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Price Management: Strategy, Analysis, Decision, Implementation
Abstract
In this book, the world’s foremost experts on pricing integrate theoretical rigor and practical application to present a comprehensive resource that covers all areas of the field. This volume brings together quantitative and qualitative approaches and highlights the most current innovations in theory and practice.
Going beyond the traditional constraints of “price theory” and “price policy,” the authors coined the term “price management” to represent a holistic approach to pricing strategy and tactical implementation. They remind us that the Ancient Romans used one word, pretium, to mean both price and value. This is the fundamental philosophy that drives successful price management where producer and customer meet.
Featuring dozens of examples and case studies drawn from their extensive research, consulting, and teaching around the world, Simon and Fassnacht cover all aspects of pricing following the price management process with its four phases: strategy, analysis, decision, and implementation. Thereby, the authors take into account the nuances across industry sectors, including consumer goods, industrial products, services, and trade/distribution. In particular, they address the implications of technological advancements, such as the Internet and new measurement and sensor technologies that have led to a wealth of price management innovations, such as flat rates, freemium, pay-per-use, or pay-what-you-want. They also address the emergence of new price metrics, Big Data applications, two-sided price systems, negative prices, and the sharing economy, as well as emerging payment systems such as bitcoin.
The result is a “bible” for leaders who recognize that price is not only a means to drive profit in the short term, but a tool to generate sustained growth in shareholder value over the longer term, and a primer for researchers, instructors, and students alike.
... This finding supports the work of Rao and Bergen (1992), who highlight that price competition can be an effective strategy in highly competitive markets. However, it contrasts with the perspectives of Simon and Fassnacht (2019), who caution that frequent price reductions can erode brand value and lead to price wars. Fourthly, the statement "The company uses operating costs to vary the prices from time to time" has a mean score of 3.7654, which indicates that respondents agree with the assertion that operating costs influence pricing variability. ...
Pricing strategies are critical determinants of a company's market share, profitability, and overall competitive advantage. This study explores the impact of various pricing strategies on the brand performance of Safaricom Ltd, Kenya's leading mobile phone operator. The research aims to understand how differential, competitive, and value-based pricing strategies influence brand performance. A descriptive research design was employed, integrating both qualitative and quantitative methods. Data were collected using structured questionnaires from a sample of 219 respondents out of a target population of 430 management staff at Safaricom's head offices in Nairobi. The findings indicate that Safaricom's strategic approach to pricing significantly enhances its market dominance and brand loyalty. Specifically, the company’s focus on cost standards, competitive pricing, and periodic price adjustments based on operating costs has strengthened its brand perception and customer satisfaction. The study concludes that aligning pricing strategies with customer value perception is essential for sustaining high brandperformance. Recommendations include developing flexible pricing strategies tailored to specific market segments, continuous assessment of pricing strategies in response to market dynamics, and further research on the long-term effects of pricing strategies on brand performance in other sectors and regions.
... Given the complexity of pricing, academics and pricing professionals differentiate the development of particular stages or the whole process across firms and categories (Simon and Fassnacht, 2019;Frohmann, 2023). Especially at the price implementation stage, AI technology can support a set of different price functions. ...
Artificial Intelligence (AI) in the price management process is being applied in business practice and research to a variety of pricing use cases that can be augmented or automated, providing opportunities as a forecasting tool or for price optimization. However, the complexity of evaluating the technology to prioritize implementation is challenging, especially for small and medium enterprises (SMEs), and guidance is sparse. Which are the relevant stakeholder criteria for a sustainable implementation of AI for pricing purpose? Which type of AI supported price functions meet these criteria best? Theoretically motivated by the hedonic price theory and advances in AI research, we identify nine criteria and eight AI supported price functions (AISPF). A multiple attribute decision model (MADM) using the fuzzy Best Worst Method (BWM) and fuzzy combined compromise solution (CoCoSo) is set up and evaluated by pricing experts from Germany and Spain. To validate our results and model stability, we carried out several random sensitivity analyses based on the weight of criteria exchange. The results suggest accuracy and reliability as the most prominent attribute to evaluate AISPF, while ethical and sustainable criteria are sorted as least important. The AISPF which best meet the criteria are financial prices followed by procurement prices.
