Slice of Reality: What Are Your Customers Willing to Pay?

Mihir Kittur, Co-founder and Chief Innovation Officer, Ugam,

Price Intelligence, pricing intelligence, Dynamic pricing, online offline pricingHow many pieces of pizza do you usually eat in one sitting? Does price impact how hungry you are?

At Steveston Pizza in Vancouver, British Columbia, their special C6 gourmet pie costs a whopping $450 – that’s $56.25 per slice – for heaping portions of lobster, black Alaskan cod and Russian Osetra caviar topping the mozzarella. Canadian newsmagazine Maclean’s called it the “World’s Most Expensive Pizza.”

In contrast, Domino’s Pizza recently advertised an online special for a large three-topping pizza for $10 (caviar was not a topping option). At this price, you could buy 45 Domino’s pizzas for the cost of one Steveston C6.

Why can Steveston’s charge so much for lunch? Because customers who order a C6 know they can’t get one anywhere else. Perhaps they have the disposable income to order $450 pizzas every day or it may be a one-time indulgence to knock off a bucket list. Either way, this price point exists because people are willing to pay it.

That’s the philosophy behind Dynamic Pricing. Retailers who know their customers’ preferences, spending history, tastes and desires can establish the right price for them instead of reflexively matching the price of their competitors.

Kevin Sterneckert, a former vice president of research for Gartner and a nationally renowned expert on Pricing Intelligence, puts it more simply: “If you have a thousand units that move a month on an item, and your competition lowers the price, but you are still selling a thousand units, why do you need to lower the price? You don’t.”

Dynamic Pricing is based on supply and demand, customer expectations and even the time of the day or weather conditions. Recently in this blog, we shared how the phrase “Dynamic Pricing” has entered the everyday conversations of consumers. Sports fans now accept that many of their favorite teams fluctuate ticket prices based on the popularity of opponents, whether the home team is competitive enough to make the playoffs, and of course, whether or not it’s going to be sunny and warm.

Based on gathering accurate and timely Pricing Intelligence from your own stores and competing retailers, there are constant opportunities to raise, lower or keep prices the same.

“It’s okay if somebody is beating you on price if your customers don’t care,” says Sterneckert, noting that the price sensitivity of items varies by product category, time of year, customer demographics, store location and numerous other factors.

Consumers are not stingy about sharing what they like and what they don’t like – and whether they think their purchases are worth the price. There’s an ever-growing supply of consumer product reviews and social media sentiment to determine buying trends and what products might become tomorrow’s hot sellers.

Here are some of the factors that determine customers’ expectations at checkout:

  • Product Availability – Does a competitor carry the same item, and if so, at what price? Is it out of stock?
  • Location – Buying a pack of gum in New York City will be more expensive than the same gum in the suburbs.
  • Consumer Segment – What is their discretionary income and spending history?
  • Instant Gratification – Nobody cares about free shipping when they “need” the item right now.
  • Product Popularity – Is this item flying off the shelves? Or is the size, style or color in low demand?
Forget about price matching, despite all the hype. You just need to meet your customers’ expectations for what they perceive to be fair – and when possible, offer them something they cannot easily get elsewhere.

That’s a lesson that Steveston Pizza took to heart. Encouraged by the positive buzz generated by the C6, they recently added the pricier C7, a “Best of Seas” concoction covered in tiger prawns, lobster ratatouille, smoked steelhead trout, Russian caviar and Italian white truffles.

Yes, there is even a market for a $725 pizza, although no word why the white truffles – a rare gourmet mushroom unearthed by sniffing pigs – belong on an ocean-themed dish!

To learn more about the latest Dynamic Pricing strategies and technology, download a complimentary copy of our new ebook, “Pricing Intelligence 2.0: The Essential Guide to Price Intelligence and Dynamic Pricing,” for retailers and brands.

Download your copy today!

The Author:
Mihir Kittur is a Co-founder and Chief Innovation Officer at Ugam. He oversees sales, marketing and innovation and works with leading retailers and brands with insights and analytics solutions around their category decisions to improve business performance.


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