Contextual Pricing: The Death of List Price and the New Market Reality [NOOK Book]

Overview

A REVOLUTIONARY NEW PERSPECTIVE ON HOW PRICING REALLY WORKS



Contextual Pricing delivers a knock-out punch to complacent and low-return pricing approaches. . . . This book is full of intriguing, fresh insights which will expand your perspective on what is possible in ...

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Contextual Pricing: The Death of List Price and the New Market Reality

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Overview

A REVOLUTIONARY NEW PERSPECTIVE ON HOW PRICING REALLY WORKS



Contextual Pricing delivers a knock-out punch to complacent and low-return pricing approaches. . . . This book is full of intriguing, fresh insights which will expand your perspective on what is possible in maximizing revenue from your company’s products and services.”

—Mark Greatrex, Chief Marketing Officer, Cox Communications, and former SVP, Global Still Beverages, The Coca Cola Company



“To effectively price, managers must understand market context—the frame of reference for buyers. Context is far more important than the usual measures of price variation. I strongly recommend this readable and useful book to any business leader who suspects his or her company is falling short of achievable revenues.”

—Dave Calhoun, Chairman and CEO, Nielsen Company, and former Vice Chairman, General Electric Company



About the Book:



A few leading companies have jettisoned ideas about pricing that other companies believe are indispensible. The result has been superior performance against competitors who persist in a simplistic 1990s belief in “value.”



Contextual Pricing describes how buyers are influenced by comparison points and contextual messages more than by actual price levels. Identical products can sell at radically different prices to the same target customer—if context is strategically managed. This fact is how Procter & Gamble, GE, Coca-Cola Company, Amazon, Google, Microsoft, and others make sure they get the best possible price. The use of context is changing the way companies price and sell in the new global economy.



This readable and market-tested book describes the contextual pricing perspective, how it is being used in B2B and B2C markets, and how you can make the shift to contextual pricing in your own business. Whether you’re a CEO, P&L manager marketing director, sales manager, or entrepreneur, Contextual Pricing shows you how to:



  • Understand how your customer will make buying decisions and the role of pricing in those decisions

  • Establish better, more intuitive prices using context

  • Develop contextual pricing strategies that defeat competitor pricing—how contextual pricing can be the antidote to destructive price wars

  • Harmonize your pricing with branding, product development and channel strategies

  • Increase your profits with proven pricing tools, such as scientific bundling, tiering, branding, upsell “hooks” and more



Through its illuminating case-by-case studies, Contextual Pricing delivers a wide range of pricing techniques and customer insights that you won’t find anywhere else. You’ll learn how to avoid common pitfalls when raising or lowering prices and discover how you can compete in traditional or emerging digital marketplaces—and beat the competition through superior tactics, not through lower margins.



When you know the secrets of Contextual Pricing, you can name your price, drive your sales, increase your profits, and own your success.

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Product Details

  • ISBN-13: 9780071773263
  • Publisher: McGraw-Hill Education
  • Publication date: 11/9/2011
  • Sold by: Barnes & Noble
  • Format: eBook
  • Edition number: 1
  • Pages: 256
  • Sales rank: 1,097,274
  • File size: 4 MB

Meet the Author

Robert Docters is the managing partner for Abbey Road, LLC, a consulting firm specializing in pricing strategy. He previously served as a senior vice president of strategy and pricing at LexisNexis, and before that was an SVP at Ernst & Young.


John Hanson is a partner at Accenture, where he leads the North American Pricing and Profit Optimization strategy practice.


Cecilia Nguyen is a senior manager with Accenture’s Pricing and Profit Optimization strategy practice.


Michael Barzelay holds the London School of Economics’ first professorial chair in public management. He codirects the Department of Management’s new MsC Public Management and Governance, and serves as the founding executive director of the Center for Transformation and Strategic Initiatives, a Washington, D.C.-based nonprofit.

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Read an Excerpt

Contextual Pricing

The Death of List Price and the New Reality


By Rob Docters, John Hanson, Cecilia Nguyen, Michael Barzelay

The McGraw-Hill Companies, Inc.

Copyright © 2012Rob Docters, John Hanson, Cecilia Nguyen, and Michael Barzelay
All rights reserved.
ISBN: 978-0-07-177326-3


Excerpt

CHAPTER 1

Context and the Death of List Price

Without a story, I cannot give you a price. The price of used furniture is a point of view.

—FROM THE PRICE, ARTHUR MILLER, 1968


Who killed list price? One of the prime suspects is called "competition." Not a lone killer, however; it was a conspiracy. List price died because one price will never fit different customer comparison points, needs, budgets, timing, and applications. This observation builds upon Economics 101: that the value of one commodity at one time and location is not the same as the same commodity in another time and location. Managers involved in price must insist that it reflect the major factors shaping and framing customer choice. Those factors are best labeled "context."


Context

The link of price to context meshes not only with economics but also with common sense and market experience. Here are three market case studies where attention to the contextual "story" boosted price well in excess of any other lever available to management:

* The Coca-Cola Company, the marketing powerhouse, found that its best realized retail price for a can of soda was not a result of product improvement, nor advertising, nor value strategy. In a recent experiment, Coke was sold at Walmart in two shopping aisles: the traditional beverage aisle for one and a sportswear aisle for the other. Same product, same store, same everything, but in one case next to other beverages and in the other case next to sporty clothing. Much higher prices next to clothing, where Coke was the only soda on display. This was a less competitive context.

