Simon - Confessions of the Pricing Man: How Price Affects Everything

Hermann Simon

Confessions of the Pricing Man

How Price Affects Everything

1st ed. 2015

Hermann Simon

Simon-Kucher & Partners Strategy & Marketing Consultants, Bonn, Germany

ISBN 978-3-319-20399-7 e-ISBN 978-3-319-20400-0

DOI 10.1007/978-3-319-20400-0

Springer Cham Heidelberg New York Dordrecht London

Library of Congress Control Number: 2015950470

Springer International Publishing Switzerland 2015

Adapted from Original German Language Edition

Preisheiten: Alles, was Sie ber Preise wissen mssen by Hermann Simon

Copyright Campus Verlag GmbH 2013

This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed.

The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use.

The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made.

Printed on acid-free paper

Copernicus is a brand of Springer Springer International Publishing AG Switzerland is part of Springer Science+Business Media (www.springer.com)

Prices are ubiquitous. We pay them and charge them many times a day, often agonizing over them, often giving them barely a second thought. Managers who understand the underlying dynamics of price can turn that knowledge into higher profits and a strong competitive advantage.

The challenge is that the game of price is becoming more and more complex. Intense competition, the maturing Internet, and increasing globalization are causing massive, disruptive changes in how consumers perceive values and prices, and thus how sellers need to set prices. Managers must remain vigilant and learn constantly.

When I started digging into the mysteries of prices and pricing more than 40 years ago, I could never have imagined that this fascinating area would evoke so much curiosity, intrigue, and innovation. Pricing became my vocation and my lifes work. Over the span of four decades, my associates and I created a pioneering body of work which continues to guide price strategies and price setting for thousands of companies around the world. All this work has yielded an unrivaled store of accumulated experience, a treasure vault of practical pricing wisdom.

This book is your access key to that vault.

It will provide you the answers for everything you should know about the topic of price. These answers are just as relevant for executives, managers, sales professionals, and marketing experts as they are for consumers. Ill serve as your trusted guide as we look at the tricks, the tactics, and the best and worst of pricing practices. We will explore price from its rational and irrational sides, through the lens of revolutionary behavioral research. And occasionally we will do some simple math to make some points clearer.

Before we start our journey, though, I would like to introduce myself and make a few confessions.

My colleagues and I study consumer behavior in great depth in order to get to the best prices for the seller. I did that in my first life of 16 years as a business school professor and researcher. I continued to do so at the consulting firm Simon-Kucher & Partners, which I founded in 1985 together with two of my doctoral students. With 30 offices in all major countries and revenue in excess of $250 million, our firm today is the global leader in price consulting. We serve top managers and executives in all industries: health care, automotive, telecommunications, consumer goods, services, Internet, and industrial products. Simon-Kucher & Partners has provided the guidance and analysis behind many of the modern, sophisticated pricing strategies which confront the consumer or the industrial buyer. These customers are almost always unaware of who created these sophisticated price structures in the first place.

Through our recommendations, we have influenced prices of products and services with an aggregate revenue of $2.5 trillion. Only six countries in the world have a gross domestic product which is greater than this number.

Yes, I confess that there may not always be a level playing field between the seller and the consumer. This is less true for industrial buyers, the procurement specialists who are tough in negotiating prices. But generally I think that the game is fair. The reason lies in one word: value. Ultimately the customer is only willing to pay for the value he or she gets. The challenge for any seller is to find out what this perceived value is and then price the product or service accordingly. The customer stays loyal only if the exchanges with the seller cultivate a lasting sense of fairness. Customer satisfaction is the only way to maximize long-term profits.

Yes, I confess that we are occasionally confronted with ethical issues. Can you recommend to charge the highest possible price for a life-saving drug? Should a company ask the same price in poor countries as in rich countries? How far can a company go in exploiting a monopoly-like position? What is in conflict with antitrust and cartel laws and what is still allowed? These are difficult questions without clear-cut answers. Ultimately our clients have to decide. But we, as consultants, must still consider these legal and moral aspects.

Yes, I confess that I have been helping thousands of companies to use smart pricing to maximize their profits. Some people see profit as the ugly side of capitalism. Maximize profit is an inflammatory phrase which can send shivers down these peoples spines. The simple truth is that profit is the cost of survival. Making a sustainable profit is a matter of to be or not to be for each and every private business, for without profit the business will fail. And price, whether you like it or not, is the most effective way to generate higher profits. We try to instill a true profit orientation in managers. But I am not a fan of short-term profit maximization. My mission is to support companies in optimizing their prices to achieve sustainable long-term profitability.

Finally, I confess that this book contains a comprehensive collection of my pricing endeavors, adventures, triumphs, and failures. I am still surprised almost every day as I see new, unconventional, and creative pricing ideas popping up. The confessions will continue.

I hope you have a lot of fun exploring the vast world of price, and wish you many a-ha moments along the way!

In the Fall of 2015

Twitter:@hermannsimon

Hermann Simon

For the adaptation of the original German text into English, I would like to thank Frank Luby and Elana Duffy of Present Tense, LLC. They not only translated and edited the text, but also contributed fresh research, encouraged me to add more anecdotes and confessions, and challenged me on how to adapt the flow to make the book more appealing to an English-language audience.