Thursday, 2 April 2009

Power Pricing Robert J. Dolan (Author), Hermann Simon (Author)

A very interesting book indeed, I would recommend it to managers looking to sensitise themselves to Pricing without getting into very technical treatment.

As a pricing manager myself for the Western European region, I had the opportunity to apply a lot of pricing concepts. And the application of pricing is a tremendous source of competitive advantage.

For example, elasticity. How much more or less do consumers buy given a price decrease (or increase). Now consider a company that sells through multiple channels….wholesalers/ retailers/ the internet.
How is channel elasticity different for each trade channel. How much saving does awareness of this fact, generate for a company.

Product elasctities. Consider than you have 50 SKUs of a single product. Elasticity for toothpastes may not be the same as the elasticity for a “tooth whitening” paste or a “breath freshening” paste.
Or that a 200g paste has a different elasticity than a 100g paste. Do you capture such variations?

Then the entire notion of price setting itself. Does a new product always have to be priced high. (Not if the product category is old and very competitive!)

What market place parameters influence pricing? In the auto industry, for example, the Original equipment Manufacturers are never keen to give more than 30% of the component business related to a particular model to one supplier. They create competition.
How about the fact that some consumers hang on to really outdated car models (not as old as antiques, but old enough). The tires on those cars could be a very old design. Yet, the “hockey Stick” concept suggests that as the product enters its “end of life” phase, it may present an opportunity to increase prices so as to milk the last sales from its die-hard customers. Wow.
Another interesting topic was the flow of goods between countries. A “price corridor” is now the recommended answer, suggesting that some countries increase prices and others decrease prices so that the differential between them is low enough to discourage price flows. It raises a very deep question: Do grey market flows happen because prices are out of equilibrium or that supply and demand are not synchronised in a particular market. Figure this out before you attack pricing, else even the smallest differentials are sufficient for some intermediaries to act.

Consumer goods in competitive markets represent very interesting pricing challenges. My request to any practitioner is to start with the questions:
- What does this product do for the consumer
- How does the consumer value this benefit from the product?

Most of us take the market prices as a given while position new entrants. Its simpler. But knowing what value products create in the lives of consumers, and maximising this is a very important goal of the marketing team.


No comments: