[Video] Pricing in the news: Chat GPT, Ticketmaster, and Party City’s Bankruptcy

Let’s be honest, pricing is getting a pretty bad rap lately. In this roundtable, we do a rundown of pricing-related headlines from the last couple of weeks and look for the redemption arc of pricing’s villain era.

T: First of all, thank you for joining me. This episode came from a series of different things that have showed up in the news in the last couple of weeks and months in the pricing category. As they kind of sort of piling up it's like, let's do a rundown of as many as we can of what's happening in these different companies, and kind of overall, and see how far we can cover things.

T: First up, Party City. So, Party City went bankrupt and then blamed PE firms for price gouging. Please discuss. What happened here? What went wrong? Where do we start?

P: There's also a helium scandal where the price of helium almost doubled, and they partly blamed the filing on that, too. I think that's a big traffic driver to get folks in the door, and then you buy all the other party stuff you need once you do that. But if balloons are expensive, maybe they lost some traffic.

T: The thing that surprised me because they mentioned the Spirit of Halloween stores doing really well. And to me those are like in a similar category. Although Party City, with part of the issue being that Party City is supposed to be so cheap all year around? How else did things go downhill?

J: I think I think there's a bigger conversation of brick and mortar versus e-commerce. You're competing against e-commerce. At your fingertips, especially after Covid we're all used to just buying whatever we need when we need it, and it shows up the next day, if not the same day, right? And so you're competing with that behavior. Party City was great for the folks that are trying to do something last second. They can run to the store, grab what they need and leave, right? So if you're going to provide something for folks that are last second, maybe your prices should be higher because they're not going to be as price sensitive as the folks that are planning it out. They're buying it online anyway. I don't think you need a lot of like touch and feel of some of these products, because you know what a balloon is. You know the size and things like that. So I think the pricing strategy of maintaining a higher price and not really competing against online stores is not a bad idea. I don’t think it’d be the cause of a company shutting down.

A: The other element is that as these e-commerce giants get better at shipping things fast, realistically, that's going to eat into the people that are going to buy last minute. If I can get some of my goods the same day or the next day, then perhaps I don't even need to go to a party, even if I am going last minute.

P: Yeah I’m just going to press on the helium thing. I can't think of anything Party City sells that you can’t get at Walmart or Amazon or Target, except for a helium balloon in real time.

J: Right. Just a personal story, this past weekend… my wife and I, we own a cream puff store. We had a last second party kind of thing at one of our stores and we needed to get balloons. So Kelly went online and she bought balloons at Party City, and they filled it up. It was like 12 balloons, and they did a great job. We ordered it online on the way to the party. It was a last second purchase, and we weren't as price sensitive. We knew we needed to have it, and we just did it, and we went on our way. It was pretty easy, and everybody that was at the store when we were doing the pick up, they were all in very similar situations. It was all like last second, needed some balloons for a party that afternoon kind of a thing. If anything, maybe raise their prices more.

P: They could downsize and just become Balloon City. 

J: Probably not a bad idea Pete.

T: Only balloons. Alright, next up. FTC investigation with Coke and Pepsi. Okay, I was so excited. Even though there's pricing all over the news like it's pretty rare that something that's brand new really surprises me. I did not know that there was a law in effect … it seems like it was from a while ago. But there's a law into in effect, about how you can do your prices at the same level with companies of the same size. Right? So it seems like Coke and Pepsi are potentially in some hot water with the FTC for how they do their pricing. But they haven't totally gotten in trouble yet, it's just under investigation.

A: It sounds like what they're doing is they were offering different prices for the same product, which is commonly done in many areas, but in this case they were viewed as being discriminatory, because they're offering certain businesses a competitive advantage by lowering their prices in certain segments. I was in the same boat. I didn't realize that there's laws against that, because we see businesses every day offering different prices in one segment for another. Travel’s a good example, you go and try to buy a flight for business travel, and the airline often has mechanisms in place, whether that be through a vendor that only appeals to businesses or certain times of the week, or whatever variables they had in play, to change the pricing any way that is reflective of the value for that specific consumer. So I was definitely surprised by that, and led you down a rabbit hole of reading some of these legal angles of what’s taking place from a pricing perspective.

