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A friend of mine who knows I have an interest in pricing sent me a free copy of this book. Michael Marn has led the pricing practice at McKinsey & Company for a long time now, and I'd been wondering why he hadn't published a pricing book before now. Unfortunately it turns out to be something of a one-trick pony, and a pony pretty long in the tooth at that. About half of it talks about the well-known price-benefit map. No question it's a fundamental idea, but hardly leading edge. Plus you need a McKinsey team to execute it. Given the pedigree of the authors I was hoping for more. A lot of the book just repeats McKinsey's early work on price wars, postmerger pricing, and overall strategy--good stuff but again nothing new. If you're interested in pricing, in my opinion there are better options than this. ...
I have been pricing since 1998 with many world class companies who could have greatly benefited from the principles explained in this text. My eyes have been opened and I feel more excited about the discipline than ever.
The Price Advantage is one of the essential books on pricing and it is the second one I would read after Tom Nagle, John Hogan and Joe Zale's
The Strategy and Tactics of Pricing (5th Edition)
. (I have not yet read Tim Smith's
Pricing Strategy: Setting Price Levels, Managing Price Discounts and Establishing Price Structures
which looks like it will be an interesting read.) Reed Holden and Mark Burton
Pricing with Confidence: 10 Ways to Stop Leaving Money on the Table
is also a good first introduction.
The authors are McKinsey consultants (one has recently moved to the pricing software vendor PROS Software) and they bring a great deal of consulting experience to the book which greatly enriches the case studies. Pricing excellence is divided into three elements, Market Strategy, Customer Value and Transactions and tools, advice and examples are provided for each element. This book provides the best introduction to the Pocket Price Waterfall (and its extension the Pocket Margin Waterfall), which is not surprising as the authors are the people who developed this framework. Appendix 1, which provides numerous examples of waterfalls is a great thing for them to have shared and is itself worth the price of the book. The book also has the best presentation I have seen of Value Maps and the Value Equivalence Line and how they are relevant to strategy. Even though I have problems with this approach (see below) it is important foundational reading for anyone interested in pricing and pricing strategy. The extended case study on Monarch Battery provides a good summary of the ideas in the book and how they can be applied. This is a great way to pull things together at the end of a book and it also provides a touchstone for people involved in pricing that we can refer to in conversations. I do have three problems with this book.
The Value Mapping approach has been criticized by Gerald Smith and Tom Nagle (see "Pricing the Differential" by Gerald Smith and Tom Nagle, published in Marketing Management in the May/June 2005 issue and available on the Resources page of the LeveragePoint website). In short, value maps tend to over estimate the contribution to price of shared (commoditized) benefits and to understate the potential contribution of differentiated benefits. Value models like Nagle's Economic Value Estimation are a far more powerful way to understand the economic impact of a product for a customer and how to use this in setting and communicating price. Baker, Marn and Zawada do not mention value modeling or respond to the well known criticisms of value maps. This is part of a wider problem with the book, it is narrowly depended on the McKinsey approach and experience and does not engage the wider conversations taking place in the pricing community.
The book also fails to relate pricing concepts and frameworks to other work. For example, on Page 229 they discuss new product launches and characterize these as Revolutionary, Evolutionary and Me To. This discussion would be greatly enriched by putting it in the context of Clayton Christensen's work, see
The Innovator's Dilemma: The Revolutionary Book that Will Change the Way You Do Business (Collins Business Essentials)
and subsequent books. This is actually a general problem in the pricing community, which tends to be inward focused and caught up in its own role and frameworks. But pricing will only show its full potential to transform business when it is connected to other parts of the business: product development, marketing, sales and finance. This will only happen when pricing frameworks are related to the frameworks used by people in other functional areas. There is a special need for someone to put pricing in a context meaningful to sales, so that sales can stop seeing pricing as "the sales prevention department."
The Pricing Advantage does not address emerging opportunities from two-sided markets. Two-sided markets, or platforms, are becoming more and more common and surface all sorts of important pricing and competitive strategy issues. If you have a conventional business model, and you are caught on the wrong side of a two-sided market, you are basically done for unless you can find a new business model. To get insight into two-sided markets, their challenges and huge opportunities, see
Catalyst Code: The Strategies Behind the World's Most Dynamic Companies
by David S. Evans and Richard Schmalensee and
Free: The Future of a Radical Price
by Chris Anderson.
As a pricing expert and author of Strategic Pricing for Medical Technologies, I thought this book provides a nice framework for thinking about pricing as well as some specific discussion on topics that are not addressed in detail in other books. I found the following discussion areas in the book to be particularly helpful:
- Overall framework: the overal generic framework for thinking about pricing from an industry strategy; product/market strategy; and transactional pricing perspective is a helpful way to attack many pricing problems. - Post-merger pricing: Having lived through a merger and worked through the pricing challenges, I thought it was good that the book addressed this topic. It's not covered as widely in other pricing books. - Driving price change: This is another topic that is not widely addressed in other pricing books. I've led pricing transformations and thought this topic was well covered in the book.
From a B2B perspective, it would be helpful for the authors to address quantifying economic value to customers, and using unbundling and offering strategies to compete. All in all, it's a good book that complements other pricing books on the market.
Jeff Robison did a great job thinking through the pricing equation in a novel way. His modeling shows pricing for growth may be more impactful to the value of a company than pricing for profits. And despite the complexity of the topic, Mr. Robinson does an exceptional job of explaining it, making it easy to understand.
The Price Advantage, still after a few years in the marketplace, is one of the top pricing books for both pricing experts and those just desiring to learn a bit more about pricing. The book is written in a very readable form with an 'eye' for knowing what's practical in business and what's not. highly recommend this book