Pricing Strategy: Pricking the Veil of Value Exchange

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Our understanding of pricing has come a long way since 1890 when Alfred Marshall published his treatise on the economic scissors of supply and demand. Pricing is no longer a purely economic challenge to be addressed through studies of market elasticity. It can’t be solved by lowering prices until customers’ purchases improve factory utilization rates. And, it can’t be solved by allocating costs and adding markups. Rather, pricing today must be focused on value exchange.

While experts and executives agree that price should reflect value, the pricing to value mantra fails to clarify the decisions executives must make. That is, what is the value that price should reflect? Whose perception of value should determine price? And, how can value be modeled and quantified? In other words, pricing decisions today requires actionable insights.

These insights must derive from a marketing orientation of the firm with a clear economic understanding of value exchange. The marketing orientation focuses the purpose of the firm towards serving customer needs profitably – an orientation supported by the late greats Peter Drucker and Theodore Levitt. The economic understanding of value exchange reminds us that customers will purchase when the product delivers value in excess of its price after adjusting for alternatives, and the firm must deliver products at a price in excess of their cost. These are two very simple concepts.

Combined, the marketing orientation of the firm, and the economic understanding of value exchange, provides the foundation for developing insights required for executive decision making in pricing strategy.

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About the Author

Tim J. Smith is the founder and Managing Principal of Wiglaf Pricing and an Adjunct Professor of marketing and economics at DePaul University. Well-known in the industry as a thought leader in pricing, Dr. Smith has presented seminars on pricing to professional audiences around the globe. With hard-hitting, focused messages for executives, Tim encourages actions that lead to dynamic results. To read Tim’s complete biography, click here.

Diversity and Inclusion – Return on Investment, part 4: Litigation, Fine, and Payout Reduction

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Harassment litigation represents a catastrophic failure of an organization’s diversity and inclusion program. In these circumstances, the organization not only fell short of excellent performance but realized such aberrant behavior as to be non-compliant with applicable laws. Such occurrences not only represent large one-time costs associated with reduced productivity, heightened distraction, and elevated attrition.

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Inspiring Employees with a Values-Rich Environment

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Even if your corporate culture leaves a lot to be desired, managers can create a localized environment that inspires your employees to achieve peak performance. It’s a fact that I discovered over and over in my work for JetBlue, Southwest, Doubletree and other companies with high-performing cultures: the vast majority of your employees want to work in a place where people care about customers and each other, are fully engaged, take pride in their work, and feel the obligation to continually improve. In other words, they want you to create an inspiring culture, even if it’s just in your department. They will even help you create it, if you show them the way.

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About the Author

Ann Rhoades, author Built on Values: Creating an Enviable Culture that Outperforms the Competition, is president of People Ink, a culture-change consulting firm. Ann serves on the Board of Directors for JetBlue and P.F. Chang’s. She was one of the five founding executives of JetBlue Airways; Chief People Officer for Southwest Airlines; and Executive Vice President of Team Services at Doubletree and Promus Hotel Corporations. To read Ann’s complete biography, click here.

Leadership Inspirations – Out on a Limb

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“Why not go out on a limb? Isn’t that where the fruit is?”

Frank Scully (1892 – 1964)
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StrategyDriven Podcast Special Edition 59 – An Interview with David Aaker, author of Brand Relevance

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StrategyDriven Podcasts focus on the tools and techniques executives and managers can use to improve their organization’s alignment and accountability to ultimately achieve superior results. These podcasts elaborate on the best practice and warning flag articles on the StrategyDriven website.

Special Edition 59 – An Interview with David Aaker, author of Brand Relevance explores the creation of offerings so different that they create unique categories within which customers perceive no other product or service alternatives. During our discussion, David Aaker, author of Brand Relevance: Making Competitors Irrelevant, shares with us his insights and experiences regarding:

  • the difference between brand relevance and brand preference
  • advantages of achieving brand relevance over brand preference
  • several key factors needed to gain brand relevance
  • how a company establishes and manages a new category or sub-category
  • how a company maintains brand relevance over time
  • key characteristics and competencies an organization must have to successfully pursue a brand relevance strategy

Additional Information

In addition to the outstanding insights David shares in Brand Relevance and this special edition podcast are the resources accessible from his website, www.Prophet.com.   David’s book, Brand Relevance, can be purchased by clicking here.

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About the Author

David Aaker, author of Brand Relevance: Making Competitors Irrelevant, is Vice-Chairman of Prophet, a marketing consultancy that helps senior executives balance their organization’s short-term business needs against their long-term growth goals, and Professor Emeritus of Marketing Strategy at UC Berkeley’s Haas School of Business. One of the world’s leading experts on branding and the winner of three awards for lifetime contributions to the science of marketing, David has published over 100 articles and fourteen books; including Strategic Market Management that has been translated into eighteen languages. To read David’s complete biography, click here.

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