P: It's all predicated on selling high volumes. If you sell directly from Pepsi versus go through a distributor for your neighborhood bodega, and they have to pay higher per case prices, I don’t think it’s going to go anywhere because there’s probably going to be justification around economies of scale to deliver to the big shops more cheaply. Finally, this seems like one of the few cases for the FTC that if they took it, and even if they win, the reaction from Coke and Pepsi to basically make prices the same is not going to be to give the bodega the cheap price. It’s going to be to make everybody’s price more expensive.

J: The Robinson-Patman Act, along with the others out there… there’s a handful, 4 or 5 different laws that kind of dictate the same thing, which is fairness, fairness to small companies, fairness for the consumer, fairness to have some level of equality. But these acts or these laws are written in a way where you can exploit them in any one direction you want to. So it's interesting to me that they're actually going after these guys. I think there's only been one or two cases that have actually been prosecuted through these acts, so I think they're trying to send a message. But price variations due to volume, as an example, has existed in pretty much every industry I can think of. There isn't a lot of industries that don't have it so if large buyers like Walmart is saying I have this much volume, I expect this cheaper price…. I don’t know why that's a bad thing. Unless they're not offering that same discount to the distributor that goes to the bodegas. They should have that transparent pricing that says, hey, look my retail price or my initial prices is 2 bucks a bottle. But if you buy this many quantities, it goes down to like 50 cents a bottle. That pricing does need to stay constant between all of them, and the amount of buying that happens will dictate your final price, which we see all the time. And how you take delivery of your product also, like Pete just said, would dictate your pricing. So it happens in every industry. So I don't know how much leg this actually has, unless they were doing something where Walmart got their own specific price, and that price was not given to anybody else, and that was the only place that pricing was given to. Then it’s competitive in nature. You're kind of cut out. Even the larger distributors, maybe Costco, or whatever you're trying to do other things that are anti-competitive and that's obviously shouldn't be allowed. But you know in just doing the preliminary reading on it, I agree. I don't know if there's a lot of legs here.

A: I feel like the enforcement on that can be incredibly challenging, because, like volume, is one single variable. But you could probably point to 10 other variables that could justify the change in price, such as geography, or you know, you can keep going down the list. But to be able to enforce something like that at scale just seems like a battle that's not worth fighting.

J: Absolutely. And you're talking about also, last point on this for me. But you're talking about pricing and dictating somebody's price. So a bodega has every right to charge 5 bucks for a bottle to maintain their profitability. Their value add is: you can get a quick fix for the people walking by, and it's in the right location at the right time, and you can charge for that. So you know, Walmarts of the world, Costcos of the world, all these bigger retailers, they don't have that convenience factor. They're going after cost, and they're going after price and bulk volume. It’s a completely different buying mechanism that's there, and there's different pricing that's there. Why go after that? I'm not. I'm not very sure.

P: My last hot take is that I like my volume discounts. I don't want the bogo cream puff deal to go away. 

J: That's right. That's exactly right. You bring up actually a really interesting point, which is if you try to maintain this fixed pricing through the channel, the person that's going to suffer the most is the consumer. So then what do you do? You’ve got to bring some other act to make sure the consumer doesn't suffer. So you aren’t just going to regulate this entire thing?

T: Well the whole point was to protect the consumer in the first place.

J: I know right? But a company has every right to charge what they need to charge. They may charge too high and go out of business or too low below their costs and go out of business. So what are you going to do, dictate a certain price that has to be met for the consumer? That's just that's ridiculous.

T: Alright, next one was Chat GPT. This was an article saying it looked like pricing was going to be $42 a month. I think you found this one Adnan, what’s your take on this?

