Strategy and Tactics of Pricing: A Guide to Profitable Decision Making

Strategy and Tactics of Pricing: A Guide to Profitable Decision Making

by Thomas T. Nagle


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"The best book ever written about pricing is The Strategy and Tactics of Pricing by Tom Nagle and Reed Holden—these guys know their stuff and it works!" — Guy Kawasaki, CEO, Garage Technology Ventures

"For more than a decade, this book has been the most influential and highly regarded reference among pricing professionals." — Eric G. Mitchell, President, The Professional Pricing Society

"Most executives name pricing as their major challenge and major weakness. This book is an answer. It is full of new ideas arid insights." — Philip Kotler, S.C. Johnson & Son Distinguished Professor of International Marketing, Northwestern University

"An investment in Tom and Reed's book will give you the highest return you've ever had. It's an investment you can't afford not to make." — Dan Nimer, President, DNA Group

Product Details

ISBN-13: 9780136693765
Publisher: Prentice Hall Professional Technical Reference
Publication date: 05/28/1994
Pages: 432
Product dimensions: 6.29(w) x 9.33(h) x 0.85(d)

Table of Contents

 1. Strategic Pricing: The Key to Realizing Your Profit Potential.

 2. Costs: How Should They Affect Your Pricing Decisions?

 3. Financial Analysis: Pricing for Profit.

 4. Customers: Understanding and Influencing the Purchase Decision.

 5. Competition: Making Moves and Managing Expectations.

 6. Pricing Strategy: Managing Your Market Proactively.

 7. Life Cycle Pricing: Adapting Strategy in a Changing Environment.

 8. Value-Based Sales and Negotiation: Influencing Customer Behavior.

 9. Segmented Pricing: Separating Markets to Price on Value.

10. Pricing in the Marketing Mix: Integrating Strategy.

11. Channel Pricing: Managing Pricing through Intermediaries.

12. Competitive Advantages: Establishing Foundations for More Profitable Pricing.

13. Customer Research: Measuring Perceptions of Value and Price Sensitivity.

14. Ethics and the Law: Understanding the Constraints on Pricing.


"Pricing is the moment of truth—all of marketing comes
to focus in the pricing decision."

When Raymond Corey wrote these words at the Harvard Business School in the early 1960s, marketing was just coming into its own as a strategic discipline that could drive the direction of a business. Unfortunately, few marketing practitioners actually took Corey's words to heart. Enjoying their new prestige and power to influence corporate strategy, they were reluctant to let financial considerations constrain their "strategic" thinking.

Instead, they focused on achieving market share and customer satisfaction, believing that high profitability would somehow naturally follow. Marketing academics also slighted pricing, offering little research and few courses on the subject. Whenever the subject of pricing problems did arise, professors assured their students that all could be solved indirectly by redoubling efforts to differentiate products and services.

These attitudes toward pricing changed radically when marketers encountered the challenges of the 1980s. Companies with leading brand names saw brand loyalty and their power over distribution erode from years of price "promotion" to defend market share. Even large companies often found profits unattainable, as smaller firms targeted and lured away the most profitable customers (a practice labeled "cream skimming" by the victims). Successful corporate raiders then showed that they could increase cash flow and profits, often by raising prices, even as they lost some share. In the 1990s, a brief counterrevolution took place, as e-competitors bought market share from more efficientbricks and mortar competitors. By the end of 2000, most e-competitors went bankrupt, while the remainder looked for ways to charge prices consistent with financial viability.

Not only marketing practitioners are now under the gun to show that their efforts can ultimately pay off at the bottom line. So also are marketing theorists. Companies have become almost maniacal in their focus on increasing shareholder value. Strategies defined in terms of market share or customer satisfaction alone get short shrift. For marketers to achieve respect and influence, the key is to show how their ideas can generate profitability. As a result, creative thinkers are integrating marketing thought with financial concepts.

Successfully making that integration requires understanding not only what creates value for customers, but also how and when that value can be transformed into earnings per share. This does not mean that companies should regress to the days when they naively tried to increase profits by marking up costs with higher margins. It means understanding that strategic pricing is about much more than setting prices. It is about targeting markets that can be served profitably, communicating information that justifies price levels, and managing pricing processes and systems to keep prices aligned with value received.

These are not skills that have traditionally resided in finance or marketing departments. Strategic pricing is becoming a profession in its own right that bridges marketing, finance, sales, and top management. The Professional Pricing Society reported in a survey of its members that pricing decisions were principally made by a pricing manager in 25 percent of the companies and by a cross-functional team in another 20 percent. Others cited were the marketing department (15 percent) and product manager (15 percent). Decentralized pricing by the sales organization was practiced in only 11 percent of these companies, and none had pricing principally made by finance. Although this is a biased sample, it is indicative that price in the most sophisticated companies is being proactively managed.

As in the first edition, the primary objective of this edition is to develop a practical and readable manager's guide to pricing, not a textbook. Our references are not necessarily to the seminal articles on the subject, but to those that are most managerially relevant and accessible. Professors will be happy to learn that an expanded Instructor's Manual for this edition includes new classroom exercises. We expect that the combination of clear writing and current, relevant examples will continue to make this the most popular reference on pricing for managers as well as the most popular text in the classroom.

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The Strategy and Tactics of Pricing: A Guide to Profitable Decision Making 4 out of 5 based on 0 ratings. 2 reviews.
Anonymous More than 1 year ago
Guest More than 1 year ago
Thomas Nagle and Reed Holden successfully demonstrate with practical examples that strategic pricers are diplomats rather than generals, contrary to common belief. Diplomats know that initiating price discounts can undermine the profitability of their business. Price cutting unduly focuses the attention of the customer base on their wallet rather than the value of the product offering to their life/business. Diplomats will carefully look not only at the short-term gain, but also at competitors' long-term reactions to measure the impact of such a move on the bottom line. Furthermore, diplomats do not share the misconception of generals that the ultimate winner must meet every challenge. Diplomats will integrate the product's relevant costs, the customer segments' price sensitivity and the behavior of the competition in their marketing plans. The analysis of those factors will then allow diplomats to weigh the costs and benefits of competition and only fight battles for which the likely benefits are greater than the likely costs. Nagle and Holden also stress the importance of establishing pricing policies consistent with the plans, especially when there is no fixed-price policy. Diplomats must give salespeople incentives to make profitable sales, not sales for their own sake. Salespeople will adapt their sales pitch to the different price sensitivity of price buyers, loyal buyers, and value buyers. Nagle and Holden draw the attention of their readers to the fact that a product's price influences the market's perception of its features and benefits and those of other products with which it is sold, the effectiveness of its promotion, and the interest it generates in channels of distribution. They observe that the opposite is also true. Furthermore, Nagle and Holden look at the impact of the choice of an independent channel of distribution on corporate pricing policy. Diplomats must be attorneys specializing in legal pricing or at least hire one. They must consider not only what is profitable, but also what is legal and ethical in establishing pricing policies towards channels of distribution, end users, and competition. Pricing is such a legal minefield that both authors dedicate one chapter of their book to that delicate subject. Nagle and Holden also challenge another idea that many marketers have: The key to profitability is to achieve a dominant market share. Most companies in competitive markets try to be all things to all people rather than excel in serving the needs of particular customer segments. Both product differentiators and cost leaders have demonstrated that targeting a segment of customers and focusing on them pays off handsomely. A third edition of this book integrating the impact of the New Economy on pricing should be a welcome update to that masterpiece. To summarize, The Strategy and Tactics of Pricing is a must read for anyone involved or interested in pricing. The content is so rich that I am still discovering new aspects about pricing two years after I read the book for the first time.