THREE-LEVEL TACTIC CALLED KEY TO SUCCESS IN PRICING

JOHN KAROLEFSKI

NEW ORLEANS -- To realize pricing's full potential to build long-term value, an integrated pricing strategy is needed. A comprehensive pricing strategy, said consultant Mike Sherman, must address three pricing levels: strategic, product/market and transaction. The resulting insights, taken together, enable managers to maximize long-term value, he said. Sherman, a senior consumer marketing specialist with McKinsey & Co., spoke here at a conference on value pricing. It was hosted by the Pricing Institute, a division of the Institute for International Research. He listed these key issues for the three levels of pricing:

· Strategic Pricing -- How will current and future supply and demand dynamics affect overall industry price levels? · Product/Market Pricing -- Within each market segment, what price provides the long-term, profit-maximizing price/ benefit position vs. competition? · Transaction Pricing -- How do you price each customer transaction? According to Sherman, putting a comprehensive pricing strategy in place requires two things: leveraging the right pricing tools and overcoming organizational barriers. These tools, he said, range from focus groups and attitude surveys to pilot tests and syndicated market data. Sherman said that managers must overcome organizational barriers to achieve "pricing excellence." These barriers, created by functional silos in sales and marketing, can lead to "underemphasizing long-term price opportunities, and overemphasizing price conservatism." According to Sherman, "value pricing" is an aspect of product/ market pricing that can be helpful in identifying pricing opportunities. But taken alone, it may lead to a negative industry response. It could spark "a value-destroying price war," or "leave money on the table by missing transactional opportunities," he said. "For example, value pricing alone may not maximize profits in an expandable consumption category, such as cookies, in which transactional pricing in the form of frequent promotions can drive profitable volume," he said.