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Why is Pricing Under-Loved and Over-Leveraged?
Buyer beware
Sophisticated pricing strategies are designed and used by the smartest sellers in any industry.
Both online and offline. Including, for example, pricing aggregators and price comparison websites: many success stories have been built on unique pricing insights, leading to growth in revenues, margin and market share. Truly fascinating.
Even in capitalist markets, where pricing is the ultimate mechanism to match buyer and seller of any economic transaction, good old human psychology can obfuscate rational decision making.
Even in otherwise apparently efficient Internet e-commerce complete price transparency is uncommon; academic research and government regulation are mainly focused on the pricing of financial instruments, rather than ‘real world’ products and services.
Caveat emptor. Buyer beware.
Some challenges of the pricing practice
Optimal pricing, even in 2020, is still somewhat more art than science:
- Universities and business schools in their curricula typically only teach basic theory like price elasticity of demand — and not even how to calculate this correctly
- Companies typically adopt non-customer-centric org design, and therefore cross-function topics like pricing lack ownership, leading to ineffective strategies and mis-alignment between the marketing, category and finance teams
- Practitioners, perhaps unsurprisingly due to the previous concerns, typically rely on inefficient rules of thumb like cost+ or competitor+, that are neither data- nor customer-driven.
Is pricing over-leveraged?
Efficient pricing is all about the invisible hand that makes demand and supply meet, within the desired implicit/explicit objectives for the perception of the customer proposition e.g. branding, positioning and value-story.
