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Pricing Myths 3 and 4

 

The book “Overcoming Floccinaucinihilipilification: Valuing and Monetizing Products and Services” has been available for twelve months now.

To celebrate the first anniversary of publication, over the coming weeks, Chapter 2 of the book will be serialized, revealing nine myths that surround pricing. In this blog post, you can read about Pricing Myth Number 3 and Number 4…

Myth #3: A world-first pricing model

When you’ve spent most of your career in pricing, it is not uncommon to hear companies or commentators claim that a business has a “world-first pricing model.” The reality, however, is often “what’s old is new again.”

Uber’s “surge pricing” is one example. Surge pricing is not very different to the revenue management and dynamic pricing that US airlines introduced after the deregulation of their industry in the 1970s.

If we go back even further, during the Great Fire of London in 1666, boatmen on the Thames doubled and tripled their fares to transport Londoners across the Thames to the safety of the south bank. Grandstand seating at public hangings also increased and decreased according to the level of public interest in the execution.

Myth #4: Markets, mechanisms, and the invisible hand

There is no shortage of journalists, economist, authors and businesses (just to name a few) who make statements like “It’s the market that sets the price” or “Prices are set by the invisible hand.”

In fact, if you subscribe to the school of thought that pricing is decided by a mixture of voodoo and bingo, it would be both logical and convenient to blame “the market” or “the invisible hand.”

You only have to get seven pages into Thomas Piketty’s Capital in the Twenty First Century to read that “The problem is that the price system knows neither limits nor morality.” There may indeed be no limits or morality to pricing changes by the likes of Turing Pharmaceuticals.

But in the overwhelming majority of cases, prices are not set by “markets,” “systems” or “the invisible hand.” People set prices. You set your business’s prices, and you need to take ownership of those prices, as if your business and its reputation depend on it (which it does).

People write the algorithms that trigger Uber’s surge pricing. The Thames boatmen themselves doubled or tripled their prices during the Great Fire of London, not a “system” or a “mechanism.” And it is your salespeople who get “beaten up” by a procurement manager and end up freely giving pricing concessions or discounts.

Overcoming Floccinaucinihilipilification: Valuing and Monetizing Products and Services”  is available from the following retailers:

Amazon Australia and Amazon Worldwide

Barnes and Noble

BookDepository

Booktopia

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