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The Art of Pricing: How to Find the Hidden Profits to Grow Your Business (Hardcover)
by Rafi Mohammed
| Category:
Pricing, Product management, Marketing, Sales management |
| Market price: ¥ 278.00
MSL price:
¥ 238.00
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Pre-order item, lead time 3-7 weeks upon payment [ COD term does not apply to pre-order items ] |
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 Good for Gifts |
| MSL Pointer Review:
Concise, enjoyable read that provides a framework in developing pricing opportunity strategy, "what is clear from this book is that you need to know what your customers value" (NYT). |
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Author: Rafi Mohammed
Publisher: Crown Business
Pub. in: October, 2005
ISBN: 1400080932
Pages: 240
Measurements: 8.4 x 5.6 x 1.1 inches
Origin of product: USA
Order code: BA01080
Other information: ISBN-13: 978-1400080939
Language: American English
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- Awards & Credential -
One of best received resources on the subject of pricining, now available from www.mindspan.cn. |
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- MSL Picks -
This book was a delightful read not only because it was short and to the point, but also for it's many real-life examples. I've felt for a long time that prices need to be set to the customer's perception of the value of the product or service, so it was very encouraging to read a book where the author was able to break down the reasons and supply applications for this type of pricing he calls "Value pricing". As with an auction (a theme covered in the book) there is a price for every interested buyer, but it is not always the same for everyone. Just as only one person is willing to pay the highest "winning" bid, there are those who will pay more for any product or service than the average customer. This book helps you to identify those people.
(From quoting Rich, USA)
Target readers:
Business people from CEOs to small business owners, especially marketing managers, product managers and sales managers.
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Rafi Mohammed is a director at Simon-Kucher & Partners, the prominent international pricing and strategy consulting firm. He received his Ph.D. in economics from Cornell University, is coauthor of Internet Marketing: Building Advantage in a Networked Economy, and is a Batten Fellow at the University of Virginia’s Darden Graduate School of Business. Prior to joining Simon-Kucher & Partners, he was a consultant at Monitor Group.
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From Publisher
Want to make a bad year better or turn a good year into a blockbuster? Stop leaking profits and discover the untapped gold mine that exists in your products.
The Art of Pricing is the first practical, easy-to-understand guide to solving one of the most important dilemmas in business: how to use price to uncover a product’s hidden profits and find new opportunities for growth.
When it comes to setting prices for products and services, even the most sophisticated businesspeople often rely on formulas and seat-of-the-pants instinct, based on what the competition is charging, marking up costs, and doing things as they’ve always been done. The result is that businesses of all sizes, from start-ups to the Fortune 100, leave money on the table.
In The Art of Pricing, Rafi Mohammed, one of the world’s leading experts on pricing strategy, shows:
- The astonishing impact that small changes to a pricing strategy can have on the bottom line
- How the right pricing strategy can boost profits and grow your customer base
- Why the right way to think about pricing is as a series of easy-to-implement strategies that allow companies to serve and profit from the largest possible customer base
- Why the art of pricing involves understanding and capitalizing on the fact that different customer segments are willing to pay different prices for the same product
- Why an effective pricing strategy is not about price gouging but one that incorporates fairness into every important pricing decision
The Art of Pricing will be the invaluable missing link for people running companies, departments, divisions, and product lines, as well as for those in sales and marketing. Dr. Mohammed shows that an effective pricing strategy helps complete the circle by reaping the rewards due for the enormous effort, creativity, and investment made in developing and marketing products and services. Using a range of examples, from neighborhood restaurants to huge companies like Ford, he shows the importance of not falling short - and shortchanging yourself - when it comes to the heretofore little understood art of pricing.
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Chapter 1
Hidden Profits: Pricing for Profits and Growth
My friend David Straus has always been interested in cooking, not just as an avocation but as a career. He’s followed the tried-and-true career path of other successful chefs: attending culinary school and cooking at a variety of restaurants. Dave combined all of these experiences into a unique style of cooking and shares a trait that distinguishes the great from merely good chefs: he cooks to please his customers. So it wasn’t a surprise when he recently called to tell me that he was opening his own gourmet restaurant.
