Synopses & Reviews
For all the advantages businesses pursue, there is one powerful advantage that is accessible to virtually every businessbut realized by very few. That advantage is the price advantage. Pricing is far and away the most sensitive profit lever that managers can influence. Very small changes in average price translate into huge changes in operating profit, yet few companies are as disciplined and deliberate about pricing as they should be.
In the most comprehensive and insightful treatment of pricing management available today, this Second Edition of The Price Advantage shows companies how to use pricing excellence to outperform competitors and increase profitability in both good and bad times. Drawing on more than three decades of client success, three preeminent McKinsey & Company experts demonstrate why pricing is critical to bottom-line profitability and explain state-of-the-art approaches to analyzing pricing and building distinctive pricing capability. Working with colleagues and companies across the globe, they have helped develop leading-edge practical knowledge in pricing for clients in all major industries.
Written in pragmatic terms, this Second Edition of The Price Advantage continues to be the practical pricing guide for thoughtful general managers who have been tempted by the unrealized promise of improved pricing and, perhaps, even frustrated by attempts to translate pricing theory into bottom-line impact. It provides a structured approach for identifying where the most precious sources of untapped pricing opportunity reside in a business, along with practical, case-illustrated guidance on how to capture that opportunity.
Updated throughout to reflect changes in the global pricing environment and advances in McKinsey's pricing knowledge, this Second Edition covers a host of new topics including software and information products pricing, lifecycle pricing, custom-configured products pricing, pricing of high-count product lines, pricing in distributed sales environments, and tiered products and services pricing. Also, the building of a sustainable pricing capability and a high-performing pricing infrastructure is covered in much greater detail than ever before.
With emphasis on translating pricing theory into real improvements and bottom-line performance, the Second Edition of The Price Advantage is designed to give today's CEOs and business managers a competitive advantage in any economy.
Synopsis
A comprehensive look at creating pricing strategies that work in both good economic times and bad
Written by three preeminent pricing experts at McKinsey & Company, the Second Edition of The Price Advantage is a practical pricing guide for the executive or pricing practitioner who wants to identify, capture, and sustain substantial pricing gains in their business.
Pricing is by far the most powerful profit lever that managers can influence. Yet few companies approach pricing in a way that fully capitalizes on its value. This Second Edition, a major revision and extension of the first book, shows you what it takes to achieve the price advantage in today's competitive and complex business environments. Based on in-depth, first-hand experience with thousands of companies, this book provides managers with a pragmatic guide through the maze of pricing issues. It reinforces why pricing excellence is more critical than ever today and then explains state-of-the-art approaches to analyzing and improving your own pricing strategy and execution.
- Explores the fundamental role of pricing infrastructure in achieving the price advantage
- Includes new topics such as software and information products pricing, lifecycle pricing, custom-configured products pricing, pricing of high-count product lines, pricing in distributed sales environments, "razor/razor blades" pricing, and tiered products and services pricing
- Revisits the full range of classic McKinsey pricing tools, including the pocket price waterfall and value maps
Engaging and informative, the Second Edition of The Price Advantage will put this essential discipline in perspective.
Synopsis
Praise for THE PRICE ADVANTAGE, SECOND EDITION"This book is a treasure—a practical yet intellectually sound guide to pricing that is applicable to both large and small companies. Frankly, in all my years writing about economics and covering corporate decision making, I have not seen pricing strategy and tactics explained so clearly as in this book."
—Michael Mandel, former chief economist, BusinessWeek, and Editor-in-Chief, Visible Economy LLC
"This book is both insightful and practical. Many companies overlook the substantial profit opportunities from smart pricing. The authors show you not only where to look for, but also how to capture and sustain those opportunities."
—James M. Kilts, former chairman and CEO, The Gillette Company
"The Price Advantage is very straightforward and direct, with concise and easily applied coverage of each and every topic."
—David J. Reibstein, Marketing Professor, The Wharton School
The Second Edition of The Price Advantage, written by three preeminent experts at McKinsey & Company, is the most pragmatic and insightful book on pricing available.
Based on in-depth, firsthand experience with hundreds of companies, as well as significant investments in new pricing research, this book is designed to be a comprehensive guide for managers through the maze of pricing issues.
The authors examine state-of-the-art approaches for analyzing and improving pricing performance, demonstrate those approaches with real case studies, and draw a pricing excellence blueprint for companies to follow. In good economic times or bad, achieving the price advantage is critical to corporate performance and profitability.
About the Author
WALTER L. BAKER is a partner in the Atlanta office of the international consulting firm of McKinsey & Company. Since joining McKinsey in 1998, he has worked with clients across multiple industries in the areas of pricing, sales, marketing, and strategy. With particular focus on the technology and industrial sectors, he has authored articles on pricing in
CMO magazine, the
McKinsey Quarterly, and the
Harvard Business Review.
