One purpose of this book is to change the common misperception that pricing is simply about calculating the “right” price for a product or transaction. In the years since the first edition was published in 1987, we have learned that pricing, if it is to be effective, cannot be so reactive and simplistic. Profitable pricing requires looking beneath the demand curve to understand and manage the monetary and psychological value that is a primary determinant of the purchase decision. Mastering the value proposition enables a firm (1) to segment prices to reflect differences in value and cost, (2) to communicate the value of offers to customers unfamiliar with the market, and (3) to create pricing policies for managing pricing issues fairly and consistently. In short, this book shows managers how to move from tactically “optimizing” prices in markets where they seemingly exercise little control to managing their markets strategically. When that happens, pricing becomes an integral part of a profitable growth strategy, rather than a blunt instrument to drive sales and market share.
The principles of strategic pricing, which were foreign to most business practitioners more than two decades ago, are now more widely accepted in principle. But most companies still struggle with the application. The changes in this fifth edition of our book reflect our attempts to address this need:
To complement this edition, we also introduce software from LeveragePoint Innovations Inc. for creating and communicating economic value estimations systematically. The trial software can be accessed at http://demo.leveragepoint.com/strategyandtacticsofpricing. While versions of the software that enable sharing require corporate contracts for access, versions for individual student and practitioner use are available without charge for three months. This software puts theory into practice and allows the reader to explore real-world scenarios.
Over the years, this book has benefited from the influence and efforts of individuals too numerous to mention here. Nevertheless, we would be remiss in not acknowledging a few whose contributions have been either very large or new to this edition. Professor Gerald Smith’s contributions to three prior editions of this book and the instructor’s manuals are still reflected in the current ones. Michael Goldberg of Monitor Group was a diligent researcher, copy editor, and administrator without whose incessant prodding this edition would still be “in process.” Georg Muller and Tony Seisfeld of Monitor Group and Paul Boni of Grail Research drew from their experience in pricing research to update our chapter on “Measurement of Price Sensitivity.” Eugene Zelek of Freeborn and Peters once again shared his knowledge of pricing and the law to keep that chapter current. We would also like to thank our colleagues at Monitor Group who, since the previous edition, have taught us the concept of the buying process and the importance of aligning interventions at the most appropriate point in it. Our administrative assistant, Vivi Camin, diligently sought reprint permissions and recreated versions of diagrams and tables. Last, but certainly not least, we want to thank our colleagues at Monitor Group for their indulgence while we closeted ourselves to complete this edition, and to thank our families, which we neglected and to whom we now hope to make amends.