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THE PRICE ADVANTAGE Second Edition AUTHORS: Walter L. Baker, Michael V. Marn, and Craig C. Zawada PUBLISHER: John Wiley & Sons, Inc. DATE OF PUBLICATION: 2010 366 pages
FEATURES OF THE BOOK The Price Advantage  is written for business owners and executives who desire to take on the challenge of approaching pricing as the profit center it is. Whether retuning a current approach to pricing or starting from scratch,  The Price Advantage  provides the best methods to create a pricing change program.
THE BIG IDEA In  The Price Advantage , Walter Baker, Michael Marn, and Craig Zawada   provide the guidelines and tools necessary to capture the most profit a company can while still pleasing their customers.
INTRODUCTION The marketplace rewards businesses with superior products and services. The  price advantage  creates pride within a company because its customers knowingly pay more for services and products they believe are superior and worth the cost. Taking responsibility for price management is essential in today’s market due to downward pressures on price levels. Otherwise, percentage points of price and opportunities for profit can slip away.
COMPONENTS OF PRICING EXCELLENCE There are three levels of price management that reinforce one another. The first level of price management consists of  transaction s . This level focuses on the exact price that each customer pays, including discounts, payment terms, and incentives. As a result of the detailed and individual nature of the transaction level, it is the most complicated and expansive level of price management. Mastering this level allows companies to fully account for every discount, understand and pursue their ideal customer, and identify the customers and transactions that fall short in order to repair or discontinue their relationship.
COMPONENTS OF PRICING EXCELLENCE There are three levels of price management that reinforce one another. The first level of price management consists of  transactions . This level focuses on the exact price that each customer pays, including discounts, payment terms, and incentives. As a result of the detailed and individual nature of the transaction level, it is the most complicated and expansive level of price management. Mastering this level allows companies to fully account for every discount, understand and pursue their ideal customer, and identify the customers and transactions that fall short in order to repair or discontinue their relationship.
COMPONENTS OF PRICING EXCELLENCE The second level is  customer value , which is when the company sets a price according to the value and benefit of the product or service. A company must understand how customers perceive its product and its benefits versus the benefits of the competition’s products. This allows a company to price its products with confidence.
COMPONENTS OF PRICING EXCELLENCE The third level is  market strategy . Market strategy requires an understanding of market trends and what drives them. By correctly predicting the direction of market prices in the short and long term, researching the variables and whims the market is susceptible to, and understanding demand, companies will have a rich knowledge of the market price and its future.
TRANSACTIONS The central concern in the transaction level is managing the exact price charged, including discounts, reductions, and inducements. While the other two levels are broad, the transaction level looks at each individual sale. The  pocket price  is the revenue actually received by a business after a transaction. The pocket price is determined after off-invoice items are deducted from the invoice price.
CUSTOMER VALUE The customer value level requires a company to position their products’ price and benefits relative to the competitor’s price and benefits for each customer segment being served. This assigned value is highly visible to both customers and competitors. The “ perceived benefits” minus the “perceived price ” of a product gives a company the value of that product. By increasing the perceived value and/or decreasing the perceived price, a company is more likely to increase their number of customers. A company must measure the perceived benefits and price in order to map their product’s value.
MARKET STRATEGY Market strategy  requires an acute understanding of market price levels, including predicting levels and positively influencing them when possible. Market strategy requires companies to encourage positive movements in the market. A better understanding of the market enables these companies to adjust their strategies and surpass competitors who allow the market to guide them.
PRICING INFRASTRUCTURE ,[object Object],[object Object],[object Object],[object Object],[object Object]
POSTMERGER PRICING Postmerger pricing requires the pricing policies of both companies to be investigated . Although change is expected during a merger, there is a short timeframe to act. Companies have the opportunity to improve pricing structures at each level of pricing as a result of a merger. Because mergers often result in improved quality, added features and services, or new terms and conditions, a company must carefully consider the added value and benefits products have. In order to price appropriately, companies must first measure whether or not these added benefits are truly valued by their customers.
