In the last post concerning Pricing issues, that of April 18 titled “Consumer Spending Trends And Pricing Pressures,” excerpts were featured concerning margins, profitability and “value” in the fast food segment.

A Wall Street Journal article of May 8, titled “McDonald’s, Wendy’s Battle for Value-Centric Customers” contains additional information concerning various issues including those concerning price affordability and price competitiveness.

Notable excerpts include:

McDonald’s Corp. and Wendy’s Co. are struggling to attract cost-conscious consumers who are demanding better deals than even these low-price fast-food chains offer.

also:

Fast-food chains like McDonald’s and Wendy’s may seem like they would be resilient in this tough economy, but consumers have come to expect $1 burgers, and more brands have jumped on the bandwagon, with chains like Yum Brands Inc.’s Taco Bell and Arby’s Restaurant Group testing out new value menus.

also:

McDonald’s last month reported weak earnings growth for the first quarter, saying it is sacrificing profit margins by focusing on value menus to avoid losing customers.

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with the views expressed by these outside parties.

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StratX, LLC is a management consulting firm and strategic advisory that focuses on the analysis of current and future weak(ening) economic conditions, and offers businesses and other entities advice, strategies, and actionable methods on how to optimally adapt to such challenging, complex conditions.

Consumer spending trends, characteristics, and pricing are topics that have been previously written about on this site, as the subject is growing in importance.

An April 14 Wall Street Journal article titled “McDonald’s Cranks Up The Volume on ‘Value’” serves as an example of this subject, as it discusses various issues concerning margins, profitability and “value” in the fast food segment.

A couple of excerpts include:

McDonald’s, the world’s largest restaurant chain, with more than 34,480 locations, has been fighting declines in customer traffic in the face of lackluster consumer spending world-wide. Chief Executive Don Thompson warned that the company’s profit growth will be tempered this year as the chain sacrifices margin in order to better compete for cost-conscious consumers.

also:

“Value is critical right now,” said Lynne Collier, restaurant analyst at Sterne Agee. “The consumer is still very weak, facing higher gas prices, the payroll tax increase and employment barely inching up. Value is the No. 1 driver of traffic, and all these restaurant companies are dying for traffic.”

A Wall Street Journal blog post of April 16 (titled “The McDonald’s Dollar Menu is Popular, But Can it be Profitable?“) discusses whether the McDonald’s Dollar Menu is, or can be, profitable.

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with the views expressed by these outside parties.

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StratX, LLC is a management consulting firm and strategic advisory that focuses on the analysis of current and future weak(ening) economic conditions, and offers businesses and other entities advice, strategies, and actionable methods on how to optimally adapt to such challenging, complex conditions.

On March 11 Harvard Business Review (HBR) published an article in the HBR Blog Network titled “Ten Reasons Salespeople Lose Deals.”  The article lists and briefly explains the reasons, which were based on interviews of “several hundred business-to-business salespeople.”

At least three of the reasons for lost sales had to do with pricing issues, or were issues in some way related to pricing.

One reason related to pricing was “‘Nice-to-Have’ Product.”  I’ve discussed aspects of this in the blog post of March 4 titled “Product And Service ‘Affordability’ Concerns.”

Another reason related to pricing was “Price versus Value.”

The third reason related to pricing was “Product Commoditization.”  This is a critical topic in today’s business environment for a variety of reasons, and is important from not only a pricing and sales perspective, but also from an overall corporate strategy perspective.  I will likely discuss this “commoditization” topic in the future.

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StratX, LLC is a management consulting firm and strategic advisory that focuses on the analysis of current and future weak(ening) economic conditions, and offers businesses and other entities advice, strategies, and actionable methods on how to optimally adapt to such challenging, complex conditions.

“Affordability” of products and services, both now and in the future, is an issue that seems to lack recognition, for a variety of reasons including aggregate U.S. income trends.

One example of this was highlighted on Wednesday, and was seen in a CNBC article titled “New Cars Increasingly Out of Reach for Many Americans” that discusses the affordability of new cars given median family incomes.  The article states that the average price of a new vehicle in 2012 was $30,500, and discusses this figure in relation to incomes.

Seemingly supporting the general concept that new vehicles may be unaffordable for many is that the average age of cars and light trucks in operation in the U.S. reached 11.2 years in 2012, according to Polk.

While affordability (by purchasers) can be difficult to define, and can fluctuate significantly over time, there are many indications that affordability constraints and related pricing issues are significant issues for many companies.

While it is of course difficult to generalize across all firms and industries due to their various characteristics, the following questions with regard to affordability appear to be among those of primary significance:

• What is an affordable product?  Can affordability be estimated or measured?
• Can a product or service be somewhat affordable?
• What are the main drivers of product affordability, or lack thereof?
• If a company has a product that is, or will soon become unaffordable, can the company successfully adapt?  How might this be done?
• Are (purported) solutions to unaffordable product offerings viable from a longer-term perspective?  (i.e. by implementing such solutions, will such implementation cause additional problems?)
• If a company finds itself with an unaffordable product, will this status be transitory or lasting?
• Can high degrees of product “value” (at least partially) offset an otherwise unaffordable product?

Of course, there are many other questions as well.  One issue that I mentioned in a September 7, 2010 post (“Premium Pricing Strategies And The Economy“) also seems very relevant:

…are products and services now considered “staples” (i.e. necessary in nature) changing to more “discretionary” in nature?  How will this impact firms?

In my opinion such affordability issues will increase given various economic dynamics, and become a primary challenge in corporate strategy and management.  This challenge will (very) likely prove to be especially outsized for a variety of reasons.

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Please Note – The above is excerpted from the EconomicGreenfield.com (published by StratX, LLC) post of March 4, 2013, titled “Issues Regarding Product Affordability”

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StratX, LLC is a management consulting firm and strategic advisory that focuses on the analysis of current and future weak(ening) economic conditions, and offers businesses and other entities advice, strategies, and actionable methods on how to optimally adapt to such challenging, complex conditions.