Monday, November 19, 2012

What is "Papa" John Schnatter really saying? (Short Take)

Papa John's CEO John Schnatter pushed one of my buttons recently and I'm not going to be able to relax until I've ranted a bit about it here. I am not going to comment on his politics or healthcare reform as they are tangential to my point and I don't generally talk politics here. I am going to question his honesty or sophistication though when it comes to pricing.

Schnatter's claim that he would have to raise prices to pay for healthcare related costs has gotten a lot of press. These kinds of claims generally do. The problem I have with them is that they make no sense.

I'll put it this way; the thing you'll hear the most in business school is that companies are supposed to enhance shareholder value. Lets imagine a world where healthcare reform does not exist. If Schnatter knew he could raise prices and gain additional revenue would he? If he's looking to enhance shareholder value than the answer to that question is fairly obvious.

Costs should never dictate pricing. In fact, costs shouldn't even figure into pricing though they do matter if you're trying to figure out if a new product will be economically viable or if an existing product can remain viable or become more profitable.

When people claim they are raising prices due to increased costs I suspect they are mostly being disingenuous, particularly when you're talking about somebody like Schnatter who runs a large well knows business. Not all small business owners are this sophisticated in their understanding of pricing and so long as the Walmart's of the world stay away they generally don't have to be.

What Schnatter is really saying if you read between the lines is "This is going to squeeze my margins and I'd rather be spending this money on things other than employee health care". Which is his right as a CEO but being that blunt wouldn't play well with employees or the public.
Enhanced by Zemanta

1 comment:

  1. In the interest of equal time and because it is radically different from what I heard...