MICHAEL V. MARN is a partner in the Cleveland office of McKinsey & Company. He joined McKinsey in 1977 and has developed some of the most widely used analytic approaches for identifying and capturing opportunities in pricing. He has written articles on pricing that have appeared in publications including the Wall Street Journal, the New York Times, and the Harvard Business Review.
CRAIG C. ZAWADA is a partner in the Calgary office of McKinsey & Company. Since joining McKinsey in 1997, he has worked with companies across multiple industries, helping them to identify and capture improvements in pricing. He is widely published in the area of pricing strategy, with articles appearing in the Harvard Business Review, Mergers & Acquisitions, and the McKinsey Quarterly.
Table of Contents
Preface.
Acknowledgments.
PART ONE: Pricing Fundamentals.
CHAPTER 1: Introduction.
The Power of 1 Percent.
The Price/Volume Tradeoff.
Market Forces Add Pressure.
The Nobility of Pricing Excellence.
Why the Price Advantage Is So Rare.
CHAPTER 2: Components of Pricing Excellence.
An Integrated Approach.
An Interdependent Hierarchy.
Applying to Your Company—Pinpointing the Opportunity.
PART TWO: Exploring the Levels.
CHAPTER 3: Transactions.
The Pocket Price Waterfall.
The Pocket Price Band.
The Soundco Radio Company Case.
Pocket Margin Waterfall and Band.
Alen Glass Company Case.
CHAPTER 4: Customer Value.
Mapping Value.
Creating a Value Map.
Making Moves on the Value Map.
Putting Customers on the Value Map.
Value Profiling.
CHAPTER 5: Market Strategy.
Profiting from Better Price Predictions.
Planning for an Expected Price Change.
Maintaining Optimal Production and Capacity.
Improving Pricing Conduct.
Influencing the Elements of Pricing Conduct.
A Word on Followership.
CHAPTER 6: Pricing Infrastructure.
Processes—What Are the Most Critical Types of Pricing Decisions for Your Business?
Organization—Who Is Running the Pricing Profit Center?
Performance Management—How Should We Recognize and Reward Pricing Performance?
Systems and Tools—No Magic Bullet Exists.
PART THREE: Unique Events.
CHAPTER 7: Postmerger Pricing.
A Temporary Window of Opportunity.
Tremendous Opportunities at Each Pricing Level.
Avoiding Common Postmerger Traps.
Antitrust Laws.
CHAPTER 8: Price Wars.
Why Price Wars Should Be Avoided.
What Really Causes Price Wars.
Staying Out of Price Wars.
Getting Out of Price Wars.
When a Price War Might Make Sense.
PART FOUR: Expanding the Boundaries.
CHAPTER 9: Legal Degrees of Freedom.
Pricing Decisions That Raise Red Flags.
Minimizing Risks While Meeting Pricing Objectives.
Calling in the Attorneys.
CHAPTER 10: Lifecycle Pricing.
What Makes Lifecycle Pricing Tough.
The Three Phases of Product Lifecycle Pricing.
Sustaining Returns Across the Lifecycle.
CHAPTER 11: Pricing Architecture.
Managing Price Perception.
Influencing Customer Behavior.
Price Architecture Based on Supplier Role.
PART FIVE: Advanced Topics.
CHAPTER 12: Complexity Management.
Section One: Custom-Configured Products.
Section Two: High-Count Product Lines.
Section Three: Distributed Sales Models.
CHAPTER 13: Tailored Value.
Section One: Price Segmentation.
Section Two: Tiered Products and Services.
Section Three: New Products.
Section Four: "Razor/Razor Blades" Offerings.
Section Five: Solutions.
CHAPTER 14: Software and Information Products.
Unique Characteristics That Impact Pricing.
Exploring the Elements of Pricing.
PART SIX: Making Change Happen.
CHAPTER 15: Pricing Transformation.
Designing a Clear Change Program.
Accelerating and Embedding Change.
CHAPTER 16: The Monnarch Battery Case.
The Monnarch Battery Company.
Transactions.
Customer Value.
Market Strategy.
Capturing the Monnarch Pricing Opportunity.
Hard-Wiring the Change.
Epilogue.
APPENDIX 1: Pocket Price and Pocket Margin Waterfalls.
APPENDIX 2: Antitrust Issues.
U.S. Pricing Law.
EU Pricing Law.
Antitrust Information Sources.
APPENDIX 3: List of Acronyms and Abbreviations.
APPENDIX 4: About the Web-Based Tool: Periscope.
About the Authors.
Index.