For Business

Talking to Your Customers About Prices

Harvard Business Review

Companies often have difficulty talking with customers about prices, because price is often an obstacle to a sale. That leads some companies to use pricing tricks that conceal the true cost or otherwise mislead customers. That’s a mistake. This article offers guidelines companies should follow as they rethink pricing strategies, particularly in a time of high inflation.

Can We Afford Sustainable Business?

MIT Sloan Management Review
Companies have struggled with the economics of making sustainable products both affordable and profitable, but that’s because they aren’t asking the right questions. Rethinking what customers are paying for, who is paying, and how and when the payment occurs can increase access to not only green products, but also health care and education. The authors suggest ways businesses can adjust the price mechanism to meet their commitments to improving sustainability and reducing inequity.

The Pitfalls of Pricing Algorithms

Harvard Business Review
More and more companies are relying on pricing algorithms to maximize profits. The use of artificial intelligence and machine learning enables real-time price adjustments based on supply and demand, competitors’ activities, delivery schedules, and so forth. But constant price shifts have a downside: They may trigger unfavorable perceptions of a firm’s offerings and its brand. It’s vital, therefore, to understand and manage the signals being sent by the algorithms. The authors offer real-world examples of companies that have succeeded in this endeavor and others that have not. And they recommend four steps to avoid harm: Determine an appropriate use case for algorithmic pricing and explain its benefits to customers; designate an owner to supervise and be accountable for the system; set and monitor guardrails, both to protect against wild surges and to learn how price changes affect all aspects of the organization; and override the algorithms when necessary.

Competing on Customer Outcomes

MIT Sloan Management Review

Customers ultimately want to pay for meaningful outcomes, not the products and services that presumably deliver them. Today, companies can be increasingly accountable for those outcomes with three kinds of technologically-enhanced revenue models. Adopt one to better align your company’s success with your customers’ satisfaction.

A Novel Architecture to Monetize Digital Offerings

Journal of Revenue and Pricing Management

As commerce continues to shift to the digital domain, organizations respond by improving and evolving their approach to creating value for customers. When the time comes to convert digital anything into cash they can bank, the same organizations, however, seem stuck in time. The purpose of the article is to highlight this inconsistency and, importantly, propose a solution. First, we leverage the literature on freemium and participative pricing mechanisms to lay the foundations for a revenue architecture fit for the digital economy. We argue in favour of three building blocks: empowerment, dialog, and reputation. Second, we describe FairPay as a promising configuration of these factors.

When it’s Time to Expand Beyond the Base

Harvard Business Review

The new CMO of an extreme-race company is on the hook to come up with a way to further monetize the underexploited brand while also fixing customer pain points related to the registration process. She and the COO propose a premium membership that allows die-hard fans to buy early access to race registration, but tests on social media reveal strong animosity toward the program among some racers. Should the company pull the plug or move forward, potentially upsetting the company’s most loyal customers? This fictional case study features expert commentary by Michael Bolingbroke and Huib van Bockel.

Put the Customers’ Money Where Your Mouth is

Dear CEO: 50 Personal Letters from the World’s Leading Business Thinkers

Most enterprises strive to understand their customers and organise to deliver meaningful solutions. Market orientation as a management philosophy is excellent, yet even the most customer-loving ventures fail to take the logic full circle. When it comes to making money from the value they work hard to create, businesses often revert to old habits and, rather than taking a hard look at customers, they take a hard look at what they sell. This is clearly inefficient and, given today’s technology, likely a dangerous omission.

Can One Business Unit Have Two Revenue Models?

Harvard Business Review

Peter Noll, a pharmaceutical company division chief, ponders the varying business models of two units that have just merged. Both have for years employed flexible, inventive strategies to good effect, but Noll is inclined to impose a single model on the combined entity. The two unit heads, however, make compelling arguments for being left to do their business as usual. What choice should Noll make? Expert commentary comes from Bodo Eickhoff, of Roche Diagnostics Deutschland, and Eric Achtmann, a tech investor and corporate adviser to Costa Coffee.

Price Wars and The Managers Who Start Them

Business Strategy Review

Price wars are a fact of business life. While customers relish the opportunity to save some money for most companies they are an unwelcome, often unwarranted hazard that is best avoided. Yet, despite the apparent downside for business, intensive price competition is surprisingly common. So what is going on? Who exactly is to blame? Research by Marco Bertini sheds new light on their instigators.

When Customers Help Set Prices

MIT Sloan Management Review

To many managers, the idea of involving customers in pricing decisions seems counterproductive. For most companies, pricing is a sensitive, private affair. But it may be time to re-examine those ideas. Letting customers have input on prices provides opportunities for customization and can promote greater customer engagement. Opening up customer participation also offers a way for companies to create a new sense of excitement.

The Right Price, at The Right Moment, to the Right Customer

Business Strategy Review

Every company has to put a price on what it sells, but Tim Ham and Marco Bertini have found that most companies often fail at this important task in a manner that jeopardises long‐term value. And, there are surprisingly large rewards for those companies that invest in even the simplest of price optimisation techniques.

