Confessions of the Pricing Man: How Price Affects Everything

consider a crisis to be a collapse in demand.

“No one can make any money in our business. Every single company has too much capacity. Every time a project comes up for bid, someone needs it desperately and offers suicidal prices. Sometimes it’s us, sometimes it’s a competitor . Even though four suppliers make up 80 % of the global market in our business, no one makes any money.”

“We have a policy of keeping prices stable to protect our brand and to prevent a drop in prices for used cars. When demand goes down, we reduce production volume but don’t lower our prices.”

Overcapacity is typical as a market enters its mature phase, as companies overestimate growth potential, and also typical for a market’s decline phase, which companies often do not anticipate. Even emerging markets can get to a state of excess capacity relatively quickly.

“Good pricing has three prerequisites: create value, quantify value, and communicate value,” I said in summary. “That is when you get the price you deserve, the price you need for a profitable business. And, last but not least, avoid price war s.”

Price concessions can come in the form of cash rebates, which reduce the transaction price, or in the form of additional goods and services. Offering goods and services instead of lower prices has several advantages during a crisis : Price: The nominal price level is not harmed. Profit: Assuming the same percentage, the supplier is better off profi

The biggest challenge facing pricing in the modern world is overcapacity

I summarize my insights into price war s very simply: there are smart industries and there are self-destructive industries. What is the difference? The smart ones avoid price wars, and the self-destructive ones get stuck in them. The smart ones are profitable; the self-destructive ones incur losses or destroy profits. The problem is that it only ta

In most cases, again, the primary motivation is the desire to protect existing volume levels and keep employee utilization at levels which do not require furloughs or job cuts.