The Price Advantage

by Baker, Walter L.; Marn, Michael V.; Zawada, Craig C.

• ISBN13: 9780470481776
• ISBN10: 0470481773
• Edition: 2nd
• Format: Hardcover
• Copyright: 2010-06-08
• Publisher: Wiley

Summary

A comprehensive look at creating pricing strategies that work in both good economic times and badWritten by three preeminent pricing experts at McKinsey & Company, the Second Edition of The Price Advantage is a practical pricing guide for the executive or pricing practitioner who wants to identify, capture, and sustain substantial pricing gains in their business.Pricing is by far the most powerful profit lever that managers can influence. Yet few companies approach pricing in a way that fully capitalizes on its value. This Second Edition, a major revision and extension of the first book, shows you what it takes to achieve the price advantage in today's competitive and complex business environments. Based on in-depth, first-hand experience with thousands of companies, this book provides managers with a pragmatic guide through the maze of pricing issues. It reinforces why pricing excellence is more critical than ever today and then explains state-of-the-art approaches to analyzing and improving your own pricing strategy and execution. Explores the fundamental role of pricing infrastructure in achieving the price advantage Includes new topics such as software and information products pricing, lifecycle pricing, custom-configured products pricing, pricing of high-count product lines, pricing in distributed sales environments, "razor/razor blades" pricing, and tiered products and services pricing Revisits the full range of classic McKinsey pricing tools, including the pocket price waterfall and value mapsEngaging and informative, the Second Edition of The Price Advantage will put this essential discipline in perspective.

Author Biography

Walter L. Baker is a partner in the Atlanta office of the international consulting firm of McKinsey & Company. Since joining McKinsey in 1998, he has worked with clients across multiple industries in the areas of pricing, sales, marketing, and strategy. With particular focus on the technology and industrial sectors, he has authored articles on pricing in CMO magazine, the McKinsey Quarterly, and the Harvard Business Review.
Michael V. Marn is a partner in the Cleveland office of McKinsey & Company. He joined McKinsey in 1977 and has developed some of the most widely used analytic approaches for identifying and capturing opportunities in pricing. He has written articles on pricing that have appeared in publications including the Wall Street Journal, the New York Times, and the Harvard Business Review.
Craig C. Zawada is a partner in the Calgary office of McKinsey & Company. Since joining McKinsey in 1997, he has worked with companies across multiple industries, helping them to identify and capture improvements in pricing. He is widely published in the area of pricing strategy, with articles appearing in the Harvard Business Review, Mergers & Acquisitions, and the McKinsey Quarterly.

Table of Contents

Preface	p. xiii
Acknowledgments	p. xvii
Pricing Fundamentals	p. 1
Introduction	p. 3
The Power of 1 Percent	p. 3
The Price/Volume Tradeoff	p. 6
Market Forces Add Pressure	p. 7
The Nobility of Pricing Excellence	p. 10
Why the Price Advantage Is So Rare	p. 10
Components of Pricing Excellence	p. 13
An Integrated Approach	p. 15
An Interdependent Hierarchy	p. 18
Applying to Your Company-Pinpointing the Opportunity	p. 19
Exploring the Levels	p. 23
Transactions	p. 25
The Pocket Price Waterfall	p. 26
The Pocket Price Band	p. 29
The Soundco Radio Company Case	p. 32
Pocket Margin Waterfall and Band	p. 39
Alen Glass Company Case	p. 40
Customer Value	p. 45
Mapping Value	p. 46
Creating a Value Map	p. 46
Making Moves on the Value Map	p. 57
Putting Customers on the Value Map	p. 67
Value Profiling	p. 69
Market Strategy	p. 75
Profiting from Better Price Predictions	p. 77
Planning for an Expected Price Change	p. 78
Maintaining Optimal Production and Capacity	p. 79
Improving Pricing Conduct	p. 80
Influencing the Elements of Pricing Conduct	p. 82
A Word on Followership	p. 89
Pricing Infrastructure	p. 93
Processes-What Are the Most Critical Types of Pricing Decisions for Your Business?	p. 95
Organization-Who Is Running the Pricing Profit Center?	p. 99
Performance Management-How Should We Recognize and Reward Pricing Performance?	p. 103
Systems and Tools-No Magic Bullet Exists	p. 107
Unique Events	p. 113
Postmerger Pricing	p. 115
A Temporary Window of Opportunity	p. 116
Tremendous Opportunities at Each Pricing Level	p. 119
Avoiding Common Postmerger Traps	p. 127
Antitrust Laws	p. 130
Price Wars	p. 133
Why Price Wars Should Be Avoided	p. 133
What Really Causes Price Wars	p. 136
Staying Out of Price Wars	p. 141
Getting Out of Price Wars	p. 144
When a Price War Might Make Sense	p. 145
Expanding the Boundaries	p. 149
Legal Degrees of Freedom	p. 151
Pricing Decisions That Raise Red Flags	p. 153
Minimizing Risks While Meeting Pricing Objectives	p. 156
Calling in the Attorneys	p. 162
Lifecycle Pricing	p. 165
What Makes Lifecycle Pricing Tough	p. 166
The Three Phases of Product Lifecycle Pricing	p. 168
Sustaining Returns Across the Lifecycle	p. 179
Pricing Architecture	p. 183
Managing Price Perception	p. 183
Influencing Customer Behavior	p. 185
Price Architecture Based on Supplier Role	p. 191
Advanced Topics	p. 197
Complexity Management	p. 199
Custom-Configured Products	p. 199
High-Count Product Lines	p. 207
Distributed Sales Models	p. 212
Tailored Value	p. 221
Price Segmentation	p. 221
Tiered Products and Services	p. 226
New Products	p. 230
"Razor/Razor Blades" Offerings	p. 236
Solutions	p. 240
Software and Information Products	p. 247
Unique Characteristics That Impact Pricing	p. 247
Exploring the Elements of Pricing	p. 250
Making Change Happen	p. 265
Pricing Transformation	p. 267
Designing a Clear Change Program	p. 268
Accelerating and Embedding Change	p. 276
The Monnarch Battery Case	p. 287
The Monnarch Battery Company	p. 287
Transactions	p. 289
Customer Value	p. 293
Market Strategy	p. 296
Capturing the Monnarch Pricing Opportunity	p. 298
Hard-Wiring the Change	p. 302
Epilogue	p. 305
Pocket Price and Pocket Margin Waterfalls	p. 307
Antitrust Issues	p. 327
U.S. Pricing Law	p. 327
EU Pricing Law	p. 335
Antitrust Information Sources	p. 342
List of Acronyms and Abbreviations	p. 353
About the Web-Based Tool: Periscope	p. 355
About the Authors	p. 357
Index	p. 359
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