The Price of Olympic Success

Business Strategy Review

Pricing almost eight million tickets for the 2012 London Olympic Games was a hugely complex challenge. How could those in charge of the Olympics, billed as ‘Everybody’s Games’, juggle the clashing objectives of the event’s many stakeholders? Marco Bertini spoke with Stuart Crainer about the challenge of Olympic ticketing and what it reveals about setting the price of all goods in the future, especially given today’s savvy consumers and the new technologies that are changing the way business is done.

Pricing to Create Shared Value

Harvard Business Review

Many companies are in competition with their customers to extract as much value as possible from every transaction. Pricing is their weapon of choice, and consumers fight back by rooting out and disseminating pricing policies that seem unfair. The problem is that companies generally think of value as a pie that is rightfully theirs. But value is not fixed, and it neither originates with nor belongs solely to the firm. Without a willing customer, there is no value. Instead of using pricing in a way that turns customers into adversaries, companies can use it to enlarge the pie. That means viewing customers as partners in value creation–a collaboration that increases customers’ engagement and taps their insights about the value they seek and how firms could deliver it. The result can be new revenue, increased customer satisfaction and loyalty, positive word of mouth, and cost savings. The multiyear process to price the 8 million tickets to the upcoming London 2012 Olympic Games suggests five principles for using pricing to create shared value: Focus on relationships, not on transactions, by using pricing to communicate that you value customers as people; set prices proactively to discourage detrimental behavior and to encourage behavior that is beneficial to both your firm and your customers; allow prices to change in response to shifting customer needs; promote transparency by providing the rationale for your pricing; and make sure that prices and the processes by which they are set meet consumers’ expectations about what is fair.

The Perils of Popularity

Business Strategy Review

The iPhone’s worldwide success would seem to be an unqualified win-win for Apple and the mobile operators that sell it. Not so, as Marco Bertini and Ricardo Cabornero explain, mobile operators must maintain a delicate balance between winning new customers and retaining existing ones. This task is made more difficult when their own brands can actually be diminished by selling the iPhone.

Do Social Deal Sites Really Work?

Harvard Business Review

The stream of customers who visit Flanagan Theme Parks has started to dwindle. The fictional Australian company must decide, with the help of consultant Allie James, whether to try to attract a whole new crop of customers using DailyDilly, a fast-growing social-coupon venture. Allie and Ruth Davison, Flanagan’s marking director, take a lunchtime tour of the marketing landscape to answer a key question for any company that is considering such an initiative: “Are daily deal seekers the right kind of customers for our business?” Expert commentary comes from Gideon Lask, the founder of BuyaPowa, a UK-based social media business; and Al Bhakta, CEO of Genghis Grill, a Dallas-based restaurant chain. HBR’s online readers also weigh in.

Profiting When Customers Choose Value Over Price

Business Strategy Review

Increasingly recognised by academics and practitioners as the most effective approach to pricing for companies that wish to achieve increased profitability and sustained success, value-based pricing faces numerous obstacles. But Andreas Hinterhuber and Marco Bertini say the advantages of this approach to pricing far outweigh any difficulties.

The Upstart’s Assault

Harvard Business Review

TelZip, a small mobile-network operator, has decided to shake up the European telecommunications market by offering “free forever” broadband service to customers who sign a long-term contract with the company. Meridicom, the dominant industry player, must decide how to respond. Joe Ulan, the incumbent’s new chief marketing officer, gets conflicting advice: The product division heads don’t like the idea of discounting their products or even of working together; the sales director wants to kill the competition with a price war. How can Joe turn this attack into an opportunity? With commentary by Georg Tacke, co-CEO of Simon-Kucher & Partners, and Anne Gro Gulla, Group Branding Director for Telenor Group.

How to Stop Customers from Fixating on Price

Harvard Business Review

Surprisingly, your best tool for getting customers to see beyond price may be the price itself. New research finds that four pricing moves in particular can cause buyers to stop treating your offering as a commodity and instead consider its quality and relevance to their individual needs. You can change the basis of your pricing structure, as Goodyear did when it priced tires according to how many miles they would last. You can stimulate curiosity with willful overpricing, as Burt’s Bees does with its natural beauty products. You can partition a price into component charges to make customers notice a key benefit-as IKEA does by charging separately for a table’s top and legs, reminding people of its useful modularity. Or you can price the options you provide uniformly-as Apple does when it charges 99 cents for any track on iTunes-so that customers simply focus on their preferences. The power of each of these strategies is illuminated by controlled studies the authors conducted to understand the link between price and customer attention.

Time for a Unified Campaign?

Harvard Business Review

Alegre, a leading hotel group in Central and South America, is suffering under the troubled economy, and its newest property, the flagship Palma Cay in Cozumel, is hurting most. Beatriz Soto, Palma Cay’s manager, has a plan to boost bookings, but she doesn’t have the money to carry it out. Should corporate headquarters grant her additional funds, despite the company’s traditionally decentralized operations? Or should Alegre think about launching its very first portfolio-wide campaign? With commentary by Raul Gonzalez, the CEO of Barcelo Hotels & Resorts for Europe, the Middle East, and Africa; and Kevin Lane Keller, the E.B. Osborn Professor of Marketing at Dartmouth’s Tuck School of Business.