CASE APPLICATION 1 Passion for the Outdoors and for People Atits headquarters in Ventura, California, Patagoniaâs office spacefeels more like a national park lodge than the main office of a$400 million retailer.100 It has a Douglas fir staircase and aportrait of Yosemiteâs El Capitan. The companyâs cafÃ© servesorganic food and drinks. Thereâs an infant and toddler child-careroom for employeesâ children. An easy one-block walk from thePacific Ocean, employeesâ surfboards are lined up by the cafeteria,ready at a momentâs notice to catch some waves. (Current wavereports are noted on a whiteboard in the lobby.) After surfing orjogging or biking, employees can freshen up in the showers in therestrooms. And no one has a private office. If an employee doesnâtwant to be disturbed, he or she wears headphones. Visitors areevident by the business attire they wear. The company encouragescelebrations to boost employee morale. For instance, at the Renostore, the âFun Patrolâ organizes parties throughout the year.Attracting people who share its strong passion for the outdoors andthe environment, Patagonia motivates its loyal employees by givingthem responsibility for the outcomes of their work and a high levelof task significance that their work is meaningful because itcontributes to the purpose of protecting and preserving theenvironment. Source: Rich Reid/Glow Images Patagonia has long beenrecognized as a great workplace for mothers. And itâs also earned areputation for loyal employees, something that many retailersstruggle with. Its combined voluntary and involuntary turnover inits retail stores was around 25 percent, while it was only 7percent at headquarters. (The industry average for retail is around44 percent.) Patagoniaâs CEO Casey Sheahan says the companyâsculture, camaraderie, and way of doing business is very meaningfulto employees and they know that âwhat they do each day iscontributing toward a higher purposeâprotecting and preserving theareas that most of them love spending time in.â Managers arecoached to define expectations, communicate deadlines, and then letemployees figure out the best way to meet those. Founded by YvonChouinard (his profile as a Leader Who Made a Difference can befound on p. 134), Patagoniaâs first and strongest passion is forthe outdoors and the environment. And that attracts employees whoare also passionate about those things. But Patagoniaâs executivesdo realize that they are first and foremost a business and, eventhough theyâre committed to doing the right thing, the companyneeds to remain profitable to be able to continue to do the thingsitâs passionate about. But that hasnât seemed to be an issue sincethe recession in the early 1990s when the company had to make itsonly large-scale layoffs in its history.

QUESTIONS: 1. According to Maslow's hierarchy, which basic needsdoes the Patagonia culture meet? What would it be like to work atPatagonia? (Hint: Go to Patagoniaâs website and find the section onjobs.) Whatâs your assessment of the companyâs work environment?(20 points)

2. Use the expectancy theory and/or the equity theory ofmotivation to explain how feeling underpaid might affect the workof a Patagonia associate and what a manager can do to increase theemployee's motivation. (20 points)

3. What do you think might be Patagoniaâs biggest challenge inkeeping employees motivated? If you were managing a team ofPatagonia employees in the retail stores, how would you keep themmotivated? (20 points)

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View the video transcript below and share your thoughts on the economic concepts that you believe are applicable.

Question# 1. Why does a firm have to posses market power in order to raise prices.

How to Raise Prices Without Losing Customers

JJ RAMBERG, anchor:

With gas prices soaring and the economy tightening, you may think itâs not possible to charge your customers more. But, it turns out you can successfully raise prices without driving those customers away. Bob Prosen runs the consulting company, Prosen Center for Business. Heâs helped business leaders rapidly increase performance, productivity and profits, and heâs also author of the book, âKiss Theory Goodbye: Five Proven Ways to Get Extraordinary Results in Any Company.â Bob, welcome.

Mr. BOB PROSEN: Thank you. RAMBERG: So, if youâre going to raise prices on your customers, one of the things you say is donât surprise them. So, how do you give them warning?

Mr. PROSEN: Well, our customers are very important to us, lets not surprise them. Letâs let them know in advance that prices will increase. But, itâs important to explain to them in their language as to why prices are increasing. For instance, if its fuel surcharges, theyâll understand that. But its important we put it in their language so that they, in turn, can pass that along and plan for it in their own business.

RAMBERG: So, a lot of times when people are paying more, they expect to get more. So, you should communicate increased value I assume. But is saying, um--gas prices are going up for me, is that uh--the same as saying, youâre going to get more for your money?

Mr. PROSEN: No, definitely itâs not. In fact, the equation for value is benefits plus price. So, if prices are going to go up we have to have increased benefits for our customers. So, we can do things like under promise and over deliver. Give them a little bit more. Understand their customerâs customer. So that when we provide our services to them, theyâre customized for our customers. They see more value, we understand their business, and therefore theyâll be more appreciative of what we do and less sensitive to price increases.

RAMBERG: That seems to--to follow into your next point, or go right into your next point, which is, track the quality of your products.

Mr. PROSEN: This is absolutely critical, and we can track the quality of our products many ways. Customers call us, complaints, warranty, rework. If weâll deal with that, capture that, and inside of âKiss Theory Goodbyeâ I teach business people how to reduce these problem occurrences and increase the quality of their product. You do it for two reasons: One, customers like us a lot more when things work the way theyâre supposed to; and our cost structure goes down therefore maybe we donât have to increase our prices as much and we can be more competitive.

RAMBERG: And then, also, relationships matter.

Mr. PROSEN: Oh thisâ¦

RAMBERG: So, if you have a good relationship, you can do more within that relationship.

