Supply Chain Woes Drive Up Prices

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My students are often curious about how the pandemic has influenced marketing strategy planning. The biggest example are the supply chain problems (Chapters 10 and 11) we read or hear about all the time. Those have clear implications for consumers who cannot find that new bike, toy, or automobile they are willing but unable to purchase. What are the marketing strategy implications?

First, there are implications for retailers (Chapter 12) who lose sales when their shelves are empty (or at least not fully stocked). That costs them sales and goodwill. Second, it can lead to higher prices (Chapters 17 and 18) which contribute to inflation (Chapter 3) which are specifically addressed in this article “Supply chain woes lead to pricy outdoor recreation products.” The article gives an example of a Kelty camping chair that will jump in price from $109 to $139 because shipping costs for a container have jumped up to 10x. All told, a great example that ties together a range of concepts in the textbook and the real world. A great example to share at the end of the semester.

Buy Now Pay Later Gets Easier!

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Credit cards have long been an easy way for consumer to “buy now pay later.” But not everyone could qualify for a credit card and the interest rates are very high!

These days consumers are seeing an explosion of point-of-sale “buy now pay later” (BNPL) options with companies like Klarna, Afterpay and Affirm. This article at Forbes shows BNPL is expected to grow from ~$24 billion in 2020 to almost $100 billion in 2021. While BNPL can be particularly appealing to young shoppers, who may have more limited access to credit, and it is most popular with Gen Z and Millennials, Gen X and Boomers are now using it as well.

BNPL’s biggest appeal may be convenience. At the point of online purchase, consumers have the option to split that $100 pair of shoes into four $25 payments. And BNPLs don’t charge interest. The risk is borne by the BNPL provider, with the seller typically giving the BNPL service a cut (say 3%) of each sale. That nudge may close some sales and helps retailers. And it looks good to consumers who do not have to pay a premium to buy now pay later.

The growth of BNPL raises all kinds of interesting questions you might want to discuss in your marketing class. There are ethical questions about whether credit is a good idea (see this article in The Atlantic for warnings from personal financial experts).

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.