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More About This Textbook
Overview
The Second Edition of The Price Advantage, written by three preeminent experts at McKinsey & Company, is the most pragmatic and insightful book on pricing available.
Based on in-depth, firsthand experience with hundreds of companies, as well as significant investments in new pricing research, this book is designed to be a comprehensive guide for managers through the maze of pricing issues.
The authors examine state-of-the-art approaches for analyzing and improving pricing performance, demonstrate those approaches with real case studies, and draw a pricing excellence blueprint for companies to follow. In good economic times or bad, achieving the price advantage is critical to corporate performance and profitability.
Craig C. Zawada
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Meet the Author
WALTER L. BAKER is a partner in the Atlanta office of the international consulting firm of McKinsey & Company. Since joining McKinsey in 1998, he has worked with clients across multiple industries in the areas of pricing, sales, marketing, and strategy. With particular focus on the technology and industrial sectors, he has authored articles on pricing in CMO magazine, the McKinsey Quarterly, and the Harvard Business Review.
MICHAEL V. MARN is a partner in the Cleveland office of McKinsey & Company. He joined McKinsey in 1977 and has developed some of the most widely used analytic approaches for identifying and capturing opportunities in pricing. He has written articles on pricing that have appeared in publications including the Wall Street Journal, the New York Times, and the Harvard Business Review.
CRAIG C. ZAWADA is a partner in the Calgary office of McKinsey & Company. Since joining McKinsey in 1997, he has worked with companies across multiple industries, helping them to identify and capture improvements in pricing. He is widely published in the area of pricing strategy, with articles appearing in the Harvard Business Review, Mergers & Acquisitions, and the McKinsey Quarterly.
Table of Contents
Preface xiii
Acknowledgments xvii
Part 1 Pricing Fundamentals 1
Chapter 1 Introduction 3
The Power of 1 Percent 3
The Price/Volume Tradeoff 6
Market Forces Add Pressure 7
The Nobility of Pricing Excellence 10
Why the Price Advantage Is So Rare 10
Chapter 2 Components of Pricing Excellence 13
An Integrated Approach 15
An Interdependent Hierarchy 18
Applying to Your Company-Pinpointing the Opportunity 19
Part 2 Exploring the Levels 23
Chapter 3 Transactions 25
The Pocket Price Waterfall 26
The Pocket Price Band 29
The Soundco Radio Company Case 32
Pocket Margin Waterfall and Band 39
Alen Glass Company Case 40
Chapter 4 Customer Value 45
Mapping Value 46
Creating a Value Map 46
Making Moves on the Value Map 57
Putting Customers on the Value Map 67
Value Profiling 69
Chapter 5 Market Strategy 75
Profiting from Better Price Predictions 77
Planning for an Expected Price Change 78
Maintaining Optimal Production and Capacity 79
Improving Pricing Conduct 80
Influencing the Elements of Pricing Conduct 82
A Word on Followership 89
Chapter 6 Pricing Infrastructure 93
Processes-What Are the Most Critical Types of Pricing Decisions for Your Business? 95
Organization-Who Is Running the Pricing Profit Center? 99
Performance Management-How Should We Recognize and Reward Pricing Performance? 103
Systems and Tools-No Magic Bullet Exists 107
Part 3 Unique Events 113
Chapter 7 Postmerger Pricing 115
A Temporary Window of Opportunity 116
Tremendous Opportunities at Each Pricing Level 119
Avoiding Common Postmerger Traps 127
Antitrust Laws 130
Chapter 8 Price Wars 133
Why Price Wars Should Be Avoided 133
What Really Causes Price Wars 136
Staying Out of Price Wars 141
Getting Out of Price Wars 144
When a Price War Might Make Sense 145
Part 4 Expanding the Boundaries 149
Chapter 9 Legal Degrees of Freedom 151
Pricing Decisions That Raise Red Flags 153
Minimizing Risks While Meeting Pricing Objectives 156
Calling in the Attorneys 162
Chapter 10 Lifecycle Pricing 165
What Makes Lifecycle Pricing Tough 166
The Three Phases of Product Lifecycle Pricing 168
Sustaining Returns Across the Lifecycle 179
Chapter 11 Pricing Architecture 183
Managing Price Perception 183
Influencing Customer Behavior 185
Price Architecture Based on Supplier Role 191
Part 5 Advanced Topics 197
Chapter 12 Complexity Management 199
Section 1 Custom-Configured Products 199
Section 2 High-Count Product Lines 207
Section 3 Distributed Sales Models 212
Chapter 13 Tailored Value 221
Section 1 Price Segmentation 221
Section 2 Tiered Products and Services 226
Section 3 New Products 230
Section 4 "Razor/Razor Blades" Offerings 236
Section 5 Solutions 240
Chapter 14 Software and Information Products 247
Unique Characteristics That Impact Pricing 247
Exploring the Elements of Pricing 250
Part 6 Making Change Happen 265
Chapter 15 Pricing Transformation 267
Designing a Clear Change Program 268
Accelerating and Embedding Change 276
Chapter 16 The Monnarch Battery Case 287
The Monnarch Battery Company 287
Transactions 289
Customer Value 293
Market Strategy 296
Capturing the Monnarch Pricing Opportunity 298
Hard-Wiring the Change 302
Epilogue 305
Appendix 1 Pocket Price and Pocket Margin Waterfalls 307
Appendix 2 Antitrust Issues 327
U.S. Pricing Law 327
EU Pricing Law 335
Antitrust Information Sources 342
Appendix 3 List of Acronyms and Abbreviations 353
Appendix 4 About the Web-Based Tool: Periscope 355
About the Authors 357
Index 359