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The Price Advantage, 2nd Edition



The Price Advantage, 2nd Edition

Walter L. Baker, Michael V. Marn, Craig C. Zawada

ISBN: 978-0-470-63300-7 July 2010 384 Pages

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A comprehensive look at creating pricing strategies that work in both good economic times and bad

Written by three preeminent pricing experts at McKinsey & Company, the Second Edition of The Price Advantage is a practical pricing guide for the executive or pricing practitioner who wants to identify, capture, and sustain substantial pricing gains in their business.

Pricing is by far the most powerful profit lever that managers can influence. Yet few companies approach pricing in a way that fully capitalizes on its value. This Second Edition, a major revision and extension of the first book, shows you what it takes to achieve the price advantage in today's competitive and complex business environments. Based on in-depth, first-hand experience with thousands of companies, this book provides managers with a pragmatic guide through the maze of pricing issues. It reinforces why pricing excellence is more critical than ever today and then explains state-of-the-art approaches to analyzing and improving your own pricing strategy and execution.

  • Explores the fundamental role of pricing infrastructure in achieving the price advantage
  • Includes new topics such as software and information products pricing, lifecycle pricing, custom-configured products pricing, pricing of high-count product lines, pricing in distributed sales environments, "razor/razor blades" pricing, and tiered products and services pricing
  • Revisits the full range of classic McKinsey pricing tools, including the pocket price waterfall and value maps

Engaging and informative, the Second Edition of The Price Advantage will put this essential discipline in perspective.



PART ONE: Pricing Fundamentals.

CHAPTER 1: Introduction.

The Power of 1 Percent.

The Price/Volume Tradeoff.

Market Forces Add Pressure.

The Nobility of Pricing Excellence.

Why the Price Advantage Is So Rare.

CHAPTER 2: Components of Pricing Excellence.

An Integrated Approach.

An Interdependent Hierarchy.

Applying to Your Company—Pinpointing the Opportunity.

PART TWO: Exploring the Levels.

CHAPTER 3: Transactions.

The Pocket Price Waterfall.

The Pocket Price Band.

The Soundco Radio Company Case.

Pocket Margin Waterfall and Band.

Alen Glass Company Case.

CHAPTER 4: Customer Value.

Mapping Value.

Creating a Value Map.

Making Moves on the Value Map.

Putting Customers on the Value Map.

Value Profiling.

CHAPTER 5: Market Strategy.

Profiting from Better Price Predictions.

Planning for an Expected Price Change.

Maintaining Optimal Production and Capacity.

Improving Pricing Conduct.

Influencing the Elements of Pricing Conduct.

A Word on Followership.

CHAPTER 6: Pricing Infrastructure.

Processes—What Are the Most Critical Types of Pricing Decisions for Your Business?

Organization—Who Is Running the Pricing Profit Center?

Performance Management—How Should We Recognize and Reward Pricing Performance?

Systems and Tools—No Magic Bullet Exists.

PART THREE: Unique Events.

CHAPTER 7: Postmerger Pricing.

A Temporary Window of Opportunity.

Tremendous Opportunities at Each Pricing Level.

Avoiding Common Postmerger Traps.

Antitrust Laws.

CHAPTER 8: Price Wars.

Why Price Wars Should Be Avoided.

What Really Causes Price Wars.

Staying Out of Price Wars.

Getting Out of Price Wars.

When a Price War Might Make Sense.

PART FOUR: Expanding the Boundaries.

CHAPTER 9: Legal Degrees of Freedom.

Pricing Decisions That Raise Red Flags.

Minimizing Risks While Meeting Pricing Objectives.

Calling in the Attorneys.

CHAPTER 10: Lifecycle Pricing.

What Makes Lifecycle Pricing Tough.

The Three Phases of Product Lifecycle Pricing.

Sustaining Returns Across the Lifecycle.

CHAPTER 11: Pricing Architecture.

Managing Price Perception.

Influencing Customer Behavior.

Price Architecture Based on Supplier Role.

PART FIVE: Advanced Topics.

CHAPTER 12: Complexity Management.

Section One: Custom-Configured Products.

Section Two: High-Count Product Lines.

Section Three: Distributed Sales Models.

CHAPTER 13: Tailored Value.

Section One: Price Segmentation.

Section Two: Tiered Products and Services.

Section Three: New Products.

Section Four: "Razor/Razor Blades" Offerings.

Section Five: Solutions.

CHAPTER 14: Software and Information Products.

Unique Characteristics That Impact Pricing.

Exploring the Elements of Pricing.

PART SIX: Making Change Happen.

CHAPTER 15: Pricing Transformation.

Designing a Clear Change Program.

Accelerating and Embedding Change.

CHAPTER 16: The Monnarch Battery Case.

The Monnarch Battery Company.


Customer Value.

Market Strategy.

Capturing the Monnarch Pricing Opportunity.

Hard-Wiring the Change.


APPENDIX 1: Pocket Price and Pocket Margin Waterfalls.

APPENDIX 2: Antitrust Issues.

U.S. Pricing Law.

EU Pricing Law.

Antitrust Information Sources.

APPENDIX 3: List of Acronyms and Abbreviations.

APPENDIX 4: About the Web-Based Tool: Periscope.

About the Authors.