A: This one is interesting for sure. So we hear tons about Chat GPT all over the place in terms of the benefit they can offer, and I myself have used it a couple of times, but that being said, there's been a lot of information areas where I get these like server oriented errors. So what they're doing now is, if you pay $42 per month, then you can presumably access it at all times. You're not going to have to deal with potential downtime. So I mean, I found it quite interesting, because this is a Chat GPT angle aside from kind of the power of its AI. As a pricing strategy I thought it was kind of unique. In my eyes, $42 feels like a price point where somebody is deriving some level of value out of it. So they're integrating some type of a business process and doing something. Because for a regular consumer paying $42 to an AI engine that can give them a head start on emails and things like that likely seems a little bit out of whack. But then, when you think about it from a price strategy perspective, I suppose that kind of fencing makes sense. Meaning that one of the challenges they are seemingly having is the fact that there are so many uses of this thing for free. So since usage is a premium, they're fencing that off and charging a monthly fee to have unfiltered access to this thing. So that makes sense. But the price point I thought for an average consumer was a bit high. But perhaps they are going after businesses, because that's seemingly what that $42 price point reflects.

P: Yeah, I'm not going to use it. But I do think it's interesting like, if you just think it's an early adopter strategy for a new product. It's probably the case, given the uncertainty and how it's going to be used. They don't exactly know, and there will be people that buy it, and they find out how they're using it. It might be something that they weren't anticipating. So you’re kind of just putting it out there and seeing who wants to pay for it. 

A: Testing the market. Yeah.

J: I'm not a big believer in price testing. I believe in price testing when you have a certain infrastructure already in place, and you understand your segments and subsegments. I agree with you guys, that they are price testing. So let’s just put it out there. I agree that they're doing it because they've got limited capacity. They're like, hey, this is a great way to fence off. Let's make some money, and let's do this thing and learn and see what happens. I am more curious even in the last couple of months that we've been tooling around with this thing... I’m curious if they’ve looked at the use cases from the last couple of months. This has been around for a little bit of time now, it’s not like days. It’s been months. For the months it's been out, and I agree that it's this early adopter, leading edge kind of stuff, but what are people using it for? And can you really segment off the high end users that are getting value, and put a price point out there relative to that value, instead of a number that's kind of artificially generated? Where do they go from here? Do they go up from there, down from there? Do you fence off other use cases? Are there other features you use? What is that?

A: Artificially generated is what they do best. 

T: So price testing in this scenario. How do you know how long to test for? What are your indicators that you should go down or up? I guess it's all volume, right?

J: Yeah. It seems like volume and the guys have already said it which is that the use type, the use case. What is it being asked to do and what is the value of that piece? That’s the big input that’s going to drive where you put your price point or offers. What is this attached to, is it attached to other things? Are there other features, or other services? You can also do it by capacity, right? So there's going to be some, you know. We've already seen server errors that Adnan pointed out, so are there ways to get higher capacity of what you're asking it to do?

P: I think micro transactions might be a more interesting one here. It's like you gotta pay 5 cents a query. How long of an essay you want? Every 100 words is a penny.

J: Yeah, actually I think that's a great idea. Doing a micro transaction or getting everybody's credit card and just saying, the more you use it the more you pay. How you use it will dictate what you pay. You get a whole price point, and let people go at it.

A: Going down the usage based path could be a good one, because at $42, I think for me personally seems a bit high, but as I think about it… if there is somebody out there like a salesperson, for example, that's using it to generate emails to reach out to their base, or a marketing person is using it to generate content. You know it's pretty likely that that's easily worth $42. So then you go down the path of usage based… over the course of the month, you use it 40 times, and you pay a price that reflects that. I could see potential for that. 

J: You can write the next pricing book at 42 bucks a month.

