Everyone is talking about inflation right now, yet they're all kinds of examples out there about organizations and companies choosing not to raise prices. These examples show that there is an internal thought process when to not pass internal cost increases into the price. When this decision is made correctly, these leaders and companies build a service within the price disciplines, enticing people to keep coming back.
Two examples that come to mind are Costco's decision not to raise the price of the hot dog and the Masters' rigidness to raise the price of the pimento cheese sandwich. Quoted in Businessinsider.com in 2020, Craig Jelinek was quoted as saying:
"We have no plans to take that hot dog above a buck fifty," he told shareholders. "End of story."
I have to admit, when I first read the article in the New York Times, it made me think about the price of wooden pallets used to ship a product. One could default to think that with the recent fluctuations and surges in the price of the wood for the pallet, organizations would react by passing through these prices to their customers. Well, don’t. Customers don’t come back to organizations based upon their “wooden pallet price” and increasing the price of the pallets to absorb internal price increases is not forward-thinking. Organizations in this example use the pallet as a means to securely ship their final product for the material to be consumed. It shouldn’t be a line item on a quote that shows the exact market’s board-foot cost multiplied against the size of the pallet. Consider that the Pimento Cheese sandwich has cost $1.50 at the Amen Corner concession stand at the Masters since 2004. Relating this classic sandwich to a pricing team’s strategies, do we misuse our “Amen Corner” concession stand’s price versus realizing that the customer is there for the golf?
Don’t like pimento cheese sandwiches? Another example, consider going to a Mexican restaurant where we generally expect “free chips and salsa.” I have to imagine that if your favorite Mexican restaurant increases the price or no longer makes the chips and salsa free, it will disrupt the continuity of future visits. It will make the main course not as appealing because the chips and salsa cost more.
The goal in pricing is to pass along prices that the customer will pay for and come back for more. It is not to nickel and dime the customer to absorb all of one’s impacts affecting manufacturing cost. Instead, organizations should strive to build a cornerstone of credibility, that states regardless of our business conditions, you will always get your product on “wooden pallets” that cost X amount. If the price of wood goes up, organizations should strive to find other areas of cost reduction to maintain the cost of the pallet. Remember, we are not selling the pallet, instead, we are selling the product that it holds. Costco sells a warehouse of quality products in bulk, and its goal is not to be the best hot dog producer. Instead, when you visit Costco to buy items in bulk, you are guaranteed to get a hotdog for $1.50. Or when you go to the Masters, you can get a sandwich, a drink, and a cookie for $5.
When Costco's current CEO, Craig Jelinek, once approached Sinegal, then the CEO, about raising the price of the hot dog, Sinegal to him, "If you raise the [price of the] effing hot dog, I will kill you. Figure it out."