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Tag: Pricing

  • Oil Could Rise After Latest EU Sanctions on Russia. Why a Rally May Not Last.

    Oil Could Rise After Latest EU Sanctions on Russia. Why a Rally May Not Last.

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    The European Union’s ban on seaborne imports of Russian oil, along with the Group of Seven’s plan to cap prices of oil from Russia early next month won’t guarantee that prices for the commodity will see a lasting rally, or that supplies will tighten further in the days ahead.

    “In isolation, the sanctions on Russia should be bullish for prices,” says Matt Smith, lead oil analyst, Americas, at Kpler. However, they may have a limited effect, as Russian barrels get “rerouted and not taken off the market,” while a price cap still has so much uncertainty surrounding it that its impact may be “muted due to workarounds or may simply be ineffective.”

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  • U.K. inflation hit fresh four-decade high of 11.1% in October

    U.K. inflation hit fresh four-decade high of 11.1% in October

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    U.K. inflation accelerated in October, reaching a fresh four-decade high, as higher wholesale energy prices fed through households’ utility bills.

    The U.K.’s Office for National Statistics said Wednesday that consumer prices were 11.1% higher in October than a year earlier, more than the 10.1% rise registered in September.

    This is the highest rate of inflation since February 1982, and beats the 10.9% consensus forecast from economists in a poll by The Wall Street Journal.

    The jump in inflation was mainly due to higher energy prices, which increased for most households even as the U.K. government implemented an energy price cap from Oct. 1. Electricity prices rose 65.7% on year, up from the 54% increase registered in September. Gas prices soared 128.9% compared to a year earlier, outstripping the 95.7% the prior month.

    The core price index–which excludes volatile categories such as food and energy–increased 6.5% in October on year, unchanged from September.

    The Bank of England expects inflation to remain around 11% in the fourth quarter, and to moderate slightly toward 10% in 2023’s first quarter.

    Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

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  • Are You Charging Enough Money for Your Software? Here’s How You Can Tell.

    Are You Charging Enough Money for Your Software? Here’s How You Can Tell.

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    Opinions expressed by Entrepreneur contributors are their own.

    My biggest mistake as an entrepreneur and startup founder happened just before raising our seed investment. I was sitting on a windowsill at our old office, looking over the sea, contemplating what masterstroke could take my company to the next level. Then it hit me: Why don’t I just lower the price to $4 per month per user? “If the product is cheap enough, everyone will buy it and see its immediate value,” I thought to myself.

    What happened was that I totally overestimated our brand, the maturity of our product and our ability to drive product-led growth. I was convinced that the quality of our product would be self-evident and that it would sell itself because of the embedded virality of the platform. Instead, I learned that our product was underdeveloped, the market immature and that we had to educate our users to show them the full value and capacity of our product. In many cases, we even had to help them implement our solution for our customers to prevent them from churning.

    Later, it would show that raising prices wouldn’t just increase our top-line growth. It made our users happier with our product as they got more committed.

    Related: 4 Reasons Why Raising Your Price Is a Brilliant Marketing Move

    The problem with under-charging

    My mistake is not unusual — quite the opposite. I often see young, inexperienced founders under-charging for their products. Either because their imposter syndrome makes them underestimate the value of their product, or they overestimate their ability to make bottom-up sales.

    Selling a product at $4 per user would require an utterly insane amount of users to keep growing. Having so many users means you must have virtually no touchpoints with the users, which requires a totally self-explanatory UI. You need a really sticky product that sells itself. That’s not impossible. Slack did it. Notion did it. But it’s extremely rare to hit such a home run on your first try.

    So, what justifies charging big money for B2B software? What makes companies pay 50k or 100k for a piece of software? As I see it, your product must be hard to replace, business-critical for the users and show a clear return on investment. Let’s take a closer look at those three elements.

    1. Is it hard to replace?

    The first aspect is making your software hard to replace. By that, I’m not suggesting that you take your users hostage with opaque termination conditions and well-hidden cancellation buttons. The point is that you ensure your software is embedded deeply into the workflows of the business you serve. The truly value-adding solutions in today’s B2B software landscape aren’t just digitizing a process or replacing another similar solution. They change the way we work. Driving actual behavioral change in your users’ approach to work requires skilled consultants, multiple touchpoints, a forward-thinking mindset and a lot of education from your end. But it also makes your product unique and very hard to replace. Simple licenses are convenient in some instances, but they don’t drive loyalty because no real commitment is involved.

