Strategy And Tactics Of Pricing Nagle Pdf
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- The Strategy and Tactics of Pricing, 5th Edition
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For full document please download. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6—10 Kirby Street, London EC1N 8TS.
All trademarks used herein are the property of their respective owners. Consequently, companies that grow profitably in changing markets often need to break old rules and create new pricing models.
For example, Netflix changed the model for renting films from the daily rate at video stores to a time-independent membership model. Ryanair radically unbundled the elements of passenger air travel—charging separately for baggage, seat selection, in-person check in, beverages—enabling it to generate greater occupancy and more revenue per plane per day than its established European competitors.
Producers of new online media created a new metric for pricing ads—cost per click—that aligns the cost of an ad more closely to its value than was possible in traditional media. Apple changed the market for music in part by pricing songs rather than albums. Unfortunately, few managers, even those in marketing, have received practical training in how to make strategic pricing decisions such as these.
Most companies still make pricing decisions in reaction to change rather than in anticipation of it. This is unfortunate given that the need for rapid and thoughtful adaptations to changing markets has never been greater. The information revolution has made prices everywhere more transparent, making customers increasingly price sensitive. The globalization of markets, even for services, has increased the number of competitors and often lowered their cost of sales.
The high rate of technological change in many industries has created new sources of value for customers, but not necessarily led to increases in profit for the producers. Still, those companies that have the capability to create and implement strategies that take account of these changes are well rewarded for their efforts. Thomas T. John E. Joseph Zale. Published by Prentice Hall. All rights reserved.
One prominent example is the iPhone. For example, Wal-Mart puts its deepest discounts on products, like disposable diapers, that drive frequent repeat visits by big spenders on other products. As Wal-Mart illustrates, the measure of success at strategic pricing is not how much it increases price but how much it increases profitability. This text will prepare you to understand the forces that determine the success of a pricing strategy, to develop strategies to address those forces proactively, and then to effectively implement tactics that enable you to profit from them.
We offer no magic bullets that enable you to win higher prices than competitors while delivering no more in value. Before this goal can be achieved, managers in all functional areas must discard the flawed thinking about pricing that leads them into conflict and drives them to make unprofitable decisions. Financial prudence, according to this view, is achieved by pricing every product or service to yield a fair return over all costs, fully and fairly allocated.
In theory, it is a simple guide to profitability; in practice, it is a blueprint for mediocre financial performance. Because unit costs change with volume. Unfortunately, because these allocations depend on volume, and volume changes as prices change, unit cost is a moving target. The failure to account for the effects of price on volume, and of volume on costs, leads managers directly into pricing decisions that undermine profits.
On the other hand, if sales are higher than expected, fixed costs can be spread over more units, allowing average unit costs to decline a lot. According to cost-plus theory, that would call for lower prices. Cost-plus pricing leads to overpricing in weak markets and underpricing in strong ones—exactly the opposite direction of a prudent strategy.
How, then, should managers deal with the problem of pricing to cover costs? The question itself reflects an erroneous perception of the role of pricing, a perception based on the belief that one can first determine sales levels, then calculate unit cost and profit objectives, and then set a price.
Instead of pricing reactively to cover costs and profit objectives, managers need to price proactively. They need to acknowledge that pricing affects volume, that volume affects costs, and that pricing strategy is in part about effectively managing the utilization of fixed costs. Instead of asking whether the price covers fully allocated costs, a pricer should ask whether the change in price will result in a change in revenue that is more than sufficient to offset a change in total fixed variable costs.
When the change in revenue minus the change in variable costs is positive, the firm is earning more revenue to cover its fixed costs. When the change in revenue minus change in variable costs is negative, the firm is earning less revenue to cover its fixed costs. In a later chapter on financial analysis of price changes, we describe shortcuts to calculate the change in volume necessary for any proposed price change. They realize the need for pricing to reflect market conditions.
As a result, some firms have taken pricing authority away from financial managers and given it to sales or product managers. In theory, this trend is consistent with value-based pricing, since marketing and sales are that part of the organization best positioned to understand value to the customer.
In practice, however, the misuse of pricing to achieve short-term 3 Strategic Pricing sales objectives often undermines perceived value and depresses profits even further. The purpose of strategic pricing is not simply to create satisfied customers. Customer satisfaction can usually be bought by a combination of over delivering on value and underpricing products.
But marketers delude themselves if they believe that the resulting sales represent marketing successes. The purpose of strategic pricing is to price more profitably by capturing more value, not necessarily by making more sales. When marketers confuse the first objective with the second, they fall into the trap of pricing at whatever buyers are willing to pay, rather than at what the product is really worth. Although that decision enables marketers to meet their sales objectives, it invariably undermines long-term profitability.
