By Nicole Nguyen
Free Zoom, $13 unlimited Walmart delivery, a $30 Disney movie, a
$399 iPhone and a $2,495 Peloton bike: This year, companies in tech
and other industries used the lever of pricing in ways that managed
the pandemic's obstacles or even capitalized on its
opportunities.
Ordinarily, an economic downturn causes a decrease in demand for
many products and services. Yet the Covid-19 pandemic's widely
varying impact on different corners of the economy tested
traditional pricing approaches. Companies played up conveniences,
knocked down barriers and offered new services and new choices --
with mixed results. Here's a look at examples of intriguing price
moves this year:
A Premier Experiment
"Mulan," a $200 million live-action remake years in the works,
was supposed to have a big theatrical release -- but the
coronavirus had other plans. Instead, Walt Disney Co. charged $30
for at-home "premier access" to the title, for people already
paying $6.99 a month for a Disney+ subscription. After three
months, "Mulan" became available on the service for no extra
charge.
In the film industry, it's common to charge a higher price for
early viewing, reducing the price as time goes on. For some, the
"Mulan" price was a bargain. Between popcorn, drinks and tickets, a
family outing to the theaters easily exceeds that. For others, $30
was too high.
During its opening weekend, "Mulan" appeared as No. 10 on
Nielsen's U.S. streaming charts, with 525 million minutes streamed.
The list was otherwise dominated by Netflix Inc. and topped by the
streaming giant's "Cobra Kai" series, which drew an estimated 2.2
billion streaming minutes.
In November, Disney Chief Executive Bob Chapek said he was
"pleased with the results" of "Mulan" but didn't divulge numbers.
Mr. Chapek said that there is a future for newly released,
pay-per-view movies on the platform.
However, the studio's next big film, Pixar's "Soul," will be
available to all Disney+ subscribers on Dec. 25 -- without a
"premier access" price tag. "The idea was that it was a really nice
gesture to take 'Soul' during the holiday period and provide that
as part of the service, " said Mr. Chapek on an earnings call.
Another strategy, said Harikesh Nair, professor of marketing at
Stanford Graduate School of Business, might have been offering
"Mulan" at a discount to Disney+ members and at a higher price to
nonsubscribers.
AT&T Inc.'s WarnerMedia is sticking with the
all-you-can-stream approach. Also on Christmas, the studio will
release "Wonder Woman 1984" to its HBO Max subscribers for no
charge on top of the $15 monthly fee. The studio said last week
that it plans to release its entire 2021 film slate on HBO Max and
in theaters simultaneously.
In October, Netflix raised the price of its plans, with the goal
of funding a new slate of shows and movies. "There is that
opportunity to occasionally go back and then ask members, where
we've delivered that extra value in those countries, to pay a
little bit more," said Netflix Chief Operating Officer Greg Peters
on an earnings call.
The Goldilocks Effect
Apple Inc. this year released five new iPhone models, the most
in the device's history. Apple started in 2007 with one iPhone but
soon established a "good-better-best" strategy, where budget and
premium products flank "Goldilocks" options.
For years, the company did this by keeping older models around
at slashed prices. In recent years, it has introduced more new
options at various price tiers. This year's lineup ranged from the
$399 late-adopter-targeted iPhone SE to the feature-packed $1,099
iPhone 12 Pro Max -- with a "just right" iPhone 12 in the middle.
The company also gave Apple Watch shoppers three tiers of options
for the first time.
While it may be more confusing for consumers to navigate the
price and quality differences between the models, this kind of
price ladder is strategic and ubiquitous -- from airliner cabins to
gas pumps.
The trick with offering multiple versions of a product is to
offer enough to help people identify their own strike price but not
enough to overwhelm them, says Rags Srinivasan, an independent
pricing consultant. "Apple is best at this," he said, "creating
variation between models in the number of camera lenses and the
different levels of storage capacity."
While Apple's strategy to offer multiple price options was in
play long before the pandemic, one benefit of multiversion pricing
is its resilience to hard times, said Mr. Srinivasan. "The 'good'
option gives firms the opportunity to keep customers within the
brand, for those who face economic pressure to downsize their
lifestyle," he said.
Meanwhile, Apple's smartphone competitor Samsung Electronics Co.
Ltd. launched its flagship Galaxy S20 5G phone in February. As the
pandemic months rolled on, the company scrambled to develop a
cheaper version, the Samsung Galaxy S20 FE, to appeal to customers
on tighter budgets.
One Is the Loneliest Number
A seminal 1992 research paper looked at a $275 bread-baking
appliance sold by Williams-Sonoma. When the retailer added a second
model, similar to the first but larger and more expensive at $429,
sales of the cheaper model doubled.
