Price Advantage has written by Baker, Marn, Zawada. This is a book summary presentation which focused on basic concepts and new product pricing methods.

1. The Price Advantage
Mesut - 20.08.2018

3. Pinpointing the Opportunity

4. INDUSTRY STRATEGY
• Do you have a fact-based projection of
overall pricing trends in the industry for the
near, medium, and long term?
• Is that view shared across your
organization so that market pricing
behavior is consistent with those
projections? How accurate have these
projections been historically?
• Do you have a mechanism in place to
assess specific market events, such as
technological shifts, capacity additions and
reductions, changes in component and raw
material costs, and demand shifts, and
their likely impact on industry prices?
• Have you tried to lead price in your
industry upward? If so, how did you decide
when and how much? How successful were
you? Did competitors follow? Has there
been a pattern of price leadership/
followership in your industry?

5. PRODUCT/MARKET STRATEGY
• Do you research customer attitudes in
detail or rely on hunches and anecdotes
from the sales force? Has the research led
to an understanding of customer segments
and of what attributes each segment
values most, how each segment compares
to others, and how each grades the
available products against the attributes it
desires most? Has your company changed
prices recently based on this
understanding?
• Do you collect and synthesize competitive
price data routinely, both in situations
where you won business and lost?
• Have you pinpointed the premium or
discount that is justified in relation to
competitors’ prices? Do you understand
how this varies by customer segment, and
is this reflected in price levels and
structure?

6. TRANSACTION
• Do you monitor price performance for each
transaction, including all discounts,
allowances, rebates, and other incentives,
whether or not they are reflected on the
invoice? Are these price performance
metrics at an aggregate level or can they
also be viewed by transaction, customer, or
segment?
• Do you understand how widely net realized
prices vary? Do you know which customers
or segments regularly pay the highest and
lowest net prices? Are there programs in
place to attract more of the best and to fix
or drop the worst?
• Have you clearly defined and limited
discounting authority, and are the rules
rigorously enforced?
• Do your sales and marketing forces have
incentives, monetary or otherwise, to
stretch for higher transaction prices?

7. Pocket Discount

8. Pocket Price/Margin Waterfall

11. Value Map

14. THREE TYPES OF BENEFITS
1. Functional benefits relate to the physical nature or
performance of the product. These can be, for example,
processor speed for a computer, flow rate for a pump,
purity of a chemical or metal alloy, or the acceleration of a
sports car. Since this category of benefits is the easiest to
measure and compare against competitors, it is often the
first—and too often the only—category considered.
2. Process benefits are those that make transactions
between buyers and sellers easier, quicker, more efficient,
or even more pleasant. Examples of these include ease of
access to product information; automated restocking or
re-ordering systems; and online or electronic data
interchange (EDI) payment options. In some markets,
process benefits can provide more of the net benefits
delivered than functional benefits, especially when they
are the benefits that differentiate suppliers.
3. Relationship benefits are those that accrue to the
customer from entering into a mutually beneficial
relationship with the seller. They include both softer
relationship benefits like a customer’s emotional
connection to a brand or personalized service, as well as
more tangible relationship benefits like differentiated
loyalty rewards or exchanges of information that provides
benefits to both customer and supplier. In many markets,
these relationship benefits are becoming increasingly
powerful drivers of actual buying behavior.

15. Changes in Value Map

18. Change and Price Wars

20. GETTING OUT OF PRICE WARS
1. First, seek long-term contracts with key
customers. If at all possible, try to get your
major customers out of the crossfire of a price
war by signing them up early to extended supply
contracts. This, of course, is hard to do once
your customers realize there is a price war
raging. Such contracts also allow prudent
suppliers an extended opportunity to
demonstrate benefit superiority to key
customers and to create a sustainable barrier to
future price incursions by competitors.
2. As a last resort, actively engage the enemy with
a tit-for-tat strategy. Whenever your
competitor makes an aggressive price move,
immediately and publicly match it. If your rival
steals one of your biggest customers,
immediately go after one of its major customers
in the same market. The point is to demonstrate
that price aggression is a no-win proposition.
You want to make it crystal clear that you will
match your competitor’s every move. Similarly,
you should immediately act in kind to support
any return to rational price behavior by that
competitor, so that it knows there is no risk
attached to more responsible pricing behavior.

21. Lifecycle Pricing

24. “Test new pricing
options with the
advantage of
distributed channels.”

25. New Product Pricing

27. Suggestions for New Product Pricing
1. Invest in customer research to quantify your product’s benefit level.
2. Run pilots with cooperative customers.
3. Delay setting/communicating price until the benefit level is clear.
4. Target launch price levels to “best fit” segments.
5. Help potential customers by articulating/quantifying new benefit levels.
(I.e. “a 15-watt compact fluorescent light bulb gives off the same light as a 60-watt incandescent
bulb”, “compact fluorescent saves the user $10 per year in energy costs”)
6. Limit discretionary discounting early, particularly on high-benefit
offerings. (a higher-priced new product will really deliver on its claimed superior benefits)
7. Do not forget to consider lifecycle pricing.

28. Appendix