Big Business Thinking

A Review of the ‘Mixed Prices for Mixed Machines’ Pricing Strategy

For newcomers to this column, I have identified the five most successful pricing strategies for coin laundries, which I have named: Market Price Follower, Low Price Leader, Mixed Prices for Mixed Machines, Consistent Price Promoter andHigh Price Leader. Inmy last two columns I reviewed the first two of these strategies, and we will continue this month with the third.

Mixed Prices forMixedMachines is hard to say during casual conversation at, say, your Coin Laundry Association affiliate’s quarterly meeting. Instead, consider using the much coolersounding abbreviation “MPMM.” As in, “I used to be a Market Price Follower, but aHigh Price Leader store opened amile away, so after I updated my competitive survey, I switched to MPMM. My turns are about the same, butmy net is up 20 percent. I’m really pleased with my thought out and well-executed strategic pricing decision. So, how’s your store doing?”

To be a Low Price Leader, you simply must have the lowest prices on all your machines. To be a High Price Leader, you should have the highest prices on all your machines, though it’s not absolutely required. To be a Market Price Follower, youmake the strategic choice to have your pricing decisions taken largely out of your control.

It will takemore thought about your pricing to be an adherent ofMPMM. Remember, a portion of your customer base will patronize your laundry almost regardless of what you charge.The key to strategic pricing decisions is to drive enough new business to generate higher net income. Proper MPMM adoption requires nuance and testing on your part.

TheMPMMmethodmixes (get it?) your store’s pricing both high and low for different machine types. The goal is to drive recurring traffic from current and new customers to specific machines that fit their needs as a consumer but that also fit with your preferences as a service provider. To be clear, yes, I know that the different types of machines in your store already have different prices. Obviously, every store does. (Though I did once visit a large 24-hour card store in Chicago that used an interesting promotion during the overnight shift: “All washers ninetynine cents.”)

But why have you priced each of your machine types as you have?Was it strategic, or just using traditional pricing?Have you experimented with pricing some washers higher and others lower? Are you trying to use price to manipulate turns by machine type? The MPMM strategy is premised on the idea that you can be a low price leader on some machines, and a high price leader on others. Your goal is to have a holistic pricing model that maximizes profits.

MPMMthrives in similar store and marketplace conditions as those for Market Price Follower stores: urban, dense, competitive areas.There needs to be enough close-by competition for the price differences to matter to your customers.

The more varieties of equipment that you have the larger your palette for variable pricing will be. For example, a store with 20 toploaders and five frontloaders would normally be better off by choosing Consistent Price Promoter - but even this kind of store can employ MPMM under the right circumstances.

While a brand new store that just opened should not chooseMPMMas a first option - even if it has an equal number of every size of frontloader available - it is not critical that your store be old or new.What doesmatter is the age of your equipment. Because MPMM requires your store to have different equipment types, it fits quite well with older stores that have different banks of equipment, both old and new.MPMMworks especially well if you have recently bought new equipment but have not gone through a complete rehab project.

The5most successful pricing strategies for coin laundries: Market Price Follower Low Price Leader Mixed Prices for Mixed Machines Consistent Price Promoter High Price Leader

You must find a pricing comfort level for both yourself and your customer base

Customers like using newequipment, and they like to receive a perceived bargain. Conversely, owners like to reduce their energy consumption and to increase their profits.How ever shall we accomplish these apparently conflicting sets of goals?MPMM!

In my experience,most owners who have half very old machines and half very new machines of the same type would have a higher price on the newermachines.MPMMstrategy says that since you want to maximize the turns on the newer ones, offer a lower price, and maximize your net.

Old toploaders with a row of brand new 30 pound frontloaders?MPMM. Our hypothetical store’s owner from two paragraphs ago goes to a distributor’s show and replaces half her toploaders, but the other half are 12 years old?MPMM. Even though her store has a tiny variety of equipment types, she can still use MPMM to encourage her customers to use her new, under-warranty, energy-saving washers, and to thus increase her profits.

You must determine your turns per day by machine type over a sufficiently long period of time to convince you that it’s accurate. Three months should be enough, but preferably not during your highest volume seasonal period. With this information in hand, ask yourself what you think, within reason, your turns per day by machine type should be, or better yet, could be. Price accordingly, so that you are encouraging your customers via financial motivation to use the machines you want them to use the most, based upon the machines’ own variances in utility cost per turn, warranty status (or lack thereof), peak use popularity, and the like.

I ask again that you remember that higher turns do not mandate higher profits. Are your old toploaders turning seven times while your new mid-sized frontload washers are turning two times? It’s time to implementMPMM.

There’s absolutely nothing wrong with having older toploaders in your store if they still work well, but there is also no reason for you to losemoney on their use. Price them so that you turn a profit, and lower your price on your new(er) larger machines so that they are seen by the customer as a relative bargain.Many customers will use the toploaders regardless, but you will no longer be sorry they did.

The most important concept for implementing MPMM is that your customers need to notice these price variations and react to them. You are attempting, while retaining their continued patronage, to influence their behavior to your economic advantage. Think of it as a competition among yourmachines, with the winner being your net income.

The pricing you choose for each type of wash must be sufficiently attractive relative to the next size washer up and down. MPMM requires you tomonitor your turns per day per machine on a weekly basis. After you make your initial changes, your customers’ new behavior will show you in three to four weeks if you need to make any further fine-tuning, so that your turns are moving in the right direction for all your machines. Consequently, card stores are, generally speaking, strong candidates for MPMMpricing.

If you are going tomove toMPMM fromMarket Price Follower, I suggest you reprice all of your store’s equipment at the same time, rather than piecemeal over a period of weeks. Your existing customers will notice the change on their next visit, and firsttime customers won’t know there was one. Every time you change prices you provide a new opportunity to an existing customer to become annoyed or to react by going elsewhere, even if only once, so give themas few chances as possible.

Some customers actually won’t notice what you’ve done. Note that if you believe you have a large percentage of this type of customer in your market, you should not choose MPMM, but rather Market Price Follower or High Price Leader.

By lowering prices simultaneously as raising themon differentmachines, you are providing the proper variance and delivering to your customer the perception of value as means of countering any disappointment resulting from the increases.

Consider highlighting the lower priced machines through new interior signage. Remember that this is not about pricing each machine one or two quarters higher than the preceding machine size; you need to adopt meaningful change if you use this strategy.

Please be on the lookout for a significant potential pitfall to implementing MPMM, especially if you choose (which I suggest you do) to raise your prices on your smallest washers.Namely, your variable pricing structure may influence your customers’ behavior by moving some of themright out the door.While a low level of departure is acceptable, do not permit the situation to escalate to wholesale flight.

You must find a pricing comfort level for both yourself and your customer base, even if that ultimately means changing your prices more than once. This is another reason why you must carefully monitor and react to your turns analysis.

While we have primarily discussed variable pricing for washers, MPMM can be applied to your dryers, as well as to your ancillary services and products. For example, next winter you may choose to lower your price significantly on your largest frontloaders while simultaneously reducing your dry time. Or you may choose to have the lowest priced (but not free, please) boxed soap in town, yet have the highest priced thirty pound frontloaders.

Just like there’s no point in bluffing at the poker table if your opponents aren’t paying attention, there’s no value in employing the MPMM strategy unless your customer base, store, and competitive landscape are each large enough so that your decision to implement variable pricing will bemeaningful to your financial results.

Next month, we will review my fourth pricing strategy, Consistent Price Promoter. Until then, I suggest you just relax, don’t do any surveying, or think about your pricing strategy at all… Happy April

The Journal April 2008