After catching up with each other, Dave shared a business problem that he was struggling with. “Rafi,” he said, “I don’t know what prices to set on my menu.” With a hint of exasperation, he went on to wonder aloud, “Should I price the prime strip steak with morel mushrooms at eighteen or thirty-one dollars? How will the thirteen-dollar difference affect the number of customers that patronize my restaurant?” His pricing decision was further complicated by conflicted feelings of “not wanting my restaurant filled with just a bunch of rich people; I want to serve a more diverse group of customers. But then again, I am in business to make a profit.”
What’s interesting about Dave Straus’s pricing dilemma is that it reflects a fundamental challenge faced by every business in the world - from small startups to Fortune 500 companies.
I’ve had the good fortune to work on pricing issues in aca-demia, government, and the private sector. As an academic, I wrote my Ph.D. dissertation, published new ideas in top research journals, and taught classes to budding managers on pricing. As an economist at the Federal Communications Commission, I worked on deregulating local and long-distance telephone rates as well as on public-policy issues that use price subsidies to make telecommunication services affordable to the poor. Today, I work with companies of all sizes in a wide range of industries on their pricing strategies. Throughout all these experiences, I’ve found that the root of pricing problems at most organizations is the same: they don’t think about pricing in the right way.
For most people, pricing is an unsettling exercise involving a mixture of compromise, fly-by-the-seat-of-the-pants analysis, guessing, marking up costs, following competitors, and doing things as they’ve always been done. What usually results is a price that “just works.” Eighteen- or thirty-one-dollar decisions compromise at $24.50. What’s the difference between using a price that “just works” and one derived from my pricing for profits and growth philosophy? A lot of hidden profits. The potential benefits of pricing extend far beyond making simple, black-and-white, $18 or $31 decisions.
Continuing my conversation with Dave, I pointed out that his desire to expand his clientele beyond rich diners actually touches on my central idea about pricing: some customers will value your product more than others will. For example, budget-minded young couples with a mortgage and kids who want to celebrate their anniversary with a fancy dinner can’t afford to pay as much as the well-to-do who delight in dining at the best restaurant in town. This simple realization - that customers place different values on the same products - empowers companies to price for profits and growth. The right way to think about pricing is as a series of strategies that serve (and capture different profit margins from) customers with different product valuations.
After an hour of discussing Dave’s business, goals, and potential customers, we designed a set of pricing strategies for the restaurant. They included early-bird specials; senior citizens’ discounts; regular menu prices; $200 annual “charter” memberships that provide a 25% discount on all meals for a year; discounted three-course meal bundles; a lower-priced bar menu; and premium-margined chef’s-table seating. Of course, the restaurant will make lower profits from those ordering early-bird specials compared to the margins gained from high rollers willing to pay for the privilege of sitting at the chef’s table and hobnobbing with the creative genius behind the meal. But this is exactly what pricing for profits and growth strives to accomplish. The right set of pricing strategies enables companies to serve (and profit from) as many customers as possible.
When I visited Dave six months later, he was beaming with pride at how well his restaurant was doing. He took particular delight in serving, through his early-bird pricing specials, those diners who normally could not afford to enjoy gourmet meals. As I looked around the packed dining room, I was happy for my friend. Dave had done a great job of pricing for profits and growth. Profits were being enhanced by options like chef’s-table seating, and the early-bird specials were growing his customer base. Think about all the hidden profits Dave would have missed out on had he viewed pricing as an $18 or $31 decision!
This book presents a pricing for profits and growth philosophy that’s relevant for any service or product, as well as for any type of business - domestic or global, large or small. The reason for its universal applicability is the simple fact that for every product in the world, there are at least two people who are willing to pay different prices. Think about your own customers. Aren’t there some “chef’s-table” customers who you know would continue to purchase if prices were raised? Similarly, aren’t there some “early-bird” shoppers who could be converted to customers if they were offered a lower price? If your company thinks about pricing primarily as an either/or, $18 or $31 type of decision, you are leaving a lot of money on the table. From this point on, pricing is not about setting numerical prices, it’s about creating a set of strategies to maximize your company’s profits. Just as important, these strate- gies are easy to create and can be implemented on Monday morning.
