Jagmohan Raju - Smart Pricing: How Google, Priceline, and Leading Businesses Use Pricing Innovation for Profitability

How Google, Priceline, and Leading Businesses Use Pricing Innovation for Profitability

Jagmohan Raju
Z. John Zhang

Vice President, Publisher: Tim Moore
Associate Publisher and Director of Marketing: Amy Neidlinger
Wharton Editor: Steve Kobrin
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2010 by Pearson Education, Inc.

Publishing as Wharton School Publishing

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Printed in the United States of America

First Printing April 2010

ISBN-10: 0-13-149418-X
ISBN-13: 978-0-13-149418-3

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Library of Congress Cataloging-in-Publication Data

Raju, Jagmohan Singh, 1954
Smart pricing : how Google, Priceline, and leading businesses use pricing innovation for
profitability / Jagmohan Raju, Z. John Zhang. 1st ed.
p. cm.
ISBN 978-0-13-149418-3 (hardback : alk. paper) 1. Pricing. I. Zhang, Z. John. II. Title.
HF5416.5.R35 2010
658.8'16dc22
2009048017

To our respective families, we dedicate this book. We understand the price they have paid for us to write this book.

An old Chinese saying has it that to be a scholar, you must read ten thousand books and travel ten thousand miles. We must have accomplished both a long time ago. However, only in recent years did we realize that we are so indebted to many scholars who had written the ten thousand books that we should repay the debt by contributing one. This urge has grown in recent years as the pricing classes we have taught for more than a decade have grown in popularity. Altogether, we must have taught pricing to four or five thousand peoplefrom undergraduates, MBAs, and EMBAs, to professionals and business executives, both here in the U.S. and in other countries.

Writing this book has been a labor of love for us. In every chapter, we were reminded of all the students we have taught and who taught us. Most of the material contained in this book builds on some of those discussions, which certainly helped to advance our understanding of those issues. For that reason, we want to thank our current and past students at the Wharton School and also at the Olin School of Business, Columbia Business School, UCLA, Indian School of Business (ISB) in India, and at the China-European International Business School (CEIBS) and Cheung Kong graduate School of Business (CKGSB) in China. We hope that they are still passionate about pricing and that they recognize in this book some of the insights they have contributed in class.

Over the years, our primary research interest has been in pricing, and we have collaborated with many first-rate scholars. The contents of this book reflect their influence as well. We want to thank them for working with us and for enriching our knowledge in pricing. They will surely identify their personal and professional influences on us here. For those scholars whose collaborative projects with us were delayed as a result of this book, we also want to thank you for indulging us as we prepared this manuscript. Writing this book turned out to be lot more absorbing and time-consuming than we had anticipated!

We also want to thank our Wharton colleagues for providing an inspiring and caring intellectual environment. With their encouragement, our interest in pricing flourished. Most important, we want to thank Jerry Wind, a prominent marketing scholar and the inaugural editor-in-chief for Wharton School Publishing, who encouraged us to write this book. Jerry has been a constant source of inspiration and support. He is most generous in offering new ideas to us and most persistent in challenging us to do what he likes to call impossible thinking. Of course, as much as we try, it is impossible for us to think that this book has met his high expectations.

We also want to thank the editors at Pearson Education, Tim Moore and Jeanne Glasser, for their professional advice and for their patience with us. For the same reason, we are also grateful to Steve Kobrin, the new editor-in-chief for Wharton School Publishing.

In writing this book, we quickly realized that writing a book for a general business audience is very different from writing academic research papers. For that reason, we are most grateful to Bennett Voyles, who put his professional research and writing expertise at our disposal. Ben is a terrific writer, knowledgeable in many business subjects, and a jolly good fellow to work with. His assistance in writing this book is much appreciated.

Finally, we want to thank our respective families for putting up with us for missing family events, school activities, and weekend games while we worked on the book. We know the price they had to pay for us to complete it. To them, we dedicate this book.

Professor Jagmohan S. Raju is the Joseph J. Aresty Professor at the Wharton School and the Chair of the Marketing Department. He is also the Executive Director of the Wharton-Indian School of Business partnership. Before becoming an academic, Professor Raju worked with the Tata Administrative Service and Philips India Ltd.

He has a Ph.D., M.S., M.A. Stanford University; an MBA from IIM, Ahmedabad; and a BTech from IIT Delhi. He was recognized for the best academic performance in his class for each of the two years he studied at IIM Ahmedabad, a merit scholarship at IIT Delhi, and the Presidents Gold Medal at Punjab Public School, Nabha.

Professor Raju is the past Marketing Editor of Management Science and the Past President of the INFORMS Society for Marketing Science. His main areas of research include competitive marketing strategy, pricing, retailing, sales promotions, sales force compensation, corporate image advertising, and strategic alliances. He has supervised 12 doctoral dissertations to date. He coordinated the Wharton Marketing Departments PhD Program. He serves on Whartons Academic Personnel Committee, and Globalization Committee.

His research papers have won the John DC Little best paper award (twice), the Frank Bass dissertation paper award (twice) and several other recognitions. He has received several teaching awards, some of which include the George Robbins Teaching Award and Marketing Teacher of the Year while he was at UCLA; Wharton Executive MBA Teaching Awards; Wharton Miller-Sherrerd Core Teaching Award, and the Indian School of Business Teaching Award. Professor Raju teaches the core marketing class and the pricing elective at Wharton.