ADVERTISEMENT

Pricing Done Right

August 2016 Pricing, Selling

Out Now:  Pricing Done Right

My fourth book, Pricing Done Right, has just hit the bookstores.  What’s in it for you and why did I write it?

Getting Started

When I entered the field of pricing in earnest in the zeros, my first questions were: What are they talking about? What is this field called pricing? Can they speak in plain English please (or at least give me the equations)?

Like any intelligent and hardworking person who wants to learn something, I hit the books.  I read The Strategy and Tactics of Pricing by Nagle and Holden.  I read Pricing Power by Dolan and Simon.  I read The Pricing Advantage by Marn, Roegner, and Zawada.  And I read a whole lot more.  These and others are all great books.

Addressing Roadblocks

Then, I tried to apply and teach these concepts them but hit potholes and stumbling blocks one after the other.  These books simply were not enough.

Unlike most people, my PhD process taught me how to do research and my position allowed me to expound on it.  I had the fortunate opportunity to teach pricing concepts at DePaul University as well as at the Professional Pricing Society workshops.  I also had access to an academic library, including journals in economics, marketing, operations, and finance.  These teaching opportunities provided a constant feedback on the questions and challenges people have in pricing – and how to address them with clarity.  The academic library allowed me to conduct the research and find the answers that were academically sound.  Combined with a few consulting opportunities, the teaching and research created a continuous improvement feedback loop that helped me learn.

Taking Action

My third book, Pricing Strategy, was the result of this research and learning process.  It set out to define the field of pricing much like Options, Futures and Other Financial Derivatives by Hull defined the field of derivatives pricing, or Quantum Mechanics by Messiah defined the field of quantum mechanics.

According to readers and professors across the globe, Pricing Strategy was a huge step forward.  Unlike any other book currently on the market, it clarified the different means to setting prices (conjoint, exchange value, elasticity) and why each had benefits and shortcomings.  It clarified the similarities and differences between promotional pricing in consumer markets and discount management in business markets.  And, importantly, it distinguished the various pricing structures (unit, tying, two-part tariff, tiered, bundled, yield management, subscriptions, and more) found in the market and clarified the situations where one structure might be better than other.  Then it concluded with some standard strategy and legal issues in pricing.  (1)

Students and pricing practitioners responded to it like a breath of fresh air.  Finally, there was an accessible textbook that enabled them to learn the breadth and depth of the field and do their job better.  Pricing Strategy succeeded in redefining the field, both expanding the field and increasing clarity on the fundamental concepts in doing pricing.

Yet, while pricing practitioners and students responded positively to Pricing Strategy, their bosses likely never read it.

Moving Up the Organization

Frankly, CEO’s and their direct reports rarely have to know the detailed differences and merits of competing pricing methodologies, structures, and tactics, much less the equations behind these issues.  What CEO’s and their direct reports must ensure though is that their pricing is managed well and the resulting prices are right.

This CEO level question shifts the issue from price engineering to organizational and competitive strategy. They are asking:  What is the best organizational structure, routines, and culture for their firm?  How large should the pricing department be and where should they report?  How does technology fit into the equation?  And how will this help me respond to competition and industry evolutions anyway?

Just as before, I headed off to do my research, but this time I went beyond the academic library.  Yes, I read books and academic papers on organizational theory and pricing initiatives. And, this time, I did some direct research.  I interviewed professionals in the field.  I tested concepts against major corporate initiatives.  And then, through consulting engagements, workshops, and conversations, I worked to implement and refine the answers.

The result is Pricing Done Right, an executive level book that complements Pricing Strategy in a common aim of improving the peoples’ and businesses’ ability to price stuff.  Pricing Done Right is almost equation free.  (As a trained mathematician and physicist, asking me to communicate without equations is like asking an expressive and gesturing person to talk without their hands.)  It is written in a manner appropriate for CEO’s and their direct reports in sales, marketing, and finance.  And, importantly, it aims to move pricing improvement initiatives from the “we did that and spent a lot of money on it but got nothing for it” column into the “look what we accomplished” column.  (2)

What’s in Pricing Done Right

Pricing Done Right provides a roadmap for improving pricing practices within any market-oriented firm.  It provides a framework for managing pricing decisions in any organization.  It clarifies the best practices for defining the organizational culture, architectural hierarchy, and routines for getting pricing done right.

Pricing Done Right starts by discussing value-based pricing and its implications for both the organization and its strategy. At this point, it is clear: the best firms have adopted value-based pricing or are in the process of doing so.  All other approaches either leave money on the table, or lead to prices that are too high for ultimate sales failures.

Pricing Done Right offers the Value-Based Pricing Framework which clarifies the major decision areas impacting pricing and under organizational management.  My research has uncovered 5 key areas, each of which is are importantly supported by pricing analysis.  These are

  1. Business Strategy
  2. Pricing Strategy
  3. Market Pricing
  4. Price Variance Policy
  5. Price Execution

tsfig1

Each of elements of the Value-Based Pricing Framework is further broken-down into more detailed questions and issues to be managed.

With the goal and issues defined, Pricing Done Right moves into the who’s and how’s of addressing the decisions areas of pricing.  Who should make what decisions? Who should be engaged in which decisions?  What are the key factors that should be considered in these decisions?  And what processes can be used to improve the decision outcomes?

After providing a framework for managing pricing decisions across an organization, Pricing Done Right concludes with a roadmap for getting these improvements going in any firm.

Pricing Done Right is the executive’s complement to Pricing Strategy.

A blatant call to action

Let’s me know if I hit my mark again.  Pick up your copy today.  I will be looking forward to your feedback once again.

Clarifying Notes

  • Pricing Strategy, the book, attempts to address the challenge of pricing most any product or service. Offerings which it doesn’t cover include commodities and one-off offerings, such as beef or art respectively.  These are best priced through either trading markets or auctions, respectively. Almost everything between a commodity and a unique item however, should have a price or pricing approach that is a priori determined by the person or company selling the item, not just simply market forces.
  • Pricing Done Right, the book, attempts to address the challenge of managing pricing decisions and achieving predictable outcomes within any organization.
  • I did state this was my fourth book and then went on to describe its relation to my third book. Some of you may like to know about my first two books. My first book was Hawks, Seagulls, and Mice, a book examining industry structures and its impact on sales and marketing activities of firms within different industry structures. My second book has been published in three editions and is currently called Excel 2013 for Marketing. As the title implies, it shows marketing students how to conduct different forms of statistical analysis with Excel.  Both of these book can be said to be only remotely related to pricing.


About the author

Tim J. Smith, PhD is the Managing Principal of Wiglaf Pricing, and an Adjunct Professor at DePaul University of Marketing and Economics. His most recent book is Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures.

Tim J. Smith, PhD
More by Tim J. Smith, PhD