Red Lobster lost $11M on its all you can eat shrimp promotion last quarter:
Repeat after me: “It isn’t what you make it is what you keep.”
Pricing is complex.
I’ve given you some guidelines over the years:
- Pricing demands research.
- Focus on value.
- Pricing based on costs of goods is usually a way to lose money.
Missing all of these lessons seems on display in Red Lobster’s earnings announcement.
- People ate more shrimp at one sitting than the company imagined.
- The $20 price point wasn’t enough to make money.
- When confronted with a great bargain that allowed them to try a bunch of different dishes, folks picked that over just picking one thing.
Duh!
Let’s look at 5 quick lessons we can learn from this:
- Pricing demands market research.
- You’d know what people want/need/value. Which probably would have taught you that people were likely to order more than you’d imagine because they could try all of the shrimp dishes on the menu.
- Revenue is a vanity metric.
- You can make a ton of money and still lose your ass.
- Pricing via COGS (cost of goods and service) is dumb.
- You don’t understand value. You miss costs.
- Price based on value.
- What will people receive from a tangible and intangible value.
- You will have to test your pricing.
- There is no one perfect price and testing your prices is smart. You probably want to do it in isolation because raising prices after you’ve rolled out a price is hard.
Tell me about your worst pricing decision in the WCG Slack Channel for folks to talk strategy and marketing.
I’m working through my links and saved articles this week and next, so, hopefully, I’ll have some fun stuff for you.
Dave