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Managing price, gaining profit.

M V Marn, R L Rosiello

    Harvard Business Review
    |August 6, 1992
    PubMed
    Summary
    This summary is machine-generated.

    Mastering pricing strategy is key to maximizing company profits. Understanding the pocket price waterfall and pocket price band helps businesses control pricing and capture untapped profit potential.

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    Area of Science:

    • Business Strategy
    • Pricing Analytics
    • Profit Maximization

    Background:

    • Effective pricing is crucial for maximizing company profits, often more so than increasing sales volume.
    • Many managers avoid pricing decisions due to fear of customer alienation, leading to missed profit opportunities.
    • Uncontrolled pricing policies can result in customers exploiting pricing structures to their advantage.

    Purpose of the Study:

    • To demonstrate how managers can gain control over pricing strategies.
    • To introduce methods for capturing untapped profit potential.
    • To provide tools for analyzing and optimizing pricing structures.

    Main Methods:

    • Introduction of the pocket price waterfall concept to track price erosion from invoice to transaction price.

    Related Experiment Videos

  • Utilizing the pocket price band to analyze the range of transaction prices for a product.
  • Analysis of discounts, bonuses, and incentives that reduce realized prices.

    • Main Results:

    • The pocket price waterfall illustrates how discounts and incentives reduce the final amount received from customers.
    • Pocket price bands can be excessively wide, with some ranging up to 500% for certain products.
    • Analysis reveals opportunities to identify and address unnecessary discounting and inefficient marketing efforts.

    Conclusions:

    • Managers can leverage pocket price waterfalls and bands to identify pricing inefficiencies.
    • Addressing issues like unnecessary discounting and low-performance accounts can be simple and cost-effective.
    • Gaining control over pricing leads to significant improvements in profit potential.