Description

The price of a product or a service is a critical element of the marketing mix. Price influences product demand, and the firm’s revenue and profits. Prices also signal product quality and value, customer self-image, and the seller’s pricing practices. With appropriate balance of theory, applications, and analytics, this book provides business students and practitioners the tools to make profitable pricing decisions under a variety of real-life contexts — current and emerging.

Theoretical foundations for pricing decisions come from microeconomics, psychology, and behavioral decision theories. Well-established economic principles, with available data and analytics, help firms customize prices based on customers’ willingness to pay, quantity purchased, timing and urgency of purchase, and by bundling their products and services. Pricing and promotional strategies of firms are further informed by the consideration of consumer psychology as well as the decision rules that consumers employ in framing of and responding to prices.

As a practical step-by-step guide for firms, the book presents a comprehensive framework for pricing decisions. The framework illustrates how firms’ pricing decisions are shaped by customer valuation of the product or service, firm cost, and competition within the category. Additional considerations include: channel arrangements, legal and regulatory limits, public sentiments, and the overriding strategy for the firm. Short cases and numerical examples help illustrate how these factors can be incorporated in firm making decisions.

In addition to offering the theoretical foundation and practical guidelines for pricing, there are several distinctive features of the book.

• Although customer valuation is central to pricing decisions, firms often struggle to reliably estimate value. The book offers a number of analytical approaches for estimating customer valuations of product and service attributes.
• In addition to the usual cost-based price determination, the book provides guidance for firms in developing pricing policies when costs to serve vary from customer to customer — a feature frequently seen in many services. Additionally, it provides an overview of commercial and government procurement contracts to demonstrate how the client and the vendor use contracts to manage cost-related risks.
• When firms with fixed capacity face fluctuating demand, firms set prices to balance the demand and capacity to serve. The book presents an overview of dynamic pricing strategies for perishable services, with particular focus on hospitality, airline, and rideshare industries.
• In keeping with current trends of online shopping, the text highlights the pricing issues related to electronic retailing, including online experiments to estimate price effects, identifying demand dependencies through collaborative filtering, and managing prices under omnichannel shopping by customers.
• The book concludes with some guidance for firms on how to create a pricing organization within a firm for implementing and monitoring pricing strategies.

Pedagogically, the book takes a quantitative approach to pricing decisions and places a special emphasis on the utilization of data and analytics. Nevertheless, sound intuition and judgments remain a prerequisite.