How to Price Effectively: A Guide for Managers and Entrepreneurs

by Utpal Dholakia

Pricing decisions are among the most important and impactful business decisions that a manager can make. How to Price Effectively: A Guide for Managers and Entrepreneurs introduces the value pricing framework, a structured, versatile, and comprehensive method for making good pricing decisions and executing them. The framework weaves together the latest thinking from academic research journals, proven best practices from the leading pricing experts, and ideas from other fields such as medical decision making, consumer behavior, and organizational psychology. The book discusses what a good pricing decision is, which factors you should consider when making one, the role played by each factor―costs, customer value, reference prices, and the value proposition― and how they work together, the importance of price execution, and how to evaluate the success of pricing decisions. You will also be introduced to a set of useful and straightforward tools to implement the value pricing framework, and study many examples and company case studies that illustrate its nuances. The purpose of How to Price Effectively: A Guide for Managers and Entrepreneurs is to provide you with a comprehensive, practical guide to making, executing, and evaluating pricing decisions.

Genres: Business, Nonfiction

301 pages, Paperback

Published July 5, 2017

Reviews

[Abhïshék Ghosh · Rating 5 out of 5]

A book that covers great case studies and explains concepts that may initially sound counter-intuitive very lucidly (for instance, can you price below the cost-based method and still make money?). A definite read to understand the theory of pricing models, along with following up with execution. What was most helpful, was setting objectives that went beyond just financial metrics (sales, profit margins) to customer and employee feedback, which are becoming more relevant in an age when public perception is shaped by customer reviews on Twitter and allied social networking sites!

[Maciek Wilczyński · Rating 5 out of 5]

Best value the money could buy. Especially, I bought it by accident through Kindle Unlimited. However, I wish I had paid more as it's that good.
Love the value pricing framework provided by the book. It is simple, yet well-thought. Case studies were really good. I liked the questionnaire in the end as it's actually super helpful for me.

If you're after your first 'pricing' reads, e.g. Pricing Man or Monetizing Innovation, I suggest to go for this one.

[Jacek Bartczak · Rating 4 out of 5]

If you are struggling with the question "my prices cover costs but hard to say whether should charge less or more" that book may help find the answer. "The confessions of the pricing man" impressed me more, this one seems to be more structured and provides important tips which help make a more conscious pricing decision - author covered different areas which influence or may be influenced by pricing

[Ronald J. · Rating 3 out of 5]

As the author of a few pricing books that this author would most likely criticize, I approached this book with an open mind. There are several things I enjoyed about this work. His Value Pricing Framework based on Costs, Customer Value, Reference Prices, and Value Proposition, has merit (except for the costs coming first, which is absurd--see below). I liked his four measures of pricing success: sales, profit, customer and employee satisfaction, though I'm skeptical about his willingness to merely "satisfice" these four. He understands there's a range of acceptable prices, and that prices are relative not absolute. The discussion of subscription pricing and bundling are well done. I also enjoyed the case studies: JC Penney, Starbucks, Netflix, Groupon, Indianapolis Zoo, and Pfizer Oncology's Ibrance breast cancer drug.

Now for the disagreements: he doesn't have a coherent theory of value. He doesn't even mention the Marginalist Revolution theory that all value is subjective. It's a feeling, not a number. The author believes that all value has to ben quantifiable. This, too, is absurd, and leads to many false conclusions throughout his work. Example: his mantra that costs come first and then prices. If this were true, no business would ever go bankrupt! It's easy to put a price above a cost, even with cost-plus pricing. Businesses have to fit their cost structures to the customer's sense of value, not the other way around. His example of selling cruise ship cabins two days before sail date to at least capture a bit more than marginal cost is also incorrect. They'd only do this if they want to train their customers to never book in advance! It's why hotels won't give you a break if you walk in and ask for $100 off at midnight. It's not just the price you have to worry about, but also the effect it has on future customer behavior.

He writes that cost leadership is one of the most popular business strategies. But how successful is it? The famous HBR study by the guys at Deloitte found that only a few cost leaders could be supported per industry. Most are neutral pricers, some are skim pricers.

The idea that you can sum up the features of a hotel room to quantify value is a category error. Mises pointed this out with a janitor and a chef in a (5-star) restaurant. Which is more valuable? The fact is, you can't make judgments like that since value is holistic, and great food in a place that smells like a sewer isn't valuable. It's why value is more of a feeling. But the materialist view that everything has to be quantified will always miss this essential element.

Finally, in Chapter 10 on B2B pricing the author writes: "...offer something the other party values and receiving something they consider to be of equivalent value in return." This is incorrect. All exchange is based on the inequality of the perception of value of the objects being exchanged, not their equivalence. Otherwise, we could swap $5 bills and grow the economy. I only buy something if the value to me is greater than the price I'm paying. Price is simply the way buyer and seller divide value. He also says in B2B markets it's harder to turn a brand's value into money. Really? Tell it to IBM, McKinsey, the Big 4, Wachtell Lipton, Apple, and countless others. Only people buy things, even in business markets. And humans value certain brands, risk reduction, etc. (No one ever got fired for buying IBM = Price Premium).

These are the kind of errors one makes when you start with a wrong, or incomplete, theory of value. I recommend the author read my book: Pricing on Purpose: Creating and Capturing Value, or any book by an Austrian economist.

All that said, I still enjoyed parts of the book, especially the case studies.

[Christian Pinzon Bonilla · Rating 5 out of 5]

WHAT A BOOK¡¡¡, this one belongs to my golden collection of books; managers, starters, marketing specialists etc, must read this book and put in practice all pricing strategies, pricing has become the mainly and most important issue in selling product and services, what most of us used to do?, calculating cost plus a mark up and ok, it´s ready, let´s begin to sell, and plop, we are not selling what we must to...

[Alli Bittner · Rating 4 out of 5]

Sure to become a B-school staple. Nice, systematic framework for price setting, plus some interesting and illustrative case studies to emphasize key points.

[John Coote · Rating 4 out of 5]

A good explanation of various pricing disciplines and methods. I did like the value pricing method. It’s very simple language and therefore very accessible.

[Scott Wozniak · Rating 3 out of 5]

This was a very technical book, written in a very dry manner. It wasn’t wrong but it was also very basic, especially the first half. So, if you’re starting from scratch and don’t know anything about pricing then this would be a decent starting point. But it’s not the best book on pricing I’ve read.