A Lesson In Price Integrity
Wednesday, March 31st, 2010
One of my favourite movies is Local Hero.
It is the story of a Texan oil firm that attempts to buy out a small
Scottish town and turn it into an oil refinery. From the very
beginning, writer and director Bill Forsyth had only one man in mind to
play Felix Happer, the head of the oil company, who eventually falls
in love with the town and saves it from destruction.
He wanted
Burt Lancaster.
This presented the producer, David Puttnam, with
a problem. Lancaster loved the script, but wanted $2m to play the
role. That was a third of the film's entire budget, and far more than
the producers could afford.
So negotiations began. For six
months, Puttnam tried every tactic he knew to get the price down. Each
time, Lancaster reconfirmed his desire to make the film and pointed to
the only stumbling block: his $2m fee. With only days left before
filming began, the Local Hero production team admitted defeat and agreed
to the star's demands. At the film's silver anniversary celebrations in 2008, Puttnam recalled Lancaster's recalcitrance: 'The bugger would
never, ever, ever break his price. We ended up paying him the price he
quoted at the very first meeting.'
It's a story I retell to my
MBA students when we get to the subject of pricing to illustrate one
of the topic's most important lessons: you must hold the line. If your
quality is good and your targeting and positioning are right, have
confidence in the price you have set and do not consider dropping it.
It's a lesson that has been drummed into me over the years by many of
the senior executives of the top luxury brands that I have worked for.
Something cannot be good and cheap. Don't be afraid of a premium price
or maintaining it in the face of market pressure.
The consulting firm McKinsey has long observed that
between 80% and 90% of incorrect pricing decisions are made by managers
who charge too little for their products. That's a stunning fact and
comes with an even more astonishing implication: these organisations
could have enjoyed better margins and unit sales - as well as stronger
brand equity - if they had only followed the Burt Lancaster School of
Pricing.
As the recession drags on into its second painful year,
it's a philosophy that becomes ever harder for marketers to believe in.
Every week sees another brand drop its prices and walk away from the
challenge. Last week it was the London Evening Standard announcing that
it will become a free paper - how about that for capitulation? But for
every Standard there are the heroic brands that continue to hold the
line. The Champagne brands, for example; they are busy destroying
millions of litres of bubbly in the face of dismal sales this year,
rather than discounting price, damaging their brands and destroying
their long-term prospects.
It's certainly the approach that
Lancaster would have endorsed. He was a man who knew his value and
ensured that his customers knew it too. A few weeks after he signed on
with Local Hero, US TV channel CBS called the film's producers to
confirm that, because of Lancaster's presence in the key role, they
would be paying $2.2m for the rights to show it.
Lancaster's
'outrageous' fee had actually made money for the picture. Puttnam
recalls it as a 'powerful lesson' on pricing and value, and it's one
from which many marketers could also benefit.
Courtesy
of Marketing Magazine
in
partnership with BSI
Sponsored
By: The
Blake Project's Brand
Positioning
Workshop
Today the Rays announced three more acts for their Saturday night Summer Concert Series.