T: I would never use it for marketing purposes! I was playing around with it the other day, because I was trying to figure out… if I'm someone who, I don’t know, let's say I just got a pricing accountability. And I don't have much background in that, and I just want to get like, and it gets like lumped in with a bunch of stuff that I'm responsible for. And I'm just kind of poking around on different things like, what does it tell you? It feels to me like the basic stuff feels pretty right, but there's not much insight, so it's like it has like processes and guidelines and things like that, but it's like kind of foundational base level stuff. It didn't feel that different than Googling, although it gave more process length things for different topics, you know.

A: I agree.

J: Yeah, I think I think it increases the relevance of what you're looking for or asking for. But you still need that last 20% or so right to make it more what you need. But to me, the value driver of using something like that is more of time savings right now. So, instead of having somebody, let's say, write an essay, or write a paper whatever, or do a presentation. You know you have the building blocks that get built. It may not be perfect, and it won't be, but maybe it's 40% there. Maybe it's 50, 60, whatever it is, and then you do the next 40, 60, and that's great! You just saved yourself that much time. And for us, people like us that really do a lot of writing and a lot of presentations that might be awesome. That might be a lot of savings and a different area of focus for us. If this gets done quicker.

T: Different starting point and then people just fix it up. Not the dreaded blinking cursor.

J: Blank slides in front of you.

T: So there's also a category of things in dynamic pricing. I called it dynamic pricing burns that starts with this lift ticket that Pete found. This is like the most expensive one day lift ticket that has existed to current day.

J: In Arizona!

T: Arizona of all places! Pete maybe you start. What are your thoughts on this? $310 for the day?

P: Yeah, I mean 2 thoughts. One is, I would never pay the $309, because I like to buy season passes. But the truth is that you can't really transport the ski experience over state lines unless you transport yourself. So you kind of have a captive audience. So that demand driven pricing of yield management that you see in hotels or airlines is kind of flowed down. And actually, even though the price is the highest that's been in the States, I looked at the Arizona Snowbowl season, past price, at $1200. Then you look at the Vail season past place, and $700 or the other. You know the Alterra Ikon pass $900 if you renew early. But basically you look at their window rates, and the Arizona Snowbowl one in context looks pretty good. Where the $309 is 26% of the season pass. The Ikon pass is 30% of the season pass price. The Vail is 38% of the window price. So comparatively, the Snowball was almost a better deal. 

Really it's all about positioning people to buy the annual season pass subscription instead of waiting last minute.

P: It's more, punitive to new skiers, but it kind of steers people towards it. It's almost a decoy product. For the most part, it shows people you only need to ski 3 or 4 days to make the full season pass worth it, and that's really what it's signaling.

A: So them getting some of this press could be a positive right? Because then next season, people go in and have this $300 reference point in their head and say, if that's under consideration, or even at all, then that season price ticket seems that much more attractive.

P: Yeah, that's right.

J: I just think it's supply and demand. You've got Arizona, you’ve got a captivate audience. You've got a lot of transplants from California, even people from up north and there aren't a lot of options here. I mean Snowball is the only option unless you cross state lines. So I think for us living in Phoenix… It's an hour and a half away. You can get up in the morning, go do a couple of runs and come back down and enjoy. It's what 56 degrees right now outside? It's just simple supply and demand, and it's not a big slope right so that they know that they've got limited capacity. If they've got limited capacity, and Phoenix is just booming and growing from a population perspective, I think it just makes sense to do it. If you don't like the pricing and you want to go ski elsewhere, they're like, please feel free. We're gonna fill for the limited time that we have. Because it is limited. It's not like some of these other states where they can ski for 9 months or 8 months. You know this is like a very limited time. They're like, We only have a limited time to make a lot of money. We have a captive audience. Charge up. I think people will pay it.

A: If capacity is the constraint, and they continue to be full, then you're right. Pricing is the right lever to pull because they can simply make more money that way.

