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In Smart Pricing: How Google, Priceline and Leading Businesses Use Pricing Innovation for Profitability, Wharton professors and renowned pricing experts Jagmohan Raju and Z. John Zhang draw on examples from high tech to low tech, from consumer markets to business markets, and from U.S. to abroad, to tell the stories of how innovative pricing strategies can help companies create and capture value as well as customers. They teach the pricing principles behind those innovative ...
In Smart Pricing: How Google, Priceline and Leading Businesses Use Pricing Innovation for Profitability, Wharton professors and renowned pricing experts Jagmohan Raju and Z. John Zhang draw on examples from high tech to low tech, from consumer markets to business markets, and from U.S. to abroad, to tell the stories of how innovative pricing strategies can help companies create and capture value as well as customers. They teach the pricing principles behind those innovative ideas and practices.
Smart Pricing introduces many innovative approaches to pricing, as well as the research and insights that went into their creation. Filled with illustrative examples from the business world, readers will learn about restaurants where customers set the price, how Google and other high-tech firms have used pricing to remake whole industries, how executives in China successfully start and fight price wars to conquer new markets.
Smart Pricing goes well beyond familiar approaches like cost-plus, buyer-based pricing, or competition-based pricing, and puts a wide variety of pricing mechanisms at your disposal. This book helps you understand them, choose them, and use them to win.
About the Authors xi
Introduction Fingerprints of the Invisible Hand 1
Chapter 1 "Pay As You Wish” Pricing 19
Chapter 2 Why the Best Things in Life Are Free 41
Chapter 3 The Art of Price Wars 59
Chapter 4 Thinking Small 79
Chapter 5 The Automatic Markdown 101
Chapter 6 Name Your Own Price 119
Chapter 7 Subscribe and Save: Pricing for Marketing Profitability 139
Chapter 8 The Snob Premium 161
Chapter 9 Pay if it Works 181
Chapter 10 Conclusion 201
Posted May 10, 2010
Professors Jagmohan Raju and Z. John Zhang first remind their audience that a change in pricing has a higher impact on a firm's profitability than a change in sales, variables costs, or fixed costs across multiple industries. Both authors invite their audience to revisit what they consider over simplistic, ad hoc approaches to pricing such as cost-plus pricing, competition-based pricing, and consumer-based pricing. Too many companies leave money/value on the table. Pulling out smart pricing is far from easy, as professors Raju and Zhang acknowledge repeatedly. New technologies, globalization, and commoditization push many companies to pursue cost leadership to keep their existing clients/customers base, and/or to convince prospects about the merits of their market offering.
To their credit, professors Raju and Zhang often articulate clearly how companies of different sizes and across different industries can price discriminate, i.e., charge a different price across demographics as well as over time. To do it successfully, companies have to understand 1) what kind of clients/customers they are dealing with, 2) what these clients/customers value about their product/service offering, and 3) their client/customer buying behavior (= marketing profitability that complements accounting profitability). Having the right, smart pricing metrics in place is important to implement a successful price discrimination strategy. Both authors could have done a better job at covering these metrics.
Although professors Raju and Zhang mainly review pricing applications in the B2C space, they give enough evidence to apply them to the B2B space. Amazon's Subscribe & Save and Prime programs and Big Pharma's Pay If It Works (performance-based pricing) program come to mind. At the same time that companies have what the authors call unprecedented freedom in experimenting with different pricing mechanisms, clients/customers also have increasing opportunities to ask for differential pricing. The current economic downturn gives some savvy clients/customers a unique opportunity to reframe the product/service offering presented to them and push for lower prices for the same market offering. The increasing amount of information available online and elsewhere is not necessarily an equalizer. Smart pricing can work to the advantage of both buyers and sellers if they can think out of the box and challenge the status quo.
In summary, professors Raju and Zhang offer their readers a great opportunity to review some of the most innovative pricing programs that are currently out there and to cherry pick what can be useful to them.
Posted December 6, 2010
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