    Related: How to Let Customers Know About Increased Prices Without Making Them Mad

    2. Is it business-critical for users?

    Second, your product must touch something sensitive and business-critical for your user. You can justify a higher price if your software cures a real pain than if you just remove a little nuisance. And you can charge more if your product reaches far into the heart of a business. Certain products are so important to the operation of my own business that I’m willing to pay very high sums for them — like our CRM system or billing software, for example.

    3. Does it show a clear return on investment?

    The third aspect is the most obvious but may also be the hardest to achieve. Your price point is only fair if you can justify it from a return-on-investment point of view. You must be able to show your users the value you bring them in order to charge real money. It’s one thing to create a product that really creates value, but it’s another thing to be able to back it up with actual proof. Nevertheless, finding a way to calculate your value will enable you to set the price point where it belongs — usually higher than you think.

    Related: How Raising Your Prices Can Actually Help You Make More Sales

    With all that said, there is also a mental aspect. You have to believe in yourself and your product, and don’t underestimate your worth. Finding the right price point takes experimentation and iteration. I probably still haven’t found it, and it changes over time. But in my experience, charging too little psychologically affects your users. It makes them less committed and less likely to perceive the true value of your product. With higher prices, you might lose customers, but those who stick will be more devoted. Luckily, I could rectify my mistake and take my business to the next level despite my initial wrong-doings. But there is no reason you should make the same mistake.

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    Niels Martin Brøchner

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  • France to Pay Part of Companies’ Electricity Bills

    France to Pay Part of Companies’ Electricity Bills

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    By Joshua Kirby

    The French government will cover a part of companies’ electricity bills, with big energy firms asked to contribute to the cost, a minister told TV station BFM Business late Sunday.
    

    An “electricity guarantee” for 2023 will be finalized soon, and will cover part of any amount paid above a reference price fixed by the government, according to Energy Transition Minister Agnes Pannier-Runacher.
    

    

    Energy companies making large profits will be asked to provide a contribution in relation to the reference price, the minister said, adding that the relevant legal proposition will be made very soon.
    

    The move comes amid surging energy prices across Europe following a stoppage of natural-gas flows from Russia. In France, supply has also been threatened by strikes at nuclear reactors owned by national utility Electricite de France SA.
    

    Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
    

    

    

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    Mortgage industry group predicts recession next year, expects mortgage rates to come back down from 7%
    
			
    Mortgage industry group predicts recession next year, expects mortgage rates to come back down from 7%
    
			
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    NASHVILLE, Tenn. — A mortgage industry group is expecting a recession to hit the U.S. economy.
    

    “We’re forecasting a recession for next year,” Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, said Sunday during the industry group’s annual conference in Nashville, Tenn. 
    

    

    “The upside of that potentially for the industry is, that’s the thing that’s likely going to bring rates down a little bit,” he added.
    

    Also see: Mortgage bankers forecast rates to drop to 5.4% in 2023. Here’s what that means for home prices.
    

    In a statement, Fratantoni said the MBA’s forecast calls for a recession in the first half of 2023, and predicts the unemployment rate will rise from 3.5% to 5.5% by the end of next year.
    

    “We’re beginning to see some significant signs of softening in the labor market,” Frantantoni said. 
    

    He expects companies to no longer be scrambling to fill job openings, and that hiring will eventually cool off.
    

    On average in 2023, expect the economy to lose 25,000 jobs per month, he said, and end the year with employment at 5.5%. 
    

    That’s in stark contrast to the latest unemployment rate in September, which was 3.5%, according to the Bureau of Labor Statistics.
    

    “So a very, very different job market to today,” Frantantoni said. “I do expect the next couple of months are gonna be a pretty abrupt transition.”
    

    With a recession on the horizon, expect mortgage rates to come down to close to 5.4% at the end of next year, he said, versus the 7%-plus rates that the market is seeing today. 
    

    “We are holding to our view that this is a spike right now, driven by financial-market dislocation, heightened level of volatility in the market and this global slowdown we’re about to experience, the likelihood of recession in the U.S. will begin to pull this number,” Fratantoni said.
    

    

    

    

    Mike Fratantoni, senior vice president and chief economist for the MBA, speaks in Nashville on Sunday.
    

