Inflation worries influence consumer behavior; how do companies respond?

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Several product categories have seen costs spike during the pandemic. While supply chains get plenty of well-deserved blame, there are more reasons than that.  These videos might provide an opening to discuss this topic in class. The Wall Street Journal video “The Surprising Ways Inflation is Hitting Diapers” (August 4, 2021), describes how diaper makers costs have risen – everything from raw materials to freight costs. In addition, changing demographics (fewer babies born) has the two big diaper companies raising prices to offset lower unit sales. The result has been an increase in diapers prices of 12% in the last year.

Along the same lines, coffee prices have also soared (up more than inflation over the last five years)– see another WSJ Video “Your Coffee Is Getting More Expensive. Here’s Why.” This article describes how shipping costs have contributed to those rising prices. Together, these articles can show your students how prices are influenced by demographic trends, raw material costs, and freight costs. And coffee (maybe diapers) are product categories students understand.

Dutch Florist Gives People a Choice About What to Pay…(#M4BW)

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Occasionally brands allow customers to pay what they can or what they think is appropriate. You can learn more about the psychology of “pay what you want” pricing here. The florists at BOLT Amsterdam are now offering a bundle of 200 tulips for three different prices–one they acknowledge makes it a loss leader (35.95 euros), one price where the florist breaks even (39.95), and at one price (45.95), the florist makes a profit. The idea here is to help tulip growers and the florist, both of which who are faced with falling demand in the face of the Coronavirus. An interesting approach for dealing with falling demand for a perishable product. The example might stimulate useful discussion in class about how, when, and why to use pay what you want pricing. The linked article may provide you with some interesting closing thoughts.

Mattress firms creating value (?) with financing deals…

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The mattress industry is a pretty crazy (check out “The Great Mattress Conspiracy: Why Are There So Many Mattress Stores?” on Endless Thread, podcast and story). You might check out the podcast for a fun example when you cover retailing. Or ethics. You might also check out one of our previous posts, “The Gray World of Online Reviews” (Teach the 4 Ps) — tags include ethics and online reviews.

Onto our story of the day and we are back in the retail mattress industry. With the emergence of new mattress products designed for easy shipping, online mattress stores (Casper, Leesa, Tuft & Needle), this market continues to be very competitive. Retail brick-and-mortar store Mattress Firm has closed 700 stores and is in Chapter 11 bankruptcy. Now they are competing on financing. In fact, Mattress Firm will give you six years of 0% interest on a mattress purchase of up to $3999. Financing is certainly one way to create value for customers — and the automobile industry has done it for years — but does it make sense for buyers of mattresses. We will see. Learn more reading “6-year, 0% loan for a mattress? Intense competition continues to grip mattress industry,” USA Today, October 25, 2019.

Ever-Increasing Airline Fees

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Jet Blue and United Airlines recently raised their checked baggage fees from $25 to $30 for the first bag checked (see this article to read more).  Just 10 years ago checked baggage fees were unheard of but they are the norm today and airlines are increasingly looking for ways to add charges and fees to improve their bottom line.  Air travel is basically commoditized and, as a result, leisure travelers tend to search for the lowest price when booking travel.  This significantly hurt airline profitability until they started charging additional fees for checked bags, carry-on bags, early check-in, seat reservation, leg room, in-flight snacks, entertainment, and more.  Now airlines can benefit from the high margin they get on these fees yet still advertise low fares.

This topic presents numerous angles for a conversation with students.  Is it ethical for airlines to advertise low prices when the end price a consumer will pay will likely be significantly higher?  Why were the airlines able to enact this trend in adding supplemental charges?  i.e. if one airline started charging for checked bags, why didn’t others push free bags as a differentiator?  How does the airline industry’s status as an oligopoly affect this market dynamic?  How do business travel and loyalty programs make it easier for airlines to push price increases like this?

 

Wendy’s Salad Giveaway

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Wendy’s and McDonald’s are once again competing for customers.  The most recent efforts have centered around luring customers into installing their mobile apps.  Wendy’s has been giving away free burgers to help promote use of their mobile app and now they’re using giveaways to promote both the app and their new Harvest Chicken Salad (read more here).  Until October 7, customers can get a coupon for a free half-size salad if they download the Wendy’s app.

Given students’ propensity for free food this may be a good discussion on a number of fronts.  This can fit into promotions, new product introduction, and even a pricing discussion if you want to talk about the impact of cannibalism on a product portfolio or have students calculate the number of return trips necessary for Wendy’s to break-even on the promotion.