Boston’s water main break was fascinating from many perspectives. It was first and foremost a lesson in emergency management and maintaining public safety. Second, from my own vantage point as a restaurant pricing advisor, the implications for restaurants, schools, and hospitals were noteworthy. Lastly, the retail and pricing angle – in which I include the consumer dynamic – was possibly the most interesting, so I’ll focus on this. As for the first two, suffice it to say that this was a well-handled situation, quickly resolved via strong teamwork and expectation management. The institutions affected weathered this as best they could, some adapting better than others and keeping this in perspective – clearly, this incident pales in comparison to so many other disasters past and current. And I find the retail/consumer/pricing aspect intriguing. 

As the emergency neared an end, the price gouging buzz began. News stories early on showed people clamoring for bottled water, some of whom had purchased $150 worth. Wow, someone transported and stored that much bottled water for a situation that was only expected to last days? I went to stores and never encountered a depleted stock. I saw almost-empty shelves, signs limiting purchases to 2 per customer, and some stores with no limit. I saw pallets of water displayed in aisles, and at grocery stores and CVS, sale prices were being honored. I couldn’t help but think of Lloyd Bridges in “Airplane” as I thought, “they picked a terrible week to put water on sale.”

Note that not only did we have running water, but we also had hot water. We could shower (we were advised to sponge-bathe kids lest they ingest water), flush toilets, and even fight fires if necessary. I’ve been on vacations with less favorable conditions. All we could not do was drink, cook, or wash dishes with the untreated water in our pipes, hence the need for bottled or boiled water. Yet people hoarded supplies anyway. Emergency supplies were available from the National Guard in some areas, though it was difficult to know where the problems were. I figured somewhere, somebody was probably without water, or worse yet, did not know about the situation and would ingest it, but heard no such stories.

I imagined beverage manufacturers would be thrilled with the surge in demand for soft drinks, sports drinks, and all other potables. As public officials continued to communicate status and work to resolve the problem, it seemed that around me, things were calm and life went on. It was only via news reports that I heard the stories of panic – no surprise there.

The price gouging reports showed a receipt from the Somerville Market Basket with a $23.76 charge for a 24-pack of water, which had reportedly been sale-priced at $3.99. So instead of a $.16 per bottle cost, the store charged $.99 per bottle. I couldn’t find other clear examples, nor could I find clear definitions of gouging – the most common words are “exorbitant,” “excessive,” and “unreasonable” – so while most would agree that $.99 vs. $.16 is all of those things, the consumer did have a choice in the matter – buying it was not necessary, and boiling would be a perfectly reasonable substitute.

Many states prohibit price gouging after emergencies by law to protect consumers. Massachusetts’ Division of Consumer Affairs, which governs prices, is somewhat vague. The Division refers to the Massachusetts Consumer Protection law, Massachusetts General Laws Chapter 93A, and its website states that “the law does not list [violations] in any definitive fashion but states that ‘unfair or deceptive practices’ are illegal.” Unfair or deceptive is determined by a judge, as the explanation states. One scenario that the Division lists as illegal is when “A business charges a consumer higher rates than the marked, published or advertised price.” So if Market Basket had indeed posted the 24-pack of water in its sale flyer, seems to me that’s price gouging. Other stores that decided to jack up prices in more moderation, but had no sale flyer, are arguably operating legally.

It’s ironic that in a case like this, consumers need protection. While it’s noble that the government wants to protect us, shouldn’t our common sense rule? As in the case of Spirit Airlines carryon baggage charges (see blog, April 22), aren’t customers able to make these choices themselves? Much has been written about the merits of the free-market system and how it would apply here. As we learned in Econ 101, increasing prices would deter people from unnecessarily buying many weeks’ worth of water, while maintaining supply for those who couldn’t go to the store immediately after the boil water order was issued, only to find the cupboard bare.

Fortunately, life returned to normal rather quickly – in less than three days, we had a safe water supply. We could tend to our normal water consumption routines; restaurants and institutions were back up and running. The only unknown now is who may have gotten sick from consuming untreated water. According to officials, it takes about a week to notice the resulting gastrointestinal issues. As a friend remarked, “If there was a run on water this week, there will be a run on toilet paper next week.” I certainly hope my next post does not pertain to that. So with apologies to Mr. Whipple, for goodness sake, please don’t hoard the Charmin.

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Here’s another preview of my upcoming talk at next month’s National Restaurant Association Show, where I’ll speak about restaurant pricing. I want to talk about my definition of pricing strategy because it’s crucial for restaurants – and all companies – to have a clear, concise statement about pricing strategy.

If you Google “pricing strategy,” you will see some overly-simple statements and some lengthy lessons out there on what exactly pricing strategy is.

The overly-simple statements include commonly-used terms like “value pricing,”  “premium pricing,” or “price leader,” which are supposed to convey how a company prices its products. But I see these as tactics rather than fully-thought out strategies. And incidentally, these tactics can actually undermine business goals if not used properly.

The lessons are articles on pricing strategy that are actually comprehensive marketing and economics refreshers. They contain great information, though we still need a clear, concise definition of pricing strategy to ensure that all company stakeholders have a common understanding about the goals of pricing and how they will be achieved.

I think it makes sense to think about pricing the same way we think about any other function, whether it’s human resources, communication, marketing, finance, what-have-you. All of those disciplines have their specific plans, and pricing should have one, too. So I suggest that companies think about pricing strategy as follows:

Pricing Strategy consists of the objectives and plan by which companies compete in the marketplace.

And what’s a pricing plan?

A Pricing Plan is the set of actions a company takes to achieve its business objectives. It is the execution of a process to ensure that the firm achieves the results it seeks, and contains tasks, accountabilities, and timelines for each step.

So it’s not just the pricing strategy that’s important, it’s the pricing plan, because the plan is the means to the end. And I actually hang my hat on the plan, not the strategy, though if someone asks what the strategy is, this gives them an answer. The plan lays out what will be done, when it will be done, and who will do it.

There are plenty of other pricing terms to define, but I start with pricing strategy and pricing plan because these are the most crucial. Once these are clarified, they can be communicated across the company to create a common vocabulary among all concerned. By putting a pricing plan in place, and following it, a company is more likely to reach its objectives than by simply putting a stake in the ground that declares “we are a value/premium/low/predatory pricer” and calling that strategy. “What’s our pricing strategy?” is such a common question that having an explanation will save time and confusion, and will link back to a company’s overall business objectives. And that’s being strategic.

What do you think?