          
    
            AARTHI SWAMINATHAN
    
          
    
  
    

    

    Given the massive rise in rates this year, with the 30-year fixed rate averaging 6.94% last week as compared to 3.85% a year ago, many potential home buyers have decided to wait as their projected monthly mortgage payments have become unaffordable.
    

    Home sales have plunged, and are dragging down home prices. Sellers are also making more concessions in their attempts to woo buyers.
    

    As a result of the slowdown, the MBA is expecting total mortgage origination volume to fall to $2.05 trillion in 2023 from the $2.26 trillion expected in 2022. 
    

    They’re also expecting purchase originations to drop 3%, and refinances by 24%.
    

    Fratantoni also expects delinquencies to rise from 40-year lows.
    

    

    

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    Kroger and Albertsons Say Their Merger Will Cut Prices. Their Shares Are Tumbling.
    
			
    Kroger and Albertsons Say Their Merger Will Cut Prices. Their Shares Are Tumbling.
    
			
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    With inflation still an untamed threat, Friday’s announced merger of the grocers
    
        
    
          
    
            Kroger
    
          
    
        
    
       and
    
        
    
          
    
            Albertsons
    
          
    
        
    
       will spur debate about whether the consolidation will raise food prices, or lower them.
    

    The Biden administration’s antitrust regulators are scrutinizing mergers more closely than did predecessors, and an old argument against combinations is that they lead to price-gouging.
    

    

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    OPEC+ supply cut threatens to tip global economy into recession, IEA says
    
			
    OPEC+ supply cut threatens to tip global economy into recession, IEA says
    
			
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    An oil supply cut from the Organization of the Petroleum Exporting Countries threatens to deepen a global energy crisis by sending oil prices higher at a time of already elevated inflation and weak economic growth, the International Energy Agency said.
    

    Last week’s two million barrel-a-day reduction in the group’s output targets, which incurred sharp criticism from the U.S. and its partners, will tighten the oil market further at a moment of extreme vulnerability with few additional sources of supply available to compensate, the Paris-based agency said Thursday.
    

    

    The cut’s impact will be to exacerbate a mix of high oil prices and weakening global growth, both of which would undermine longer-term demand for oil, the IEA said, as it slashed its oil-demand forecasts.
    

    “With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession,” the IEA said in its monthly market report.
    

    The IEA cut its oil-demand growth forecasts by 470,000 barrels a day for 2023, to 1.7 million barrels a day. It also lowered its 2022 oil-demand growth forecast by 60,000 barrels a day, to 1.9 million barrels a day. Oil demand growth has steadily fallen throughout the year and is forecast to contract in the fourth quarter by 340,000 barrels a day, the IEA said.
    

    OPEC has said higher oil prices are necessary to spur fresh investments in oil production but the IEA said constraints among oil producers meant additional supplies would be scant. U.S. shale oil producers facing higher costs are withholding investment, while most Western nations are consciously moving away from fossil fuels. OPEC’s own members are struggling with a lack of spare capacity.
    

    The cut has undone a trend of steadily recovering oil supply following the Covid-19 pandemic “with the resulting higher price levels exacerbating market volatility and heightening energy security concerns,” the IEA said.
    

    The IEA’s report characterizes the supply cut as a lose-lose situation for both oil producers and consumers, as buyers of oil suffer from higher prices in the short term, while oil producers stand to see weaker demand as a result.
    

    The cut also comes ahead of an EU embargo on Russian oil and a plan by the Group of Seven wealthy nations to cap oil prices, both of which analysts warn could further undermine global energy supplies.
    

    Russia has said it would cut production and withhold supplies from nations participating in the price cap mechanism. Meanwhile, time was running out for EU states to find alternative sources of energy to compensate for the still-high levels of oil currently imported from Russia, the IEA said.
    

    Russia’s oil exports to the EU fell by 390,000 barrels a day in September, to 2.6 million barrels a day, the IEA said. The EU has just two months until the embargo on Russian crude imports comes into force, but still needs to find an alternative source for 1.3 million barrels a day of Russian oil, it warned.
    

    OPEC has said its production cut is aimed at stabilizing oil markets and countering declining oil-demand growth. On Wednesday, in its own report, the group sharply slashed its forecasts for global economic growth and oil demand.
    

    For 2022, the IEA now expects total oil demand of 99.6 million barrels a day and 101.3 million barrels a day in 2023.
    

    The agency cuts its forecast for global oil supply next year by 1.2 million barrels a day to 100.6 million barrels a day and by 200,000 barrels a day to 99.9 million barrels a day for 2022.
    

