reason for Hope	Goodall, Jane	The woman inside the scientist with the chimps.
The Great Game	Gordon, John Steele	Give it a try if you’re interested in economic history. For a glimpse of his writing style, take a look at his Manager’s Journal piece in The Wall Street Journal on October 26 titled “May Glass-Steagall Rest in Peace.”
O is for Outlaw	Grafton, Sue	The alphabet continues. Watch for P next year.
Business Dad: How Good Businessmen Can Make Great Fathers (and Vice Versa)	Hirschfeld, Tom	Parenting with a business lens.
The New New Thing	Lewis, Michael	Lewis tells the story of Jim Clark, founder of Silicon Graphics, Netscape and Healtheon.
Tis	McCourt, Frank	Picks up where Angela’s Ashes leaves off.
Enchanted Night	Millhauser, Steven	We liked his novel, Martin Dressler, and look forward to this one.
Lessons from the Top	Neff, Thomas J. and Citrin, James M.	In depth stories about some great business leaders, including Larry Bossidy of Allied Signal and Shelly Lazarus of Ogilvy & Mather.
Blue at the Mizzen	O’Brian, Patrick	As long as he keeps writing the Aubrey-Maturin novels, we’ll keep reading them. This is #20.
For Common Things	Purdy, Jedediah	A fresh voice takes on irony.
The Old Neighborhood	Suarez, Ray	Popular host of Talk of the Nation on NPR examines migration from the cities.
Personal Injuries	Turow, Scott	If you liked his other novels, you’ll probably like this one.
The End of Marketing As We Know It	Zyman, Sergio	A Marketing genius presents new thinking.

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