Winning the Profit Game – Smarter Pricing, Smarter Branding
by Robert G. Docters, Michael R. Reopel, Jeanne-Mey Sun and Stephen M. Tanny
Winning the Profit Game reveals the key to success: pricing which is integrated with brand management, cost management, and product development. Whatever the goal, such as market penetration, customer retention, or increasing margins, “the strategy should be reflected in the price.”
Branding is a central topic in the book. “A pricing strategy cannot exist without a detailed brand strategy.” Just how important is the effect of brand on pricing? “If targeted at decisions and products for which the customer has the least familiarity and the least ability or inclination to research, brand can affect price dramatically—a 100-percent price premium is not uncommon.”
Another recurring theme is segmentation. “A single price or brand approach is unlikely to work across multiple segments… Price sensitivity will differ by segment.”
“What do our customers particularly value in our products or services? How is this reflected in our price structure? What specifically charges for or reflects that value?” These are a few of the questions posed in chapter 13, Fundamental Questions for Senior Management.
For organizations where discounting is out of control, the authors recommend a discount scorecard to bring some structure and purpose to discounts. In the sample given, a salesperson can give 10% due to a competitive bid, 10% if the client site is beyond a certain radius of the service center, 8% if the client’s credit rating is CCC or below, plus up to 5% discretionary, not to exceed a maximum 30% discount. I thought it was peculiar that a customer would earn a discount for having a lousy credit rating. Maybe the authors were just checking to see if I was paying attention.
Additional topics include pricing methods, bundling, legal constraints on pricing, organizational structure, and compensation. This is a comprehensive book written by four pricing consultants, including a former CFO. The writing style is excellent, making it easy to read despite being packed with information.
My only nitpick is in a reference to price elasticity of demand. “During one period in the 1990s, the price elasticity of premium hosiery was 0.9, while the price elasticity of generics was 2.0. This clearly suggested that the premium brand could profitably take a price increase while the generics could not afford to do so.” I think the authors should have mentioned that a price elasticity coefficient greater than one means demand is elastic; less than one means demand is inelastic. I had to dust off my old economics textbook to look that up.
Note: Robert Docters has also coauthored a book called Contextual Pricing: The Death of List Price and the New Market Reality.
Docters, Robert G. Winning the Profit Game: Smarter Pricing, Smarter Branding. New York: McGraw-Hill, 2004. Buy from Amazon.com