on 4 March 1999
We all know that pricing is important, know how important? Do we know that a 1% price improvement could boost net income by over 25%? How much thought do we put into setting our prices? What tools do we use when we set prices? For most of us, the answers are "too little and too few".
If you're responsible for pricing strategy in a mid-size company but don't consider yourself a pricing specialist, you'll find Power Pricing useful. It covers a lot of ground in a nontrivial way.
Power Pricing starts where it should with an economic analysis of price, costs, and profits. I hesitate to use the word "economic" because it too often means "boring", "incomprehensible", or both. The book is neither, and the economics of pricing is half of what you need to know in order to be a smart pricer.
The other half is understanding how customers respond to prices. The book covers several methods of determining price sensitivity, including conjoint analysis, a technique used by sophisticated companies but rarely understood by those of us who are not technical experts. The book's brief overview is understandable even if you have no technical background.
The first part of the book ends with an interesting chapter on pricing and competitive strategy. It's full of examples which clearly illustrate pricing principles.
The second part of the book introduces specific pricing concepts and techniques. Most of the concepts will be familiar, but the book covers some of them at a higher level of sophistication than most of us are accustomed to using. For example, the chapter on price customization breaks the concept into four methods: sorting by product line, by buyer characteristics, by transaction characteristics, and by distribution channel.
We all know about quantity discounts (called "nonlinear pricing"), but do we think in terms of two-part tariffs or two-block tariffs? The book analyzes both, as well as other techniques for giving quantity discounts.
The chapter on product-line pricing is particularly interesting. Are you willing to sacrifice profit on one item in order to make more profit on another How do you determine which products should be considered together when you set prices? How do you know how much a price change in one product affects the sales of another product? Are base products and their add-ons equally sensitive to price changes?
Another interesting pricing decision involves price bundling. How do you put together successful product and price packages? Although this is one of Power Pricing's weaker chapters, you may find some of the tips useful.
The book's chapter covering time customization of prices is more detailed and interesting. Time customization involves duration of price promotions. If you are trying to get loyal users of a competitive product to try your product, is there a best time to do a price promotion and a best length of time over which to run it?
Power Pricing is an interesting and useful book. It explains some fairly technical, sophisticated material in a manner that is understandable, whether or not you have quantitative training. It generally is easy to read, subject to over-use of the ten-n "power pricer" and phrases in German (one of the authors is German).
R.M. (Erik) Gordon is Director of the Center for Retailing Education and Research, Department of Marketing, Warrington College of Business Administration, University of Florida, Gainesville.
on 18 February 1999
Power Pricing is a book for managers that are responsible for pricing decisions in their organization or in whose business pricing plays a critical role. It presents many sophisticated pricing schemes, modern pricing strategies and up-to-date tools that all help to put pricing problems behind. Many practical examples show that they are more than theory, but have helped companies multiply their profits. Very recommendable and also nice to read.