... Price is a critical marketing mix variable affecting sales and profits (Gaur & Fisher, 2009;Rao, 2023;Simon & Fassnacht, 2019). Although consumers only pay the actual price of a product at checkout, the transaction price usually consists of a regular price 1 and a temporary discount (Guadagni & Little, 1983). ...
Regular prices and temporary discounts are important elements for retailers’ and brands’ pricing decisions. These two variables need to be considered separately because consumer sensitivities to their changes typically differ. Although the scope and richness of retail datasets have grown rapidly in recent years, most of them only record actual prices paid by customers and lack direct information about regular prices and discounts. A systematic review involving close to five hundred publications that investigated pricing variables using retail scanner data confirms this, as 63% of them only observed actual prices. To solve this missing data problem, these studies often adopted heuristics to decompose actual prices into regular prices and discount depths. However, there are many such heuristics and their accuracies have not been assessed. This research introduces DEPART, a new machine learning approach based on regression trees with a publicly available R package and benchmarks it against previously used heuristics in two different datasets. The results show that on average the proposed method outperforms previously used heuristics by 26.5% or more. Additional analyses illustrate the potential economic benefits of adopting DEPART to improve pricing decisions.
The seventeenth chapter deals with digital marketing and electronic commerce. First, the development of the digital marketing strategy is presented, and the components of the digital marketing mix are defined. The components of the digital marketing mix are each explained and illustrated using case studies in the context of digital business. The multichannel marketing process is presented, and the phases of this process are explained. Chapter 17 concludes with an explanation of customer relationship management and the presentation of individual CRM tools.
Active price management is a central and strategic marketing instrument. It involves actively designing, steering, and developing prices. Price changes have an immediate effect and are immediately reflected in the company’s demand, sales, and profit. While the other instrumental areas create value (value creation), price captures the value of a product or service (value capture).
Generally, static and dynamic price management strategies are distinguished.
We examine the myopic price changes based on the inverse elasticity pricing rule for a multiproduct firm. By myopic, we mean ignoring that elasticity likely changes with price and that marginal cost likely changes with quantity. Unlike with a single product firm, constant demand elasticities and marginal cost do not cause the inverse elasticity rule to yield the profit-maximizing price change. The price change will be too large if the related products are complements which are relatively inelastic and too small otherwise. Importantly, whether non-constant marginal cost causes too large or too small, a price change is independent of whether the related products are substitutes or complements. Increasing marginal costs always causes too large an increase and decreasing marginal costs always causes too small an increase. While not providing a full characterization, we partially identify the net effects of allowing elasticities, cross-price elasticities, and marginal cost to be non-constant.
Strategi pemasok atau yang disebut dengan Supply Chain Management muncul dilatarbelakangi oleh dua hal penting yaitu : (1) praktik manajemen logistik tradisional tidak relevan lagi diterapkan di zaman modern saat ini dikarenakan tidak dapat menciptakan keunggulan kompetitif; (2) disrupsi lingkungan bisnis dan persaingan yang semakin ketat. Dalam menghadapi ketatnya persaingan bisnis di era globalisasi berbasis digital saat ini, setiap perusahaan dituntut untuk dapat berevolusi dengan merancang kembali strategi dan taktik bisnisnya. Persaingan ini meliputi kemampuan perusahaan dalam menciptakan produk baik barang dan jasa yang lebih murah, lebih cepat, lebih berkualitas, dan bervariasi dibandingkan dengan kompetitornya. Namun, tingkat kepentingan untuk masing-masing tujuan tersebut tidak sama untuk tiap jenis produk dan segmen pelanggan. Strategi rantai pasokan perusahaan harus sesuai dengan tingkat strategi perusahaannya agar dapat berkontribusi dalam mencapai tujuan organisasi atau dengan kata lain perusahaan yang ingin menang atau bertahan dalam ketatnya persaingan harus memiliki strategi yang tepat.
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