2004 Q2 Book Review
The Strategy & Tactics of Pricing
by Thomas Nagle
The author suggests that like most marketing decisions, pricing is an art. It depends as much on good judgment as on precise calculation. When a customer buys a product the goal is to obtain the most value for the price paid. For commodities, that often means buying the cheapest one available. For products that are differentiated, it usually means paying a little more for the perceived superiority of a particular brand.
Pricing strategy can be influenced by a number of factors. The author identified nine factors that influence price sensitivity. One example given is the unique value effect, i.e. does the product have any unique (tangible or intangible) attributes that differentiate it from competing products? These unique attributes translate into a higher price.
One chapter in particular was quite interesting. It addressed the psychological aspects of pricing, in other words, influencing price perception and evaluation. While buyers generally perceive prices and purchase situations accurately, they often do not evaluate them perfectly rationally because they use imperfect, but convenient decision rules. Marketers who understand those decision rules can often present products in ways that lead buyers to evaluate them more favorably.
Generally speaking, the book offers some insightful ideas on pricing, however, the level of detail may be beyond the interest level of most readers.