Impact Pricing by Mark Stiving is a well written, easy to read guide for businesses trying to decide what prices to set for their products or services. Dr. Stiving demonstrates that despite pricing being one the key factors in business success or failure, many companies have no clear strategy for setting prices.
The author points out that most companies simply use a “Cost Plus” method for determining what prices to charge. The company calculates how much it costs to make its product, adds the profit margin it would like to receive and that equals the price.
Impact Pricing notes that this old fashioned Cost Plus method makes no sense. The only thing that matters is how much the product is worth to the customer. Mark Stiving advocates what he calls “Value Based Pricing.” After all, the customers really don’t care how much it costs a company to make a product. What they care about is the value of the product to them.
Of course, trying to figure out what the value is to a customer is easier said than done. Much of the book describes in detail various methodologies to do just that.
Dr . Stiving warns – “do not use low price as your overall strategy unless you are willing to dedicate your entire company to lowering costs.” He notes that a few companies, like Walmart, have been successful doing this, but most end up in disastrous price wars that cheapen the quality of the product.
Impact Pricing also contains a lot of interesting business stories and quotes from business leaders. In a statement about quality versus prices, Aldo Gucci says, “The bitterness of poor quality is remembered long after the sweetness of low price has faded from memory.”
How price changes are presented to customers is also extremely important. The book tells the story of when the Coca-Cola Company came up with a new type of vending machine that would automatically raise the price of Coke when the weather got hot. There was a tremendous public outcry against “price gouging” , and Coke ended up getting rid of these machines.
Mark Stiving points out that with a different pricing policy and a different ad campaign, Coke could have received an excellent reception and a lot of free favorable publicity. Coke should have simply set the machines so that they automatically lowered the prices of Coke on cold days. The customers would have loved that and felt that they were receiving a benefit instead of being cheated.
This book is an easy read and is not full of complex formulas like many business books. Mark Stiving has a Ph.D. in Marketing from U.C. Berkeley and consults on business strategies with major companies. If you are a business person or just a consumer interested in how companies decide to set the price of things, then this is an excellent book for you.