Pricing Done Right

Pricing Done Right provides a cutting-edge framework for value-based pricing and clear guidance on ideation, implementation, and execution. More action plan than primer, this book introduces a holistic strategy for ensuring on-target pricing by shifting the conversation from 'What is value-based pricing?' to 'How can we ensure that our pricing reflects our goals?' You'll learn to identify the decisions that must be managed, how to manage them, and who should make them, as illustrated by real-world case studies. The key success factor is to build a pricing organization within your organization; this reveals the relationships between pricing decisions, how they affect each other, and what the ultimate effects might be. With this deep-level insight, you are better able to decide where your organization needs to go.

Pricing needs to be done right, and pricing decisions have to be made—but are you sure that you're leaving these decisions to the right people? Few managers are confident that their prices accurately reflect the cost and value of their product, and this uncertainty leaves money on the table. This book provides a practical template for better pricing strategies, methods, roles, and decisions, with a concrete roadmap through execution.

• Identify the right questions for pricing analyses
• Improve your pricing strategy and decision making process
• Understand roles, accountability, and value-based pricing
• Restructure perspectives to help pricing reflect your organization's goals

The critical link between pricing and corporate strategy must be reflected in the decision making process. Pricing Done Right provides the blueprint for more accurate pricing, with expert guidance throughout the change process.

Preface xi

Acknowledgments xvii

Chapter 1 The Value-Based Pricing Framework for Getting Pricing Done Right 1

Embedding the Culture of Value-Based Pricing 3

Overarching Pricing Decision Areas 3

Analytical Routines 7

Decision Teams 8

Chapter 2 Value‐Based Pricing 11

The Purpose of Firms: Serve Customer Needs Profitably 11

Value Engineering 15

Value‐Based Pricing 17

Differential Benefits 20

Differential Price 26

Exchange Value to Customer 28

Design Costs against Price to Profit 32

References 34

Chapter 3 Business Strategy Alignment 35

Business Strategy 36

Customers 39

Competitors 47

Company 51

References 53

Chapter 4 Pricing Strategy 55

Price Positioning 56

Price Segmentation 62

Competitive Price Reaction Strategy 65

Pricing Capability 74

References 76

Chapter 5 Price Management 79

Market Pricing 82

Price Variance Policy 87

Price Execution 92

Pricing Analysis 95

Chapter 6 Defining the Pricing Decision Team 99

Marketing 103

Sales 107

Finance 112

Pricing 114

References 116

Chapter 7 Pricing Continuous Improvement and Analytics 119

Continuous Improvement Process 120

Offering Innovation and Pricing Decisions 123

Price Variance Policy Continuous Improvement 131

Market Pricing Continuous Improvement 135

References 138

Chapter 8 Organizational Design of the Pricing Specialist Function 139

Pricing Community Distribution 140

Pricing Reporting Structure 143

Pricing Talent 145

References 153

Chapter 9 A Decision You Control 155

References 157

Appendix A: Economic Origins of Competitive Advantage 159

Appendix B: Getting Pricing Done with Jesse Finch Gnehm of GE Oil & Gas 163

The Value‐Based Pricing Journey 163

Context of Subsea Systems within GE 165

Pricing Community Cultivation 166

Focal Contributions of the Pricing Experts 167

Pricing Framework 169

Pricing Analysis Techniques 171

Price Automation and Analytical Tools 172

External Resources 172

Appendix C: Getting Pricing Done with Robert Smith of Eastman Chemical Company 175

Pricing Organizational Design 176

Pricing Mission 178

Pricing Functional Architecture 180

About the Author 181

Index 183

TIM J. SMITH, PHD, is the founder and CEO of Wiglaf Pricing, where he helps executives manage price better. Also an adjunct professor of marketing at DePaul University, he began his career as a research scientist in quantum mechanics before pursuing business strategy. He is the author of Pricing Strategy and Hawks, Seagulls, and Mice.

If you're frustrated by how products get priced at your company, chances are your price management process lacks connectivity and informed input on a broad level. You need to upgrade your procedures so pricing decisions aren't continually made by the CEO arbitrating between department heads. Pricing Done Right shows you how the world's most profitable companies have optimized their pricing processes with the value-based pricing framework detailed inside.

From the industry-influencing author of Pricing Strategy, this value-based approach to pricing rewrites the rules on what is possible when an organization gets serious about ensuring that its pricing is accurate and continually reflects its corporate goals. Based on industry-proven best practices and supported by academic literature, the methodology provides solutions to key issues challenging today's executives and managers, including identifying what decisions need to be managed, how to manage those decisions, and all the ways different decisions relate to each other. The end result of this robust and easy-to-use framework is a solid pricing organization within your company that can reveal the relationships between pricing decisions, including how they affect each other and the pros and cons of possible outcomes. This complete guide not only takes you through developing a value-based pricing system but also offers support for transitioning your organization with:

• Firsthand insight into the practical challenges and benefits of the framework from thorough examinations into the practices of leading senior executives
• Privileged access to real-world case studies from such companies as Southwest Airlines, Piaggio SpA, and Unisource Worldwide
• One-on-one interviews on pricing done right with the director of corporate pricing at Eastman Chemical Company and the global pricing leader at GE Oil & Gas Subsea Systems

Whether you work for a large corporation with many complexities and decision makers or a startup that needs to get it right the first time, Pricing Done Right is the blueprint for pricing like the best in the business.

If you're frustrated by how products get priced at your company, chances are your price management process lacks connectivity and informed input on a broad level. You need to upgrade your procedures so pricing decisions aren't continually made by the CEO arbitrating between department heads. Pricing Done Right shows you how the world's most profitable companies have optimized their pricing processes with the value-based pricing framework detailed inside.

From the industry-influencing author of Pricing Strategy, this value-based approach to pricing rewrites the rules on what is possible when an organization gets serious about ensuring that its pricing is accurate and continually reflects its corporate goals. Based on industry-proven best practices and supported by academic literature, the methodology provides solutions to key issues challenging today's executives and managers, including identifying what decisions need to be managed, how to manage those decisions, and all the ways different decisions relate to each other. The end result of this robust and easy-to-use framework is a solid pricing organization within your company that can reveal the relationships between pricing decisions, including how they affect each other and the pros and cons of possible outcomes. This complete guide not only takes you through developing a value-based pricing system but also offers support for transitioning your organization with:

• Firsthand insight into the practical challenges and benefits of the framework from thorough examinations into the practices of leading senior executives
• Privileged access to real-world case studies from such companies as Southwest Airlines, Piaggio SpA, and Unisource Worldwide
• One-on-one interviews on pricing done right with the director of corporate pricing at Eastman Chemical Company and the global pricing leader at GE Oil & Gas Subsea Systems

Whether you work for a large corporation with many complexities and decision makers or a startup that needs to get it right the first time, Pricing Done Right is the blueprint for pricing like the best in the business.