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WELLPOINT: Testing the Limits of the Value Proposition

WELLPOINT: Testing the Limits of the Value Proposition

Wellpoint’s Paul Caron is an old hand at tinkering with pricing to maximize his bottom line.

How do you test the upper limits of price resistance without driving customers away? Every good businessman has this skill to some extent, but for onsite operators, it must often be learned behavior. One operator who has internalized— indeed mastered—the price-is-right game is Paul Caron. We profiled Caron as “The Survivor” in our May 2004 issue. At the time he was a self-op holdout in a B&I sector (a large insurance company) where contractors mostly rule. Caron had survived massive subsidy cuts and maintained a satisfactory bottom line through shrewd menuing and pricing.

Here are some of his strategies:

Use new items to introduce new prices. “The way to get a new price structure out there is to introduce a new item that can introduce a new price. Then that new item can pull up prices on similar type items, if only by a quarter or 15 cents.” Montor your sales data, especially on new introductions and specials. “If I see something that comes out and takes off as hot as a pistol, maybe it’s too cheap. It’s American culture—the more somebody wants it the more you have to pay!”

Take advantage of outside economic trends. “Since everything—food, energy, labor—is going up, people on the outside have to raise their prices. So at McDonald’s you get a hamburger for $2.79 while I’m selling a real good hamburger—a quarter pounder with cheese on it—for $2.75. People look at that and say, ‘Is it really worth it for me to pay $3 a gallon to go out there, when the product here is really good?’”

Follow the crowd. “I like to see where people go to eat because it gives me ideas about what to serve and how to price it. For example, people love that half sandwich and soup you get at Panera Bread so I’m going to run a monthly special with a bowl of soup and half a sandwich for $3.99.” Consider fountain drinks as your “loss leaders.” Caron sells fountain soda, any size, for 99 cents, making it a natural add-on for most meals. That bumps up the check on most orders by a dollar, and adds margin, given the low food cost on fountain soda even at the low price.

Use high perceived value add-on’s to encourage incremental additional sales. Caron’s new pizza line has a base price of $4.25 but high-appeal add-ons like roasted red peppers and artichoke hearts tease out another 50 cents for those who choose them.

Use up your proteins to boost check averages on the salad bar. “Cold pork sells well on a salad bar. I also take all the chicken tenders I don’t use and put it on there and people eat it up.” That boosts check averages at a station that charges 36 cents an ounce.

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