The Rolling Stones, variable pricing and booking a hotel for the CEO!

We wrote in part 1 about the difficulty the Rolling Stones have had in selling tickets for their gigs in the US, and linked that to a debate about variable pricing strategies and how technology was helping some industries to differentiate better between customers prepared to pay different prices.

What implications does this have for procurement people?

Well, it highlights an issue around marginal costing and how procurement should be looking to take advantage of those opportunities. It highlights that economies of scale don’t go on indefinitely, and it is often better to be a relatively small buyer than a huge buyer of a particular item. I think we can assume the Stones would not have initially offered much of a discount even if you wanted to buy 100 tickets. Wait a while however and – depending on the demand profile – you might be able to buy much more cheaply.

We’ve seen that effect in the travel market in particular. If you are flexible, for most nights of the year, you can buy a single hotel room in London at a better rate than you will get from the aggregators and agents who may have committed to hundreds. (I’d love to do an analysis in terms of whether the UK Government hotel contract beats what I could do from Laterooms and “top secret” deals in London).

There’s also a question of whether other industries could use more sophisticated technology to offer variable pricing. What about if consulting firms could offer staff who don’t have any fully-rewarded work to do at much reduced rates for short assignments?  Perhaps through an auction process?

“Project Manager, 5 years experience in the retail industry, available next week. Place your bid here...”.

There are also some risks for procurement. As suppliers get more sophisticated about pricing strategies and maximising their revenues, they might just decide that your business is not part of that optimised picture – particularly perhaps if you have been very clever or lucky in terms of getting a good deal!

And the danger for the buyer with the Laterooms approach of course  – or indeed anything that relies on buying at marginal cost – is that you are last in the prioity list if demand exceeds supply. So as procurement people should know, don’t play games with business critical goods or services (back to Kraljic). If you just have to have that Stones ticket, you will be first in the queue, whatever the price.

And if your CEO is flying in next month, don’t take the risk of waiting to see if his / her favourite hotel drops their prices before you reserve their room!

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First Voice

  1. Peter Cook:

    Having attended BBC Question Time at the Mick Jagger Centre the other week, this post is very timely. Jagger would be a ‘fool to cry’ at his procurement / pricing problems. I guess this just goes to show that ‘You can’t always get what you want’.

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