Peloton Interactive Inc. employed a similar strategy with its
new two-tiered bike offering. In September, when the at-home
fitness company released a new stationary Bike+ for $2,495 -- with
a bigger screen and more powerful software -- it marked its
original bike down to $1,895, from $2,245. Covid-19 has led to an
explosion of demand for connected bikes as gyms closed. This year,
Peloton's sales have jumped 172% compared with last year, and the
company posted its first-ever profit.
"It was really important to lower the price of our bike by
$350," said Jill Woodworth, Peloton chief financial officer, in a
September earnings call. "Obviously that has an impact on our gross
profit margin but does increase the accessibility of our products."
Ms. Woodworth said she believed the original bike will be the
company's bestselling hardware due to the more accessible
price.
Since then, the demand for the Bike+ exceeded Peloton's internal
forecasts, resulting in longer wait times, currently as much as 10
weeks, a company spokesman said. The first-generation bike is
available in as little as four weeks.
"I think Peloton is focused on growing its subscriber base as
quickly and durably as it can, and part of that is to drive the
price of its connected-fitness device down over time," said Edward
Yruma, managing director of KeyBanc Capital Markets. During the
company's most recent investor call, it laid out plans to sell
preowned bikes, but didn't specify timing.
Free Advertising
In March, shortly after stay-at-home orders swept the country,
Zoom Video Communications lifted the 40-minute meeting limit on
free accounts for K-12 educators. And recently, the
videoconferencing company removed meeting limits for Thanksgiving
Day virtual feasts.
It was a pandemic trend: For a time, AT&T and other
internet-service providers removed data-usage caps. Comcast made
its network of Xfinity Wi-Fi hot spots available to noncustomers.
Coursera opened its catalog of 3,800 courses to college students.
The Sling TV streaming service made some live TV channels available
without a subscription.
"We see free as an acquisition strategy, an alternative to
advertising," said Ayelet Israeli, an assistant professor of
marketing at Harvard Business School.
Zoom Chief Operating Officer Aparna Bawa acknowledged that the
service's influx of free riders is part of a plan. "For us, it's a
long game. The more and more we can build our user base and
establish trust," she said at WSJ Tech Live in October, "the more
legs we have as a company."
In the popular "freemium" model, the more users are exposed to a
product, the more likely some will pay for extras. In the most
recent quarter, Zoom's revenue grew 367% year over year.
Nike Inc. pulled the subscription fee for its $15-a-month Nike
Training Club app early in the pandemic, and soon reported an 80%
increase in-app workout activity. Users see chiseled trainers
wearing Nike clothing and a dedicated shop where they can buy their
own. As a result, apparel sales increased. Nike said the company is
making Training Club free, permanently.
"Someone may only buy footwear and apparel a few times a year
but engaging with us each week, maybe even each day, brings Nike
into their lives," CEO John Donahoe said on an earnings call.
Chasing Prime
Home grocery delivery has surged to unprecedented levels during
the pandemic and Walmart Inc., which had charged from $8 to $10 per
delivery, seized the moment to launch Walmart+, a $13-a-month
program for "free" unlimited delivery from local stores. "Pays for
itself in just two deliveries," the website says.
One challenge for Walmart+, also available for $98 a year, is
its apparent likeness to $119-a-year Amazon Prime. Prime offers
more perks, including a vast library of streamed entertainment. "I
think that Walmart's got the right idea. But there is just no way
that consumers aren't going to compare Prime to the Walmart+
solution," said Brendan Witcher, principal analyst with Forrester
Research.
In its most recent earnings call, Walmart didn't offer much
detail about the adoption or pricing of Walmart+. "I do think
Walmart+ can be helpful in a lot of ways over time," said Walmart
CEO Doug McMillon on the call. "The information that we'll have
about customers, the ability to personalize, I think we'll be able
to serve them better."
In early December, Walmart+ added no-minimum free shipping from
Walmart.com, which matches a longtime Amazon Prime benefit. "We
know the pandemic obviously increased online shopping, so we made
sure to get this out before the holiday," said a Walmart
spokeswoman.
Walmart's strategy mirrors Amazon's: getting customers to lay
their money on a default retailer. This keeps switching costs high
and gets people to shop more to justify their subscription. "Amazon
Prime increases the willingness of consumers to buy without
thinking," said Dr. Nair. "If Walmart can replicate, it can be
incredible for the company."
(Dow Jones & Co., publisher of The Wall Street Journal, has
a commercial agreement to supply news through Apple services.)
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Write to Nicole Nguyen at nicole.nguyen@wsj.com
(END) Dow Jones Newswires
December 06, 2020 09:14 ET (14:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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