I have always been absolutely fascinated by the study of pricing, and its effects on buying behavior.
If you're new to the study of pricing, I highly recommend this book, which is a sort of hybrid between college text and leisurely read, that highlights the marvelous joy of of pricing.
What may surprise a lot of people is pricing is often less about numbers, and more about psychology. Oh yes, it's true that elements such as cost, markup and profit must be considered, more time than not, pricing is about what consumers will pay, versus what they should pay.
Simon cleverly names his book, which makes it seem very similar to David Ogilvy's Confessions of an Advertising Man to people in the industry. Simon has been a "pricing man" his entire life, from the time he sold his family's farm goods at the local farmer's market, to his days at global management consulting firm, Simon-Kucher & Partners, a firm that bears his name for obvious reasons.
While watching Simon speak can be a bit of a chore given his THICK German accent, reading him is a total pleasure and joy as he effortlessly tackles leading companies and how their pricing strategies has saturated them in black.
- How does IKEA manage to keep their prices so low, and can that approach work for you too?
- Why did General Motors REALLY go bankrupt, and what does that mean for you?
- What would produce more profit, Coca-Cola raising the price of their vending machine Colas on hot days, or cold days?
I'll give you a hint, people will buy twice as much of something moderately priced on a hot day, which would earn more profit as a result of people buying less of an expensive Cola on a hot day.
One of my favorite features of this book was Simon telling stories of his firm's huge successes, especially in the area of the public transportation industry where they basically invented the idea of season passes to increase profits.
Another delightful story was how the one time failing Olympics used all sorts of novelty pricing to attract more attention for the games, while uniformly pricing events no matter how much demand there was to see them. After all, don't people tend to value something lower in price as lower in value?
From this book, you'll get great introductory, and at times advanced, knowledge into all aspects of pricing, such as how to leverage anchor pricing, and how to build a luxury brand that people will pay a premium price for (HINT: NEVER offer discounts).
The biggest takeaway from this book from all of Simon's studies and experiences is the fact that most companies strive to increase operational efficiencies, marketing budgets and customer relations simply to increase revenue.
However, Simon warns against this because all that really matters is profit, and a simple 1% increase in price can easily have a larger impact on profit than anything else. After all, if your markup is 4%, a 1% increase in price is a 25% increase in profit!
Treat yourself to a long night, big cigar and warm cup of coffee, and this book is the perfect companion. Enjoy!
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