* Internet (VoIP) telephone providers Vonage and AT&T CallVantage found that they can obtain twice the rates for phone plans from those who also buy high- speed access, compared with those who obtain access for free (e.g., at medical, academic, or business campuses). A bundle context.

* Equity analysts Morningstar, Standard & Poor's, and others selling evaluations of company securities to stockbrokers and financial institutions found that they can command a multiple of normal prices when inputs are directly tied to a computerized portfolio management program. The information provided is identical. This price obtained stems from being in one case associated with, say, a $10,000 stock trade, while in the other it is associated with a multimillion-dollar portfolio of many stocks. A richer context.


What drove these increases in price? Did the soda, the phone service, and the stock information increase in intrinsic value and so get a better price?

No: neither the cola, nor the phone service, nor the stock reports changed in any way at all. The common sense observation, and the point of this book, is that the other things associated with each offer—the market environment—changed, not the product. Product and value did not change, only the context.

For companies focused on profitability, the key justification for focus on context is that almost always the leverageable differences in price among different buying contexts is far greater than differences between products and competitors. As an illustration: the price difference among different major brands of gasoline is nil and the differences between grades of gasoline run from 5 to 15 cents per gallon, but differences in gasoline prices among geographies, days of the week, and proximity to busy streets run from 50 cents to more than $1 per gallon. The gasoline price differences by location, for instance, are driven by factors such as the income of surrounding areas, taxes, and proximity to refineries. Now, which should get more management attention—the pennies or the dollars? The product or the context?


The Customer's Mind

The context employed in your customer's mind is important because it allows you to understand how buyers evaluate price as part of the purchase process. Context—competition, decision process, timing, availability, etc.—will explain outcomes. Context allows sellers to focus on the right market research strategies and then to design optimum price structure and set optimum price points.

While it may seem strange to focus more on buying occasion and the customer mind-set than on your particular product, context is what makes for reliable pricing. Product value is only one driver of price. For the best pricing, look to context as much as to your product offer. When you consider the nature of "value" versus "context" in Figure 1-1 below, you may conclude that your pricing decisions today are overly focused on product value, while neglecting the price impacts of context.

The message here is that clinging to the idea that your company's product has an essential value is wrong. Value is not a concept compatible to diverse markets and a changing world. This is the new reality.

The idea that management should look at the broader context is similar to the strategy developed by the top-ranked soccer teams. The coach of a perennially top-ranked German team emphasizes that winning comes from "moving well without the ball." This idea is similar both in pricing and the world's most popular sport. You will lose if you focus only on the product (the ball).

True, most of your competitors are focused on the product, but customers operate in a broader theater. Their purchase is guided by budgets, indirect alternatives, convenience, knowledge, different motivations, and all the variety of life. The seller that incorporates an understanding of context will do better than those who focus narrowly on the product. In similar fashion, the ball gets plenty of attention in soccer, but the team that is controlling the overall field of play will dominate their opponent.

As described in the next chapter, this concept requires your management team to become aware of, and become comfortable basing decisions on, some subtleties of the market. Doing so will mean learning to rely on limited test market data, smart customer surveys, or competitive intelligence. This is why GE Patient Care's first action in a recent price initiative was to engage a competitive intelligence vendor to better understand the competitive context for its products. Such a move would not be considered radical for, say, branding or product development, but it is sadly unusual for pricing.

Context and the Death of List Price


Life without List Price Is Easier

Things we did not think we could live without but now don't miss: paper money, compact discs, fax machines, landline phones, file cabinets, in-house data storage, the U.S. Postal Service, and so on. For business managers, one such missing nonessential, we believe, is the idea of list price.

Consider the contortions involved with keeping a list price. First of all, everyone knows that, generally, list price is a lie. Jokes abound: only fools pay list price. But in pretending that there is a list price, we fail to collect premium prices above list price in situations where there is that opportunity, Then we frighten off customers for whom the list price is too high, and we create an endless (and destructive) battle between keepers of list price and those who face market realities (product managers and sales representatives).

Why do businesses engage in meaningless rituals like list price? Perhaps list price is a leftover from when their companies had unique products that allowed easy margins and an enforceable single price target? More important, will pretending to have a meaningful list price keep the good times going? Probably no
(Continues...)


Excerpted from Contextual Pricing by Rob Docters. Copyright © 2012 by Rob Docters, John Hanson, Cecilia Nguyen, and Michael Barzelay. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Contents

Acknowledgments....................          

Introduction....................          

Part 1 The Journey from Product to Context....................          

1 Context and the Death of List Price....................          

2 Why Value Matters Less with Competition....................          

3 Which Contexts Matter to You?....................          

4 Living in the Digital World....................          

5 Antidotes to Price Pressure....................          

Part 2 Pricing for Poets and Profit Maximizers................          

6 Price Structure....................          

7 Scientific Bundling and Tiering....................          

8 Dangerous Ways to Reduce or Increase Price..................          

Part 3 Pricing Programs and the Marketing Mix.................          

9 Segmentation, Context, and Time....................          

10 The Hinge of Fate: Pricing Strategy....................          

11 Higher Return: Introductory Pricing Strategies.............          

12 Brand, Messaging, and Competition....................          

Part 4 Tools for Management....................          

13 First Steps and Missteps....................          

14 Cheap and Cheerful Pricing Tools....................          

15 Key Contextual Data Is Not in Your Company's Database......          

16 An Enabling Systems Architecture....................          

17 Creative Pricing....................          

Index....................          


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