T: Ok, one of the first things I saw was people’s complaints about price gouging. What constitutes price gouging? Is that like… gouging is in the eye of the beholder? Is it just when people happen to get emotional about it? You three are particularly unemotional about pricing but that may be because of the field you’re in.

P: Gouging, for me, the definition of it comes down to… there’s less of a choice in the matter. For necessities, you think about boarding up plywood in hurricanes, or shovels in a snow storm. Those disaster situations when you need certain supplies. On one hand, you could argue that supply and demand is such that there’s only a handful of those items left on the shelf. Everyone should be able to go get them if they’re able to pay for them. But I think that's kind of the surge that precipitates the debate about whether there's price gouging. In this situation, you don't have to go ski, and you could also argue that the people that committed to a season past don't want this hill flooded with all the people deciding last minute on the best day to flood the slopes. They want the experience, they paid a full price for at the beginning of the season to kind of ring true throughout.

J: I think if you're if you're somebody in a position that's renting skis or have skis, and you're spending a weekend that's going to cost you $3,000 or $4,000, I think it's very difficult to make the case, for this is price gouging. To have the ability to go ski for a weekend, you know? In my opinion, if it has something to do with safety, it has something to do with community, public safety. Things like Pete was alluding to, then there is some level of gouging. But a nice to have, a want, a desire. It’s like saying Bentleys are priced too high. That’s price gouging. That car should be a lot cheaper. Ferraris, those are price gouging. You can choose not to buy those cars, you know? There isn't a limited supply there. There isn't anything that's forcing you to do that, you can choose to stay at home. You could choose to go to a different state and ski. You have lots of choices of what you can or can't do. I think the use of that term is probably inappropriate in this situation.

T: makes sense. Come on down to the Poconos. East Coast! Probably way cheaper. Alright, that also leads me to… well, Adnan and I were talking about this whenever we did our last video. About Ticketmaster. Ticketmaster got in big trouble and I think that trial is still going. But in terms of how, particularly with the Taylor Swift tickets, how all that went down with the hidden fees and everything. So what are your thoughts on that one?

A: It feels like a necessity, but probably doesn't quite fit the definition of price gouging. In my eyes, that one's interesting, I don't know that it's necessarily price gouging. I was obviously tongue in cheek, but I think the deep water they're getting in is because they have formed this monopoly due to that merger with Live Nation a number of years ago, and the fact that they're this kind of two-sided marketplace that's making money from the venue and the performer themselves, as well as the purchaser of this ticket. So there's this misalignment of incentives and Ticketmaster is best positioned to capitalize on tickets as best as possible. Because the reality is, if anybody wants to perform and distribute tickets, the only way for them to do that is via Ticketmaster. So the artists don't necessarily want to go down that path. Nor do the people buying the actual tickets, putting Ticketmaster in a position to really charge as much as they want to. And I think that started to come to light in this situation with Taylor Swift, where there is massive, massive demand for these tickets. Then I think the other aspect is that there was so much demand that people had kind of virtually lined up in the right way. But then they couldn't even access the platform because of these technical problems that Ticketmaster had.

A: Then I think the other layer that is just that their past reputation of doing this so many times, and then these fees that occur after the fact, I think that's the portion that you and I were talking about Tracy, where you buy a ticket for list price, let's just say $100. But you know you go to check out and it's $150. You're like, why do I pay that $50? And the reason is this range of fees that they have that often lack transparency. Long winded way of saying Ticketmaster has a lot of different angles where they're treating a range of audiences very unfairly.

P: Said another way, I think you could have argued that Ticketmaster is giving consumers benefit through a lot of choice, and you log on to one site, and you can go to sports, music, or at any state, any city, in one place. And the experience that consumers are getting for paying more money is arguably getting worse because they're just decreasing their service quality, or not holding up their end of the bargain to deliver better service for that price. So that's why it's also getting more attention. Behaving more like monopolists. Invest in the product and improve it.

