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Smart Pricing: How Google, Priceline, and Leading Businesses Use Pricing Innovation for Profitability Hardcover – April 5, 2010
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"Pricing innovation is not for the timid," conclude Jagmohan and Zhang (both, Wharton School, Univ. of Pennsylvania), "getting the pricing right is, in the end, both art and science." Nonetheless, they endeavor to broach the subject with an accessible range of modern price-setting techniques. Smart Pricing is at its best in consolidating "the art" of inventive price discrimination, assembling best practices from different companies across industries. Smart Pricing does provide an adequate, instructive primer on less conventional approaches to price decision making. Summing Up: Recommended. General readers; undergraduate students at all levels; professionals. -- S. M. Mohammed, SUNY Fredonia. Reprinted with permission from CHOICE, copyright by the American Library Association.
From the Back Cover
""If you ever wondered how prices are determined, you will find it in "Smart Pricing." This is the most comprehensive coverage on the topic for today's new economy. The insights in this book are priceless.""David J. Reibstein, The William S. Woodside Professor and Professor of Marketing, The Wharton School, University of Pennsylvania, and coauthor of "Marketing Metrics" ""Global competition and digital technology have made pricing decisions more challenging than ever before. In this smart and excellent book, Jagmohan Raju and John Zhang have packed many years of experience and expertise to help managers navigate through the complex environment that they face today.""Sunil Gupta, Edward W. Carter Professor of Business and Head of the Marketing Department, Harvard Business School """Smart Pricing "offers a unique perspective on how pricing innovations can grow business and transform markets. Synthesizing best pricing practices from various businesses worldwide and research insights is quite illuminating. This superb book is a must-read for anyone interested in exploring the power of pricing." "Kamel Jedidi, John A. Howard Professor of Business, Columbia University ""A must-read for all managers who have to make profitable pricing decisions in an increasingly international market environment. Raju and Zhang provide highly innovative solutions for the most challenging problems in modern pricing-scientifically founded, management-focused, and fun to read." "Dr. Harley Krohmer, Chairman of the Institute of Marketing and Management, University of Bern - The Capital University of Switzerland Innovative Pricing Strategies that Improve Profitability, Attract New Customers, and Transform Industries In "Smart Pricing"", " Wharton professors and renowned pricing experts Jagmohan Raju and Z. John Zhang draw on examples from high tech to low tech, from consumer markets to business markets, and from U.S. to abroad, to tell the stories of how innovative pricing strategies can help companies create and capture value as well as customers. They teach the pricing principles behind those innovative ideas and practices. "Smart Pricing" introduces to marketing and product executives, along with corporate strategists, many innovative approaches to pricing, as well as the research and insights that went into their creation. Filled with illustrative examples from the business world, readers will discover restaurants where customers set the price...learn how Google and other high-tech firms have used pricing to remake whole industries...and understand how executives in China successfully start and fight price wars to conquer new markets. " ""Smart Pricing" goes well beyond familiar approaches like cost-plus, buyer-based pricing, or competition-based pricing, and puts a wide variety of pricing mechanisms at your disposal. This book helps you understand them, choose them, and use them to "win". "Name your own price" not just for Priceline anymore"New ways to match the right offer with the right customer at the right moment" The new art of the price war"How to plan and execute a price war to conquer new sales territories" Are the best things in life really free?"What you can give away, what you can't, and how to defend against "free"" The snob premium: from cachet to cash"The more you pay, the more it's worth"
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Not only are the concepts in this book essential for domination in the business world, but they can help in any situation. I really urge you to read it. It shows you how to think outside of the box. John Zhang taught how to look at pricing in a different way, and now I approach every situation differently. It's just amazing how much one book can change your outlook on life.
I found Chapter 3 on price wars in China, Chapter 4 on thinking small (which has some good points about Bottom of the Pyramid markets and what we can learn from them), Chapter 5 on automatic mark downs, and chapter 9 on pay for performance models especially useful. In chapter 3 on price wars in China there is a nice light explanation of Incremental Break Even Analysis and how it intersects with strategic choices in pricing competition. When reading this section I suggest you pop up your favorite spreadsheet and build the model then run a few scenarios on it to get a feel for its behavior (unless you are one of those rare people who can understand the behavior of an equation just by running it in your own mind). Then apply the model to yourself and your competitors and see what pricing decisions it leads to. The historical treatment of automatic markdowns at Filene's basement (I am writing in this in Cambridge, just across the Charles River from Filenes) and the analysis of buying psychology are also compelling. Pay for performance will be, I believe, one of the most disruptive pricing strategies going forward, and the more different examples one can read the better. I am glad that they included the classic Tom Nagle article "Money-Back Guarantee ... and other ways you never thought to buy your drugs" (the article is available on-line at LeveragePoint). There are useful 'rules of thumb' at the end of this chapter on when pay performance is likely to work. (Other chapters also have this feature, which is a nice feature of the book - the authors give you some guidance on when a particular pricing strategy is likely to work.). On the other hand, although the authors introduce two-sided markets in the chapter on Google, they do not unfold the implications for pricing and pricing strategy. Two-sided markets are likely to eat through traditional markets everywhere they can be applied (see Catalyst Code by David S. Evans; Richard Schmalensee).
This book does not do for B2C pricing what Strategy and Tactics of Pricing (Nagle, Hogan and Zale) does for B2B. It does not have an integrative framework that can help one think through B2C pricing. Sadly, I do not think such a book has been written or such a framework developed. This may be because B2C pricing is very much a part of brand strategy, and any integrative approach to B2C pricing would also have to be a book on branding (and how branding is changing in a social media world). Pricing experts and brand builders are seldom the same people and often do not work well together, but a transformative book on B2C pricing will require input from both sides.
The contents include: Pay As You Wish, Free, Price Wars, Thinking Small, Automatic Markdown, Name Your Own Price, Subscribe and Save, Snob Premium, and Pay If It Works. Each section is about 20 pages long except for the much shorter conclusion. At the end of each section, a list of references is provided for more details. Overall, Raju and Zhang do a good job introducing different pricing models and back up their claims with real examples. It is also noteworthy that they cover both business to business and business to customer scenarios.
If you're looking for a finance-oriented book on pricing or a detailed analysis and how-to, you will be sorely disappointed. For people who are already familiar with pricing, I doubt that Smart Pricing will be particularly useful. On other other hand, if you're looking for a quick introduction to strategic pricing, I believe that Smart Pricing has a lot to offer. Since it never gets overly complicated or caught up in details, I was better able to focus on the potential for different pricing systems and felt free to mentally experiment.
In the end, I enjoyed the book and got a lot out of it. While the editing isn't perfect, and the book doesn't quite live up to the marketing hype, Smart Pricing is still informative and covers the gamut of current pricing models. If you ask me, I'd say it's worth it. ;)