This week in pricing: The sugar tax, exhibition ticket prices and autograph inflation

New sugar tax comes into force

As of last Friday, any drink with more than 5g of sugar per 100ml will be subject to a new tax (the proceeds of which will go to sports in schools). The tax, which is primarily designed to tackle soft drinks aimed at children, will also impact some adult drinks such as tonic water. Manufacturers have been presented with three options for how to deal with the tax:

  1. Increase prices: This is the route that Fever Tree will take, adding 11p to its original tonic (whilst leaving its light version at the current price).
  2. Shrink the product at the same price: This is what Coca-Cola will do with their Classic Coke.
  3. Reformulate the product: Britvic and Schweppes have reformulated some of their formats to come in at 4.9g of sugar per 100ml.

Given what we know about the price elasticity for these kind of products, using higher prices to reduce demand is a reasonably inefficient mechanism – you need to increase prices a lot to really change long term demand. So whilst the price increase may not reduce demand markedly, it will definitely drive revenues.


Know your price elasticities

Simon-Kucher's consumer products expertise


 

Motorway service stations are to face inquiry into fuel pricing

Chris Grayling, the transport secretary has asked the Competition and Markets Authority to investigate the big three service station operators. An average litre of unleaded is 136p on the motorway, 120p on the average high street and 116p in the supermarkets. And that is too simplistic – prices may well be higher. The better question to ask though is whether margins are higher and that is far less easy to answer. Trying to compare a motorway service station whose business is largely geared around fuel with a supermarket whose business is very much not is not straightforward. That said, if my (simple, google based) maths is right, I think there are 0.05 stations per mile on the motorway vs 0.3 per mile on the rest of the road network. That makes a big difference in pricing power.

 

National gallery charges record breaking £22 per ticket

The National Gallery has had to defend its decision to break the £20 barrier for the first time for its upcoming Monet exhibition. Galleries (like any business that has high demand for fixed and perishable inventory) has only two ways of moderating demand for its product: either raise prices, or degrade the customer experience. Using price is surely the most sensible: it acts a brake on demand whilst at the same time generating revenue that the National Gallery can reinvest in other parts of the business. The alternative is to keep prices low and allow long queues and busy galleries to act as a dampener on demand. The reality is that whilst people may complain about the price, they would certainly complain more about the crowds.


The "Value Before Volume" pricing strategy: so easy and yet so hard


 

Dr Who charges £95 for an autograph

Christopher Ecclestone has been accused of cashing in by charging fans £95 for an autograph at an upcoming comic book convention. Seemingly fans don’t approve and the price has caused some backlash. The fact that this is news at all illustrates the emotional impact of pricing decisions. Whilst I doubt many of us could rationally point to the ‘right’ price for a Dr Who autograph, we quickly know what the ‘wrong’ price is. (Interestingly Colin Baker, Dr Who in the 1980’s, only charges £15. Clearly the ability to travel through time doesn’t prevent inflation!)

 


Catch up on last week's news: Subscriptions, disruptors and the bill for Brexit