Smart Pricing: New Ideas on an Old Problem

Very few of us do a good job setting prices. I have seen several companies, large and small, set prices, and it's not nearly as rational and analytic as it should be. And when it is rational and analytic, the process is usually too narrow, ignoring several important issues.

A good step forward in thinking about pricing is the new book, Smart Pricing, by Jaqmohan Raju and Z. John Zhang. The blog Knowledge@Wharton has an interview with Raju and Zhang.

The book has two key values. First, it offers a list of major pricing strategies. Managers often get so used to doing things one way that they don't reconsider whether they are using the right method. Smart Pricing is a guide to strategies that every business should consider.

The second value is that the book occassionally shakes up one's thinking. That's especially true (at least for me) of the chapter on price wars. I have advised clients not to engage in a price war. Raju and Zhang explain why my blanket advice is wrong. There are times when a price war is the right strategy. Certainly there are many more times when it is the wrong strategy, but it's a tool that should be in every manager's toolkit.

Step One for managers with the worry that maybe their pricing strategy is not the best possible: think about it, considering a wider range of options than you have discussed in the past. You should also consider bringing in a consultant (hint, hint) to help broaden your thinking.