PRICE WARS ,[object Object],[object Object],[object Object],[object Object]
PRICE WARS ,[object Object],[object Object],[object Object],[object Object]
LEGAL DEGREES OF FREEDOM ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
LIFECYCLE PRICING ,[object Object],[object Object]
LIFECYCLE PRICING ,[object Object],[object Object],[object Object]
PRICING ARCHITECTURE Pricing Architecture  shapes the way in which a customer perceives price, and ultimately drives customer behavior. The tools of the price architect are list price, discounts, and the policies and guidelines that apply to discounts and how they interact. Additionally, the price architect uses units of sale and communication as tools to shape how price is perceived. Companies that have achieved the price advantage are able to use price architectures in order to influence customers’ ideas about price and purchasing behaviors.
COMPLEXITY MANAGEMENT Custom-Configured Products Products and services designed, constructed, or personalized for specific, one-time use produce unusual challenges. These customized products and services are naturally hard to price appropriately. Reference points for price are hard to come by, multiple vendors are typically involved, and they receive extreme customer inquiry.
COMPLEXITY MANAGEMENT High-Count Product Lines When a company has multiple products, the most advantageous price can be hard to determine. This is because competitive pricing standards are harder to obtain, the information necessary to evaluate how volume is impacted by price changes is often distorted, advanced analytical tools are needed in order to uncover patterns, and companies with many products often purchase materials with frequent cost changes.
COMPLEXITY MANAGEMENT Distributed Sales Models Pricing in a distributed sales environment can lead to challenges such as accomplishing consistent performance across the sales force and divisions or establishing an “institutional memory” of pricing performance or results across similar accounts. Simple rules and measurements are not the most effective means of comparison in distributed sales environments. Product mixes can hide shortcomings when measured this way. Similarly, there is so much data involved in a distributed sales environment that easy opportunities, such as updating price costs to reflect product costs, are missed.
SOFTWARE AND INFORMATION PRODUCTS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
PRICING TRANSFORMATION ,[object Object],[object Object],[object Object]
PRICING TRANSFORMATION ,[object Object],[object Object],[object Object]
CONCLUSION A good pricing strategy is not the only factor in success . A company must understand its customers, the benefits they value most, and exceptionally provide those benefits. A company also needs to better understand the competition and how customers perceive their product. If used properly, this knowledge can put a company ahead of the rest. More valuable products and superior service enable customers to justify paying more for a product because they believe in the product and the company.
Business Book Summaries is a product of EBSCO Publishing. The website is updated weekly with 4 to 5 new summaries chosen from among the top business books printed in the United States. For more information or to sign up for the weekly newsletter, please visit  http://www.bizsum.com. ABOUT BIZSUM.COM

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The Price Advantage

  • 1.  
  • 2. THE PRICE ADVANTAGE Second Edition AUTHORS: Walter L. Baker, Michael V. Marn, and Craig C. Zawada PUBLISHER: John Wiley & Sons, Inc. DATE OF PUBLICATION: 2010 366 pages
  • 3. FEATURES OF THE BOOK The Price Advantage is written for business owners and executives who desire to take on the challenge of approaching pricing as the profit center it is. Whether retuning a current approach to pricing or starting from scratch, The Price Advantage provides the best methods to create a pricing change program.
  • 4. THE BIG IDEA In The Price Advantage , Walter Baker, Michael Marn, and Craig Zawada provide the guidelines and tools necessary to capture the most profit a company can while still pleasing their customers.
  • 5. INTRODUCTION The marketplace rewards businesses with superior products and services. The price advantage creates pride within a company because its customers knowingly pay more for services and products they believe are superior and worth the cost. Taking responsibility for price management is essential in today’s market due to downward pressures on price levels. Otherwise, percentage points of price and opportunities for profit can slip away.
  • 6. COMPONENTS OF PRICING EXCELLENCE There are three levels of price management that reinforce one another. The first level of price management consists of transaction s . This level focuses on the exact price that each customer pays, including discounts, payment terms, and incentives. As a result of the detailed and individual nature of the transaction level, it is the most complicated and expansive level of price management. Mastering this level allows companies to fully account for every discount, understand and pursue their ideal customer, and identify the customers and transactions that fall short in order to repair or discontinue their relationship.
  • 7. COMPONENTS OF PRICING EXCELLENCE There are three levels of price management that reinforce one another. The first level of price management consists of transactions . This level focuses on the exact price that each customer pays, including discounts, payment terms, and incentives. As a result of the detailed and individual nature of the transaction level, it is the most complicated and expansive level of price management. Mastering this level allows companies to fully account for every discount, understand and pursue their ideal customer, and identify the customers and transactions that fall short in order to repair or discontinue their relationship.
