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A Great Overview of Pricing for Customer Value,
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This review is from: Pricing on Purpose: Creating and Capturing Value (Hardcover)
It is not often you can recommend a business book for its literary quality, but Ron Baker's "Pricing on Purpose" is exceedingly well written, and stuffed with quotations from a wealth of sources - from Thomas Paine to Karl Marx, via Adam Smith, Peter Drucker and Pope John Paul II. In superbly argued and widely referenced form, Mr Baker trashes the concept of cost-plus pricing - "The customer simply does not care how long it took General Motors to build his or her car" - showing that cost-plus pricing is never profit maximising: leading, as it does, to under-pricing in strong markets (where resource utilisation is high); and over-pricing in weak markets where utilisation is lower; - hardly a profit maximising strategy !
In fact the profit maximising price is the one which most closely relates to customer value. Customer value is, of course, subjective and individual to each buyer - based on the buyer's needs, wants and preferences at that particular time. This means that, when a customer changes their needs, wants or preferences, the value to them of goods and services changes - regardless of the cost of production.
Thus there are no "easy" solutions to the question of pricing and Mr Baker offers none. Instead he suggests close communication with the top 20% of customers to identify what drives "value" for them. Sadly however, he gives us little guidance on how to analyse and quantify that value, or how to establish a profitable pricing policy. Perhaps Mr Baker feels this is the domain of other books (he gives an extensive reading list) but I think an overview chapter on these topics would be most valuable.
You could also, perhaps, criticise Mr Baker for his slightly long-winded style, with frequent diversions from the core subject. Personally, I enjoy his erudite style, and these diversions are mostly interesting and informative.
This is a great book and one which every accountant in business should study. It will pull your focus from purely managing costs and onto delivering different "value propositions" to different customers. Measuring and capturing that "value" is the challenge, and one which the book does not fully deliver on. Nevertheless, if you are involved in business decisions which, in any way, might affect customer value, you should read this book.