Smart Pricing: How Google, Priceline, and Leading Businesses Use Pricing Innovation for Profitabilityby Jagmohan Raju, Z. Zhang
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/i>
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.
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Meet the Author
Professor Jagmohan S. Raju is the Joseph J. Aresty Professor at the Wharton School and the Chair of the Marketing Department. He is also the Executive Director of the Wharton-Indian School of Business partnership. Before becoming an academic, Professor Raju worked with the Tata Administrative Service and Philips India Ltd.
He has a Ph.D., M.S., M.A. Stanford University; an MBA from IIM, Ahmedabad; and a BTech from IIT Delhi. He was recognized for the best academic performance in his class for each of the two years he studied at IIM Ahmedabad, a merit scholarship at IIT Delhi, and the President’s Gold Medal at Punjab Public School, Nabha.
Professor Raju is the past Marketing Editor of Management Science and the Past President of the INFORMS Society for Marketing Science. His main areas of research include competitive marketing strategy, pricing, retailing, sales promotions, sales force compensation, corporate image advertising, and strategic alliances. He has supervised 12 doctoral dissertations to date. He coordinated the Wharton Marketing Department’s PhD Program. He serves on Wharton’s Academic Personnel Committee, and Globalization Committee.
His research papers have won the John DC Little best paper award (twice), the Frank Bass dissertation paper award (twice) and several other recognitions. He has received several teaching awards, some of which include the George Robbins Teaching Award and Marketing Teacher of the Year while he was at UCLA; Wharton Executive MBA Teaching Awards; Wharton Miller-Sherrerd Core Teaching Award, and the Indian School of Business Teaching Award. Professor Raju teaches the core marketing class and the pricing elective at Wharton.
Professor Z. John Zhang is a Professor of Marketing and Murrel J. Ades Professor at The Wharton School of the University of Pennsylvania. He earned a Bachelor’s degree in Engineering Automation and Philosophy of Science from Huazhong University of Science and Technology (China), a Ph.D. in History and Sociology of Science from the University of Pennsylvania, and also a Ph.D. in Economics from the University of Michigan.
Prior to joining Wharton in 2002, John taught pricing and marketing management at the Olin School of Business of Washington University in St. Louis for three years and at Columbia Business School for five years. In the past eight years, John has also taught pricing to over two thousand Chinese executives in Mandarin as part of Wharton’s executive education and other outreach and collaborative programs. He also won the 2003 EMBA Electives Teaching Award for teaching pricing to Wharton EMBAs.
John’s research focuses primarily on competitive pricing strategies, the design of pricing structures, and channel management. He has published many articles in top marketing and management journals on various pricing issues such as measuring consumer reservation prices, price-matching guarantees, couponing, rebates, targeted pricing, access service pricing, choice of price promotion vehicles, channel pricing, price wars, and the pricing implications of combative advertising. In recent years, he has also developed a keen interest in the movie and telecom industries. He has also published a number of articles in Chinese on pricing and retailing issues in China. He currently is collaborating with scholars in many countries to explore various pricing and channel issues in emerging markets and beyond. He won the 2001 John D.C. Little Best Paper Award and the 2001 Frank Bass Best Dissertation Award, along with his co-authors, for his contribution to the understanding of targeted pricing with imperfect targetability.
As part of his service to the marketing community, John serves as Associate Editor for Quantitative Economics and Marketing. He is also an area editor for Marketing Science and Management Science.
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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.