J: Yeah. I believe some of these other sites use Ticketmaster as their primary platform. They have other UIs that sit on top. This has become more than just one company right Adnan?

A: I’m not 100% sure. You can go on the resale market via StubHub or SeatGeek but I believe those operate independently.

J: I do believe that price transparency is an issue with all of these things, and it always has been. I think you guys were alluding to the fees and things like that, and I think they've done radio buttons now that say, hey, do you want to see the fees? They could get into a lot of trouble if they're not properly articulating the full price at the point of transaction in any way, shape or form it, because that can be seen as misleading the consumer. So the price transparency piece, I think, is a really really big one, and I think you use the other word, which I would be very careful of with Ticketmaster if I was them, which is a monopoly. The perception of a monopoly. 

J: I think that's definitely there, because they're monetizing the supply side and the demand side. Rarely you have that ability to do both sides like that. And if you're not transparent with what you're doing, and you give the perception of being covert, and how you're charging and making money, I think you can get in some trouble for it, and I worry that Ticketmaster might be in that type of a situation here.

T: It feels to me like when there is a bad experience in the context of pricing, it carries a lot of weight. There’s been like a handful of different things, where all of a sudden it feels like pricing is like the uber villain of 2023, because people keep getting it wrong, you know? I think transparency is a big part of it. But there's probably other things that you guys see, especially for B2B that are kind of takeaways or learning from these different things. What do you think?

J: Pete were you going to unmute to go first?

P: No. It’s a good question though.

J: For me, pricing is an emotional topic. It stirs emotion, and it stirs emotion because you're hitting people's pocketbooks, and that's about as personal as you can get besides, spouses and children and family and things like that, right? So I think it definitely is a trigger for a lot of situations. And especially if you have some type of a large company or a monopoly that everybody knows how much you make, and how much profitability you have, things like that, and you're all of a sudden seen as trying to gouge the consumer or raise prices when you just recorded record profits, there's an emotional reaction that comes with it. And so our work is activation through sales is the last mile of pricing. So you can set pricing, but the way you go to market with your pricing becomes just as important as coming up with the price point itself. 

J: If you fail in how you train and educate your salesforce, how you go to market, how you communicate the value and protect why or how you came to that price point… If you don't do a lot of these things, and you just kind of throw the price out there in B2B or B2C, it doesn't matter. It's going to be emotional. If somebody comes into your house and goes, Hey I’m going to charge you triple what I did before, and you're kind of callous about it, people are going to be very angry. It's just it makes sense, right? So in my opinion, to answer your question, it's just an emotional topic, and rightfully so, because it it's the pocketbooks.

P: I think the timing of that, the timing of that emotional component, the whipsaw effect of Covid happens. Lock down. Companies in the retail space kind of fret and offer all these discounts. People buy more online and less restaurant, less services. Then supply chain kind of gums up the works and delays the B2B side. And yeah, there's a story about that. But then the pricing, the price effect of that is kind of delayed, and that's where it comes into 2022-2023. People are feeling that in an individual level, even though in the B2B supply side, it was happening far earlier. So I think the timing of it is really just where we are in the chain, and it will start to correct. We've seen that to a degree. 

A: I was going to say something really similar. It feels like there is a heightened emphasis on the perception of pricing, due in part to the fact that there's been this volatility across the board like Pete, you were just alluding to. When inflation is higher, it's a lot more difficult to figure out what the right price should be. So there's more debate about that, naturally. So I think it's in part to the reflection of the times that we are in with this massive sense of volatility, that in some sectors prices are changing more rapidly than others. So it's just hard to figure out what's right.

T: Well said. Alright. Well I have my eyes peeled for more exciting things like this, so I'm sure we'll do more of these. I think there's plenty of wins, too. I just haven't really found very many in terms of like great press that people get for fair pricing or getting it right, because I think it's just like people expect it more, and so it wouldn't necessarily get a lot of air time, but I think examples are good, and we'll keep looking at these as they come up. Thank you!