    Write to Will Horner at william.horner@wsj.com
    

    

    

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    Why Are Founders Still Ignoring This Easy Way to Boost Profits?
    
			
    Why Are Founders Still Ignoring This Easy Way to Boost Profits?
    
			
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    			Opinions expressed by Entrepreneur contributors are their own.
	
    

    

    It’s not every day that you stumble across a truly surprising statistic, but this one should shake any entrepreneur in their boots. The average SaaS company spends just 6 hours determining its pricing strategy. Now, that isn’t 6 hours every month or even every quarter. That’s 6 hours over the entire lifespan of a business. Ask any founder how long they spent choosing fonts and layouts or adjusting the logo’s size in the document’s header. The answer will, without a doubt, be orders of magnitude longer.
    

    Not devoting time to pricing means entrepreneurs miss out on a crucial part of optimizing their business. They already work to optimize everything else, and pricing strategy can significantly affect their company’s bottom line. The investment required to optimize it is minuscule relative to spending hours and wasting labor on choosing the perfect font.
    

    Related: How SaaS Is Changing the Way We Work
    

    A widely quoted Harvard Business Review piece published thirty years ago already made a case for optimizing pricing models, and still, founders haven’t caught up. In the article, aptly titled “Managing Price, Gaining Profit,” the authors assessed how much an increase in price affects the average company’s bottom line compared to an increase in volume. Price won out by almost four times as much.
    

    With such high leverage on price, even if a company’s managers are spot on in their pricing 90% of the time, there is a big payout for improving that to even 92%. Even though these results were corroborated years later in a McKinsey study, it seems founders are still coming up from behind on this issue. It also bears to note that pricing is a double-edged sword — if a 1% rise in price can improve your profits by a significant margin, then a 1% price cut can damage them.
    

    What is it that the price reflects?
    

    Companies often look at price as simply what the customer will be willing to pay, but that might be a mistake. That approach fails to consider the thousands of moving parts that need to seamlessly work in unison, almost like magic, to provide value. The price should reflect that.
    

    Researching pricing can be overwhelming because the sheer number of pricing models, strategies and tactics available is gigantic, so it’s almost impossible to know where to start. And frankly, there is no shortage of the mistakes you can make, i.e., pricing based solely on undercutting your competition, not segmenting customers, not trying enough price points, overcomplicating pricing presentation, and dozens more. But thankfully, in the world of tech, a conversation about pricing is brewing, and there are some surprising and exciting developments out there.
    

    One group of products notoriously difficult to price is legal cases. If a class action lawsuit has a 50% chance of reaching a verdict or settlement worth ten million dollars, the case has an expected value of five million dollars. However, valuations of commodified legal cases usually run on gut feelings and lawyers drawing from their own experience.
    

    Pricing and valuation is virtually a neglected field regarding the commodification of legal cases. An AI-powered justice intelligence platform called Darrow has seized on this and developed an algorithm that uses big data to value legal cases accurately. This platform finds a fair price and opens the door to a new suite of investment opportunities.
    

    As Software-as-a-Service is a relatively new concept, it makes sense to step away from old-fashioned pricing models. We’re no longer in the ’90s, and the SaaS buyer experience needs to reflect that. Software company Stigg, for example, has built software and API that gives companies fine-tuned control over what can be priced and packaged separately, helping businesses ship better plans to their customers.
    

    The irony of using software for pricing is that management will likely not spend more than 6 hours deciding between freemium, trials, subscriptions, usage-based pricing, etc. But at the very least, a program is doing the thinking in the executive’s place. Such software can serve executives particularly well today as companies cut costs, slow hiring, and search for ways to boost productivity.
    

    Thirty percent of CFOs are considering layoffs, and most expect a recession to come, according to a new Grant Thorton survey. Considering the state of the economy and rising inflation, companies can no longer afford to keep hires on board that aren’t holding their weight, and decisions to make certain pinpointed cuts make total sense. But sometimes cuts — especially in layoffs and reduced benefits — tend to hurt morale.
    

    Finding ways to maximize profit before resorting to cuts should be a top priority, and updating pricing is an excellent place to start. Pricing is too important to simply be left up to ad hoc decisions and gut feelings, and industry leaders would benefit from remembering that.
    

    Related: Don’t Try to Maximize Growth and Profitability at the Same Time. It’s Impossible.
    

    

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     Ariel Shapira
    

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