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Pricing as a strategic capability

Pricing as a strategic capability






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  • Pricing isn’t mere tactics; its’ a strategic capability!

Pricing as a strategic capability Pricing as a strategic capability Presentation Transcript

  • Pricing as aStrategic Capability
    S. Dutta (Marshall, Univ. of Southern California),M.Bergen (Carlson, Univ. of Minnesota),D.Levy (Bar-Ilan University, Israel),M.Ritson (London Business School),M.Zbaracki (Wharton, Univ. of Pennsylvania)
    Rotman School of Management
  • How is it a Capability ?
    Companies can invest to build capability of routinely setting prices that fit with:
    its positioning,
    its customers,
    its suppliers and
    evolving market conditions
    If not investing, capability becomes liability with:
    angry customers &
    competition seizing the opportunity
    Rotman School of Management
  • So where exactly do we invest ?
    Invest in the 3 corners of our organization:
    Human Capital
    Systems Capital
    Social Capital
    Leads to *ORGANIZATIONAL CAPABILITY* of always pricing correctly!
    Competitors find this is hard to copy -> so we have now strengthened our Sustainable Competitive Advantage!
    Rotman School of Management
  • Example: Polaroid
    source: Giorgio Verdiani on Flickr
    Rotman School of Management
  • Example: Polaroid vs. Fuji & Kodak
    Depended on razors & blades model
    Failed to fit digital technology in that model
    Pricing capability could no longer support its strategy
    source: Giorgio Verdiani on Flickr
    Rotman School of Management
  • Example: Sun Country Airlines
    source: Bill Shemley on Flickr
    Rotman School of Management
  • Example: Sun Country vs. North West
    Pricing based on immediate demand
    Skimming strategy but NW had different goals, costs, needs
    No investment on organizational glue & on pricing capability
    source: Bill Shemley
    Rotman School of Management
  • Example: Roche
    source: Greg Wake on Flickr
    Rotman School of Management
  • Example: Roche
    Human Capital: hiring pricing experts
    Systems Capital: internal center of learning + new software systems
    Social Capital: involve various departments to reduce conflict & build consensus
    source: Greg Wake on Flickr
    Rotman School of Management
  • Human Capital
    Understand the company in all its complexities i.e. strategy, range of products/services, customers, suppliers, competitors
    Train internal staff to increase pricing expertise e.g. Roche Marketing University
    Package to help negotiate a good deal
    Info on co.s’ net profit before taxes, fixed costs, variable costs & freight expenses  immensely helps sales people
    Hire the talent with sophisticated pricing knowledge
    Rotman School of Management
  • “ Companies that don’t have people who deeply understand dynamic pricing, auction theory, bundling, game theory, and so on, are going to be involved in a daily game of catch-up with rivals who have invested in human capital. ”
    Rotman School of Management
  • Systems Capital
    Sears: Absence of infrastructure to set prices differently for different stores  inflexible in responding to competitors market by market  lagged behind the curve on pricing.
    Electronic Pricing
    Tools to tracking customer purchase history, price-sensitivity and category management systems to improve profitability
    Tools to relay prices to salespeople in the field with real-time comparison to competitor prices
    Human Capital & Systems Capital reinforce each other
    Rotman School of Management
  • Social Capital
    is the “internal glue” that coordinates & holds participants in the pricing process. Hard to build and hard to copy!
    Build teams:
    to not over-focus on the changing pricing process
    anticipate consumer reactions by involving lead users
    conduct market research &
    analyze reactions to previous price changes
    Helps to prevent a meltdown of customer relationships
    Rotman School of Management
  • “ Most CEOs will never set a single price. They can, however, give their managers the ability to win price wars, maintain price leadership, and hold a competitive edge in pricing. ”
    Rotman School of Management