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Fifth dition
INTERNATIONAL EDITION
THE S TRATEGY AND
T A C T I C S O F P R I C I N G
A GUIDE TO GROWING
MORE PROFITABLY
Thom as T N agle
Monitor roup
JohnE ogan
Monitor roup
Joseph Zale
Monitor
roup
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CONTENTS
Preface 8
About the Authors 16
Chapter 1 Strategic Pricing 17
Coordinating the
Drivers
of Profitability
Cost-Plus Pricing 18
Customer-Driven Pricing 19
Share-Driven Pricing 20
Wha t sStrategic Pricing? 21
Value Crea tion 23
Price Struc ture 25
Price and Value Com munication 27
Pricing Policy 28
Price Level 29
Imp lementing the Pricing Strategy 30
Summary 31 Notes 32
Chapter 2 Value Creation 33
The Source of Pricing Advantage
The Role o f Value in Pricing 34
How to Estimate Economic Value 37
.Competitive Reference Prices 37
Estimating M one tary Value 39
M one tary Value Estimation: An Il lustration 42
Estimating Psychological Value 48
Psychological Value Estimation: An Illustra tion 48
The High Cost of Shortcuts 52
Value-Based Marke t Segm entation 54
Step 1: Determ ine Basic Segm enta tion Criteria 56
Step 2: Iden tify Discrim inating Value Drivers 57
Step 3: Determine Your Operational Constraints
and Advantages 57
Step 4: Create Primary and Secondary Segments 58
Step 5: Create Detailed Segm ent Descriptions 60
Step 6: Develop Segm ent Metrics and Fences 60
Summary 62 Notes 62
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Contents
Policies fo r Dealing w it h Power Buyers 124
Policies fo r M an ag ing Price Increases 126
Policies fo r Lead ing an Industry-W ide Increase 127
Policies fo r Transitioning fr om Low
One-Off Pricing 128
Policies for Dealing w it h an Economic D ow ntu rn 130
Pol icies fo r Prom otiona I Prici ng 131
Summary 133 Notes 133
C h a p te r 6 Price Level 134 >
Setting the Right Price for Sus tainable Profit
The Price-Setti ng Process 13 5
Defining the Price W ind ow 137
Establishing an Initia l Price Po int 139
Pricing Objectives 141
Defin ing th e Price-Volume Trade-off 145
Estimating Consumer Response 147
Com municate New Prices to th e M arke t 153
Summary 156 Notes 156
C h a p te r 7 Pr ic ing Ove r the Product L i fe Cycle 157
Adap ting Strategy in an Evolving Market
New Products and th e Product Life Cycle 157
Pricing th e Innovation fo r M arke t Introd uctio n 159
Com mun icating Value w it h Trial Promotions 160
Communica ting Value w it h Direct Sales 161
Marketing Innovations Through
D istrib ution Channels 162
Pricing New Products fo r G ro w th 162
Pricing w ith in a Differe ntiated Product Strategy 163
Pricing w it h in a Cost Leadership Strategy 164
Price Reductions in G ro w th 165
Pricing th e Established Product in M atur ity 166
Pricing a Product in M arke t Decline 169
Altern ative Strategies in Decline 170
Summary 171 Notes 172
C h a p te r 8 Pric ing St ra tegy Im plem enta t ion 174
Em bedding Strategic Pricing in the Organ ization
Organization 176
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Contents 11
Appendix 10A
De rivation of th e Break-even Formula 249
Appendix 10B
Break-even Analysis o f Price Changes 251
C h a p t e r 1 1 C o m p e t it io n 2 6
Ma naging Conflict Thoughtfully
Unde rstanding the Pricing Game 261
Com petit ive Adva ntage: The O nly
Sustainable Source of Profita bility 262
Reacting to Co m pe tition: Think Before You Act 267
Ho w Should You React? 273
M anag ing Com petit ive Inform ation 277
Collect and Evaluate Info rm atio n 277
Selectively Com mu nicate Info rm atio n 279
W he n Should You Com pete on Price? 282
Summ ary 283 Notes 283
C h a p te r 12 M eas urem ent o f Price Sens it iv ity 285
Research Techniques to Supplement Judgment
Types o f Measu rement Procedures 286
Un controlled Studies of Ac tual Purchases 287
Experimentally Controlled Studies
of Actu al Purchases 292
Un controlled Studies of Preferences and Inten tions 298
Experimentally Controlled Studies
/ of Preferences and Intentions 304
Using Mea surement Techniques Ap pro priate ly 310
Using Judg ment fo r Better Measurement 311
Using Internet-Based Techniques 313
Outside Sources o f Data 314
Selecting th e App rop riate Measurem ent Technique 315
Summary 316 Notes 317
C h a p te r 13 Eth ics and the Law 321
Understanding the Constraints on Pricing
Ethical Constraints on Pricing 321
The Legal Fram ework fo r Pricing 324
The Effect o f Sarbanes-Oxley on Pricing Practices 325
Price-Fixing or Price Encouragem ent 326
Hor izo nta l Price-Fixing 327
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12 Contents
Resale Price-Fixing or Encouragement 328
Vertical Price-Fixing 328
Direct Dea ling Programs 330
Resale Price Encouragem ent 330
Price and Prom otional Discrimination 331
Price Discrim ination 331
Defenses to Price Disc rimina tion 333
Prom otional Discrimination 334
Competitive Injury, Defenses,
an d Indirect Purchasers 335
Using Nonprice Variables to Support Pricing Goals 336
Ve rtical Nonprice Restrictions 336
Nonprice Incentives 338
Other Pricing Issues 338
Preda tory Pricing 338
Price Sign aling 338
Summary 339 Notes 339
Index 347