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

by Nagle, Thomas; Holden, Reed

• ISBN13: 9780130262486
• ISBN10: 013026248X
• Edition: 3rd
• Format: Hardcover
• Copyright: 2002-01-01
• Publisher: Prentice Hall

Summary

For MBA or advanced undergraduate courses in Pricing Strategy or Pricing and Product Policy. Practical in focus and lively in style, this text provides a comprehensive, managerially-focused, integrated, step-by-step guide to pricing analysis and strategy development.

Table of Contents

Strategic Planning: The Harvest of Your Potential	1	(14)
Costs: How Should They Affect Pricing Decisions?	15	(20)
Financial Analysis: Pricing for Profit	35	(38)
Customers: Understanding and Influencing the Purchase Decision	73	(46)
Competition: Managing Conflict Thoughtfully	119	(28)
Pricing Strategy: Managing Your Market Proactively	147	(30)
Life Cycle Pricing: Adapting Strategy in a Changing Environment	177	(23)
Value-Based Sales and Negotiation: Influencing Customer Behavior	200	(27)
Segmented Pricing: Tactics for Separating Markets	227	(26)
Pricing in the Marketing Mix: Developing an Integrated Strategy	253	(25)
Channel Strategy: Price Management	278	(27)
Competitive Advantages: Establishing Foundations for More Profitable Pricing	305	(27)
Measuring Perceived Value and Price Sensitivity: Research Techniques to Supplement Judgment	332	(37)
Ethics and the Law: Understanding the Constraints on Pricing	369

Excerpts

"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 efficient bricks 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