  • 8. COMPONENTS OF PRICING EXCELLENCE The second level is customer value , which is when the company sets a price according to the value and benefit of the product or service. A company must understand how customers perceive its product and its benefits versus the benefits of the competition’s products. This allows a company to price its products with confidence.
  • 9. COMPONENTS OF PRICING EXCELLENCE The third level is market strategy . Market strategy requires an understanding of market trends and what drives them. By correctly predicting the direction of market prices in the short and long term, researching the variables and whims the market is susceptible to, and understanding demand, companies will have a rich knowledge of the market price and its future.
  • 10. TRANSACTIONS The central concern in the transaction level is managing the exact price charged, including discounts, reductions, and inducements. While the other two levels are broad, the transaction level looks at each individual sale. The pocket price is the revenue actually received by a business after a transaction. The pocket price is determined after off-invoice items are deducted from the invoice price.
  • 11. CUSTOMER VALUE The customer value level requires a company to position their products’ price and benefits relative to the competitor’s price and benefits for each customer segment being served. This assigned value is highly visible to both customers and competitors. The “ perceived benefits” minus the “perceived price ” of a product gives a company the value of that product. By increasing the perceived value and/or decreasing the perceived price, a company is more likely to increase their number of customers. A company must measure the perceived benefits and price in order to map their product’s value.
  • 12. MARKET STRATEGY Market strategy requires an acute understanding of market price levels, including predicting levels and positively influencing them when possible. Market strategy requires companies to encourage positive movements in the market. A better understanding of the market enables these companies to adjust their strategies and surpass competitors who allow the market to guide them.
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  • 14. POSTMERGER PRICING Postmerger pricing requires the pricing policies of both companies to be investigated . Although change is expected during a merger, there is a short timeframe to act. Companies have the opportunity to improve pricing structures at each level of pricing as a result of a merger. Because mergers often result in improved quality, added features and services, or new terms and conditions, a company must carefully consider the added value and benefits products have. In order to price appropriately, companies must first measure whether or not these added benefits are truly valued by their customers.
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  • 20. PRICING ARCHITECTURE Pricing Architecture shapes the way in which a customer perceives price, and ultimately drives customer behavior. The tools of the price architect are list price, discounts, and the policies and guidelines that apply to discounts and how they interact. Additionally, the price architect uses units of sale and communication as tools to shape how price is perceived. Companies that have achieved the price advantage are able to use price architectures in order to influence customers’ ideas about price and purchasing behaviors.
  • 21. COMPLEXITY MANAGEMENT Custom-Configured Products Products and services designed, constructed, or personalized for specific, one-time use produce unusual challenges. These customized products and services are naturally hard to price appropriately. Reference points for price are hard to come by, multiple vendors are typically involved, and they receive extreme customer inquiry.
  • 22. COMPLEXITY MANAGEMENT High-Count Product Lines When a company has multiple products, the most advantageous price can be hard to determine. This is because competitive pricing standards are harder to obtain, the information necessary to evaluate how volume is impacted by price changes is often distorted, advanced analytical tools are needed in order to uncover patterns, and companies with many products often purchase materials with frequent cost changes.
  • 23. COMPLEXITY MANAGEMENT Distributed Sales Models Pricing in a distributed sales environment can lead to challenges such as accomplishing consistent performance across the sales force and divisions or establishing an “institutional memory” of pricing performance or results across similar accounts. Simple rules and measurements are not the most effective means of comparison in distributed sales environments. Product mixes can hide shortcomings when measured this way. Similarly, there is so much data involved in a distributed sales environment that easy opportunities, such as updating price costs to reflect product costs, are missed.
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  • 27. CONCLUSION A good pricing strategy is not the only factor in success . A company must understand its customers, the benefits they value most, and exceptionally provide those benefits. A company also needs to better understand the competition and how customers perceive their product. If used properly, this knowledge can put a company ahead of the rest. More valuable products and superior service enable customers to justify paying more for a product because they believe in the product and the company.
  • 28. Business Book Summaries is a product of EBSCO Publishing. The website is updated weekly with 4 to 5 new summaries chosen from among the top business books printed in the United States. For more information or to sign up for the weekly newsletter, please visit http://www.bizsum.com. ABOUT BIZSUM.COM