Anyone who sets prices can benefit from this book. That includes nonprofits (e.g., a local university alumni club), government services (e.g., public transportation), and regulated industries (e.g., local telephone services). These entities all strive to provide as much service as possible given a constraint. The constraint could be the organization’s nonprofit status, fixed subsidy level, or set rate of return. No matter what, some people will value the product or service more than others will. This simple fact means that the strategies in this book are applicable to every entity that sets prices. In fact, these organizations have already started expanding the way they think about pricing beyond $18 or $31 decisions. Still dubious? Here are some examples. Older alumni, often seeking business connections, are charged more to join university alumni clubs than are freshly minted grads. Washington, D.C.’s Metro subway sets commuter prices based on time of day and distance traveled. Telephone companies charge Fortune 500 companies more for a local line connection than they do low-income customers who need a phone in case of an emergency. These organizations realize, just like Dave Straus discovered, that the right set of pricing strategies allows them to serve as many people as possible. In addition, since some customers are paying more than others, profits are increased. These new revenues can subsidize more customers or enhance services.
Hidden Profits
In today’s business environment, everyone - CEOs, managers, salespeople, ambitious new hires - is under the gun to show results and grow profits. Wall Street and your boss demand a better bottom line every year, primarily from new products and new initiatives. While obviously important, these efforts are risky and costly. Most of us have a moment of doubt when we agree to meet ambitious new profit targets based on the launch of a new product or service. Pledges are made that sacrifices today will result in better profits tomorrow. Further compounding the stress is the generally long “plant-to-harvest” period before a growth investment bears profits or is written off as a bad idea.
While you must keep adding new products to avoid stagnation, what if you had a strategy that would help you hedge your bets? In addition to new products and initiatives, there are creative ways to grow by finding the hidden profits residing in your current products and services. The pricing mind-set and tools in this book are the business strategy equivalent of the Antiques Roadshow television show. In this PBS program, the hopeful line up to have their yard-sale bargains and family heirlooms appraised. While most of the items have more sentimental than financial value, the real excitement comes when the appraiser excitedly announces that Aunt Jenny’s tarnished necklace is actually a $25,000 Tiffany rarity! Families leap for joy when they discover the value that has been hidden in their attics. Your products contain a similar untapped potential to increase profits. The only difference is that in the Antiques Roadshow, the potential for a windfall is hit or miss. In contrast, I believe that the ability to easily increase profits exists in virtually every business product or service. A good example is the way Lloyd Hansen uncovered three billion dollars in hidden profits at Ford.
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| View all 10 comments |
Alfred E. Kahn, Robert Julius Thorne Professor of Political Economy, Emeritus, at Cornell University, USA
<2007-11-26 00:00>
A lighthearted, anecdotal, but theoretically sophisticated primer on pricing, highly personal and readable, with abundant illustrations. |
Irving Azoff, CEO, Frontline Management (MSL quote), USA
<2007-11-26 00:00>
Rafi Mohammed provides a win-win pricing solution for both businesses and consumers. The pricing strategies that he advocates help companies rightfully profit from their entrepreneurial activities and, just as important, benefit customers by offering a variety of purchasing options. The Art of Pricing is a “must read” for every manager; it will help you better serve your customers as well as make you more money. |
Robert G. Cross, chairman and CEO of Revenue Analytics and author of Revenue Management, USA
<2007-11-26 00:00>
In a thoroughly engaging manner, Rafi Mohammed describes how relatively simple changes in price can unleash tremendous profit potential in virtually any company. This book is richly illustrated with stories that show how pricing is as much disciplined science as art, and that the masters of this discipline can reap profit while delighting consumers. Rafi Mohammed is the ‘da Vinci’ of pricing! |
Robert G. Cross, chairman and CEO of Revenue Analytics and author of Revenue Management, USA
<2007-11-26 00:00>
In a thoroughly engaging manner, Rafi Mohammed describes how relatively simple changes in price can unleash tremendous profit potential in virtually any company. This book is richly illustrated with stories that show how pricing is as much disciplined science as art, and that the masters of this discipline can reap profit while delighting consumers. Rafi Mohammed is the ‘da Vinci’ of pricing! |
View all 10 comments |
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