Mr. PROSEN: Oh, definitely. People like to do business with people they like. So, lets make sure we stay in touch with our clients. Customize what we touch them with. You know, for instance, when I travel and I deal with business people, I always carry thank you notes in my briefcase. When Iâm finished, I send them a note. Itâs a rarity these days to even get a thank you note.

RAMBERG: Yeah, it absolutely is. So, about how much can you raise prices by? Can you suddenly figure out that your costs are gone up so much because of energy prices, or food prices, or gas prices, whatever it is, um--and raise it by 50%? Should you do it incrementally? Should you do it all at once? How does it work?

Mr. PROSEN: Yeah, thatâs a great question. It depends on what industry youâre in. It depends on what you customers are doing. It depends on a number of things that determine how much, and when, and the frequency of our ability to raise prices. Therefore, what I always recommend to business leaders is work on your cost structure; make sure youâre efficient and effective. Keep your costs as low as you can. Therefore, you can be more competitive on your pricing. Sometimes, you have to pass along the price. Other times, try to absorb what you can through improved efficiencies.

RAMBERG: Should you be looking at your competitors and how much theyâre charging?

Mr. PROSEN: Yes, you should absolutely be looking at your competitors. We always want to know what theyâre charging. And by the way, we want to differentiate our products and services from our competitors. And, if we can prove a higher value by dealing with us versus our competitor we should be able to articulate that, and we do it based on facts because we know whatâs going on in the industry.

RAMBERG: Alright, Bob I know a lot of people are thinking about raising prices so thanks for giving them some tips on how to actually do it.

Mr. PROSEN: My pleasure.

View the video transcript below and share your thoughts on the economic concepts that you believe are applicable.

Question# 1. Provide a rationale on whether or not a firm has to possess market power in order to raise prices.

How to Raise Prices Without Losing Customers

JJ RAMBERG, anchor:

With gas prices soaring and the economy tightening, you may think itâs not possible to charge your customers more. But, it turns out you can successfully raise prices without driving those customers away. Bob Prosen runs the consulting company, Prosen Center for Business. Heâs helped business leaders rapidly increase performance, productivity and profits, and heâs also author of the book, âKiss Theory Goodbye: Five Proven Ways to Get Extraordinary Results in Any Company.â Bob, welcome.

Mr. BOB PROSEN: Thank you.

RAMBERG: So, if youâre going to raise prices on your customers, one of the things you say is donât surprise them. So, how do you give them warning?

Mr. PROSEN: Well, our customers are very important to us, lets not surprise them. Letâs let them know in advance that prices will increase. But, itâs important to explain to them in their language as to why prices are increasing. For instance, if its fuel surcharges, theyâll understand that. But its important we put it in their language so that they, in turn, can pass that along and plan for it in their own business.

RAMBERG: So, a lot of times when people are paying more, they expect to get more. So, you should communicate increased value I assume. But is saying, um--gas prices are going up for me, is that uh--the same as saying, youâre going to get more for your money?

Mr. PROSEN: No, definitely itâs not. In fact, the equation for value is benefits plus price. So, if prices are going to go up we have to have increased benefits for our customers. So, we can do things like under promise and over deliver. Give them a little bit more. Understand their customerâs customer. So that when we provide our services to them, theyâre customized for our customers. They see more value, we understand their business, and therefore theyâll be more appreciative of what we do and less sensitive to price increases.

RAMBERG: That seems to--to follow into your next point, or go right into your next point, which is, track the quality of your products.

Mr. PROSEN: This is absolutely critical, and we can track the quality of our products many ways. Customers call us, complaints, warranty, rework. If weâll deal with that, capture that, and inside of âKiss Theory Goodbyeâ I teach business people how to reduce these problem occurrences and increase the quality of their product. You do it for two reasons: One, customers like us a lot more when things work the way theyâre supposed to; and our cost structure goes down therefore maybe we donât have to increase our prices as much and we can be more competitive.

RAMBERG: And then, also, relationships matter.

Mr. PROSEN: Oh thisâ¦

RAMBERG: So, if you have a good relationship, you can do more within that relationship.

Mr. PROSEN: Oh, definitely. People like to do business with people they like. So, lets make sure we stay in touch with our clients. Customize what we touch them with. You know, for instance, when I travel and I deal with business people, I always carry thank you notes in my briefcase. When Iâm finished, I send them a note. Itâs a rarity these days to even get a thank you note.

RAMBERG: Yeah, it absolutely is. So, about how much can you raise prices by? Can you suddenly figure out that your costs are gone up so much because of energy prices, or food prices, or gas prices, whatever it is, um--and raise it by 50%? Should you do it incrementally? Should you do it all at once? How does it work?

Mr. PROSEN: Yeah, thatâs a great question. It depends on what industry youâre in. It depends on what you customers are doing. It depends on a number of things that determine how much, and when, and the frequency of our ability to raise prices. Therefore, what I always recommend to business leaders is work on your cost structure; make sure youâre efficient and effective. Keep your costs as low as you can. Therefore, you can be more competitive on your pricing. Sometimes, you have to pass along the price. Other times, try to absorb what you can through improved efficiencies.

RAMBERG: Should you be looking at your competitors and how much theyâre charging?

Mr. PROSEN: Yes, you should absolutely be looking at your competitors. We always want to know what theyâre charging. And by the way, we want to differentiate our products and services from our competitors. And, if we can prove a higher value by dealing with us versus our competitor we should be able to articulate that, and we do it based on facts because we know whatâs going on in the industry.

RAMBERG: Alright, Bob I know a lot of people are thinking about raising prices so thanks for giving them some tips on how to actually do it.

Mr. PROSEN: My pleasure.

HAMG 2330 Chapter Notes - Chapter 8: Reinforcement

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