Two problems arise when prices reflect the amount buyers seem willing to pay. First, sophisticated buyers are rarely honest about how much they are actually willing to pay for a product. Professional purchasing agents are adept at concealing the true value of a product to their organizations. For example, most customers initially perceived that photocopiers, mainframe computers, and food processors lacked adequate value to justify their prices. Only after extensive marketing to communicate and guarantee value did these products achieve market acceptance.
Forget what customers who have never used your product are initially willing to pay. Instead, understand the value of the product to satisfied customers and communicate that value to others. Low pricing is never a substitute for an adequate marketing and sales effort. In this view, pricing is a tool to achieve sales objectives. Because managers believe that more market share usually produces greater profit. Prices should be lowered only when they are no longer justified by the value offered in comparison to the value offered by the competition.
Although price-cutting is probably the quickest, most effective way to achieve sales objectives, it is usually a poor decision financially. Because a price cut can be so easily matched, it offers only a short-term market advantage at the expense of permanently lower margins.
Consequently, unless a company has good reason to believe that its competitors cannot match a price cut, the long-term cost of using price as a competitive weapon usually exceeds any short-term benefit. Although product differentiation, advertising, and improved distribution do not increase sales as quickly as price cuts, their benefit is more sustainable and thus is usually more cost-effective. The goal of pricing should be to find the combination of margin and market share that maximizes profitability over the long term.
Sometimes, the most profitable price is one that substantially restricts market share relative to the competition. Godiva chocolates, BMW cars, Peterbilt trucks, and Snap-on tools would no doubt all gain substantial market share if priced closer to the competition.
It is doubtful, however, that the added share would be worth forgoing their profitable and successful positioning as high-priced brands.
Strategic pricing requires making informed trade-offs between price and volume in order to maximize profits. These trade-offs come in two forms. The first trade-off involves the willingness to lower price to exploit a market opportunity to drive volume. Cost-plus pricers are often reluctant to exploit these opportunities because they reduce the average contribution margin across the product line, giving the appearance that it is underperforming relative to other products.
But if the opportunity for incremental volume is large and well managed, a lower contribution margin can actually drive a higher total profit. The second trade-off involves the willingness to give up volume by raising prices. Competitor- and customer-oriented pricers find it very difficult to hold the line on price increases in the face of a lost deal or reduced volume.
Yet the economics of a price increase can be compelling. For example, a product with a 30 percent contribution margin could lose up to 25 percent of its volume following a 10 percent price increase before it resulted in lower profitability. Effective pricers regularly evaluate the balance between profitability and market share and are willing to make hard decisions when the balance tips too far in one direction. Here we use it to mean the coordination of otherwise independent activities to achieve a common objective.
For strategic pricing, that objective is profitability. Achieving exceptional profitability requires managing much more than just price levels. It requires ensuring that products and services include just those features that customers are willing to pay for, without those that unnecessarily drive up cost by more than they add to value. It requires translating the differentiated benefits your company offers into customer perceptions of a fair 5 Strategic Pricing price premium for those benefits.
It requires creativity in how you collect revenues so that customers who get more value from your differentiation pay more for it. It requires varying price to use fixed costs optimally and to discourage behavior that drives excessive service costs. It sometimes requires building capabilities to mitigate the behavior of aggressive competitors.
Although more than one strategy can achieve profitable results, even within the same industry, nearly all successful pricing strategies embody three principles. They are value-based, proactive, and profit-driven.
For example, many managers ask whether they should lower prices in response to reduced market demand during a recession.
The answer: if customers receive less value from your product or service because of the recession, then prices should reflect that. But the fact that fewer customers are in the market for your product does not necessarily imply that they value it less than when they were more numerous.
Unless a close competitor has cut its price, giving customers a better alternative, there may be no value-based reason for you to do so. For example, anticipating that a recession or a new competitive entry will cause customers to ask for lower prices, a proactive company develops a lower-priced service option or a loyalty program, enabling it to define the terms and trade-offs of the expected interaction, rather than forcing it to react to terms and trade-offs defined by the customer or the competitor.
When the recession appeared in late , he quickly and relentlessly cut production—ending the long-standing policy at all the Big Three U.
These three principles are evident throughout this book as we discuss how to define and make good choices. A good pricing strategy involves five distinct but very different sets of choices that build upon one another.
