Smart Pricing: How Google, Priceline, and Leading Businesses Use Pricing Innovation for Profitability

Smart Pricing: How Google, Priceline, and Leading Businesses Use Pricing Innovation for Profitability

by Jagmohan Raju, Z. John Zhang
4.5 2
Pub. Date:
FT Press
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Smart Pricing: How Google, Priceline, and Leading Businesses Use Pricing Innovation for Profitability 4.5 out of 5 based on 0 ratings. 2 reviews.
Anonymous More than 1 year ago
sergevansteenkiste More than 1 year ago
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.