The ins and outs of Smart Pricing

How Much Should You Charge? Why 'Smart Pricing' Pays Off


Your company has developed a new product that you think will be a winner. 

A lot of money has been poured into research and development, analysis of the competition and advertising. 
But there is one key element you may have overlooked: 

What do you charge for the product? 

Wharton marketing professors Jagmohan Raju and John Zhang say companies frequently don't put anywhere near as much thought into pricing as they should. In their new book, Smart Pricing, Raju and Zhang argue that firms ought to engage in innovative pricing to achieve maximum profitability, and they show how companies like Google are doing just that.
 

The power of pricing

Transaction pricing is the key to surviving the current downturn—and to flourishing when conditions improve.

Michael V. Marn, Eric V. Roegner, and Craig C. Zawada

Excerpt


This McKinsey article proposes a simple but powerful tool—the pocket price waterfall, which shows how much revenue companies really keep from each of their transactions— that helps them diagnose and capture opportunities in transaction pricing.

The increase in the number of companies selling customized products and solutions or bundling service packages with each sale, for instance, means that assessing the profitability of transactions has become much more complex. The pocket price waterfall has evolved over time to take account of this transition.
Today, it is more critical than ever for managers to focus on transaction pricing. Moreover, at many companies, little cost-cutting juice can easily be extracted from operations. Pricing is therefore one of the few untapped levers to boost earnings, and companies that start now will be in a good position to profit fully from the next upturn...