The Strategy and Tactics of Pricing, 5th Edition
The Strategy and Tactics of Pricing shows readers how to manage markets strategically—rather than simply calculate pricing based on product and profit—in order to improve their competitiveness and the profitability of their offers. Show students how proper pricing can increase profitability—New Chapter on Price Implementation. A completely new chapter on implementing pricing strategy identifies the challenges involved in embedding strategic pricing principles within an organization. This chapter also describes how managers can lead a structured change process to build a more profitable commercial organization. This edition is now available with software for creating and communicating economic value estimations systematically—from LeveragePoint Innovations Inc. While versions of this software that enable sharing require corporate contracts for access, versions for individual student and practitioner use are available without charge for three months with the purchase of The Strategy and Tactics of Pricing. Present the latest information—Heavily Revised Chapters.
Chapter 1: Strategic Pricing Chapter 2: Value Creation Chapter 3: Price Structure Chapter 4: Price and The Strategy and Tactics of Pricing: A Guide to Growing More Profitably Thomas T. Nagle, G. Mueller; Published ; Economics.
Strategy and Tactics of Pricing - E-bog
Rather than calculating prices to cover costs or achieve sales goals, students will learn to make strategic pricing decisions that proactively manage customer perceptions of value, motivate purchasing decisions, and shift demand curves. This edition features a new discussion on harnessing concepts from behavioral economics as well as a more streamlined value cascade structure to the topics. Readers will also benefit from:Major revisions to almost half of the chapters, including an expanded discussion of big data analytics and a revised chapter on Specialized Strategies, which addresses timely technical issues like foreign exchange risks, reactions to market slumps, and managing transfer prices between independent profit centers. A completely rewritten chapter on Creating a Strategic Pricing Capability, which shows readers how to implement the principles of value-based, strategic pricing successfully in their organizations. In-chapter textboxes, updated to provide walk-through examples of current pricing challenges, revenue models enabled by an increasingly digital economy, and advances in buyer decision-making, explained through classic principles that still apply today.
The Strategy and Tactics of Pricing explains how to manage markets strategically and how to grow more profitably. Rather than calculating prices to cover costs or achieve sales goals, students will learn to make strategic pricing decisions that proactively manage customer perceptions of value, motivate purchasing decisions, and shift demand curves. In-chapter textboxes, updated to provide walk-through examples of current pricing challenges, revenue models enabled by an increasingly digital economy, and advances in buyer decision-making, explained through classic principles that still apply today. Chapter summaries and visual aids, which help readers grasp the theoretical frameworks and actionable principles of pricing analysis.
For full document please download. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6—10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. Consequently, companies that grow profitably in changing markets often need to break old rules and create new pricing models.
Pick up the key ideas in the book with this quick summary. Have you ever looked at a price tag on a product and wondered whether it was just chosen completely at random? Because pricing could be the main driver of success or failure when launching a new product.
Холодные серые глаза смотрели безжизненно. Живший в ее сознании герой умер, превратился в убийцу. Его руки внезапно снова потянулись к ней в отчаянном порыве.
Беккер, стараясь преодолеть эту тяжесть, приподнялся на локтях. Теперь он был на виду, его голова торчала из оконного проема как на гильотине. Беккер подтянул ноги, стараясь протиснуться в проем. Когда его торс уже свисал над лестницей, шаги послышались совсем. Он схватился руками за боковые стороны проема и, одним движением вбросив свое тело внутрь, тяжело рухнул на лестницу.
К своему будущему. Шифровалка снова купалась в ярких огнях. Внизу фреон протекал сквозь дымящийся ТРАНСТЕКСТ, как обогащенная кислородом кровь. Стратмор знал, что охладителю потребуется несколько минут, чтобы достичь нижней части корпуса и не дать воспламениться расположенным там процессорам. Он был уверен, что все сделал вовремя, и усмехнулся.
Это файл высочайшей сложности. Я должен был тебя предупредить, но не знал, что сегодня твое дежурство. Сотрудник лаборатории систем безопасности не стал выдавать дежурного. - Я поменялся сменой с новым сотрудником.
- О Боже, - проговорила Сьюзан, сообразив, в чем дело, - Цифровая крепость зашифровала самое. Стратмор невесело улыбнулся: - Наконец ты поняла. Формула Цифровой крепости зашифрована с помощью Цифровой крепости. Танкадо предложил бесценный математический метод, но зашифровал .
Именно это и нравилось ей в нем - спонтанность решений. Она надолго прижалась губами к его губам. Он обвил ее руками, и они сами собой начали стягивать с нее ночную рубашку. - Я понимаю это как знак согласия, - сказал он, и они не отрывались друг от друга всю ночь, согреваемые теплом камина. Этот волшебный вечер был шесть месяцев назад, до того как Дэвида неожиданно назначили главой факультета современных языков.
Ты на месте. - А-га. - Не хочешь составить мне компанию. У меня на столе пирог с сыром.