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Pricing Lessons from an Eye-Opening Scandal

In 1999, the UK Post Office rolled out a new computerized accounting system called “Horizon.” The new software handled transactions and accounting in post offices all across the country. It was designed to streamline and standardize financial processes, as well as to identify potential instances of fraud.

There was just one problem: Horizon didn’t work.

Within just a few weeks of the software roll-out, British sub-postmasters (independent franchisees who run local post offices) began complaining about bugs in the software. The totals reported by the computer differed from the totals calculated by hand, often showing that the local post offices were short by significant sums of money.

Those complaints fell on deaf ears.

The Post Office insisted that its system was reliable. And based solely on electronic evidence from the Horizon system, between 2000 and 2014, it convicted 736 sub-postmasters of fraud.

The Horizon system and the resulting convictions had devastating impacts on those accused of crimes. Many spent years in prison. Some lost their houses to bankruptcy. Others went through divorces. Addictions. Health crises. At least one committed suicide.

Since the truth about the faulty software came to light, the courts overturned 59 convictions. The Post Office reached a settlement with 555 sub-postmasters, agreeing to pay £58 million in damages. And more cases are still working their way through the courts.

So what can pricing practitioners learn from this scandal. At least three things:

  1. It can seem like pricing is working well when it really isn’t. In the same way that computer systems can sometimes malfunction, the pricing systems your organization uses (whether computerized or not) might not be working the way you intended. While it’s usually pretty easy to tell when prices are too high (because sales decline), it’s a lot harder to tell when prices are too low. After all, customers aren’t going to call you up and tell you that they are willing to pay more. Check out Why You Can’t See Your Biggest Pricing Problems for more insight on why this is so and what you can do about it.
  2. Minimize risk before rolling out a new pricing strategy or initiative. It’s hard to convince others in management and sales to adopt a new pricing initiative. But life will be far, far harder if the program you roll out ends up not working well. That’s why we recommend starting with a pilot program. That way you can work out the kinks ahead of time. It also helps convince others that the program can be trusted and has value. Watch the webinar on Pricing Pilot Programs for more advice on how to do a pilot.
  3. Don’t blindly trust the pricing processes you put in place over time. It’s easy to believe that a pricing process that once worked well is still working. But price segmentation models that were created months or years ago may no longer accurately reflect the market. You can’t trust a stagnant pricing model. Instead, set up processes that allow you to regularly test your models. If you need help, try this quick way to test your segmentation model.

For more tips on how to avoid common mistakes, check out these resources:

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