When It Comes to Pricing, Don't Go With Your Gut

Last Updated Oct 5, 2007 12:42 PM EDT

When It Comes to Pricing, Don't Go With Your GutThe hubbub surrounding Apple's decision to slash the price of its iPhone put pricing in the news lately, but other than that much chattered about instance, comparatively little attention is paid to determing prices. But according to an article out this week from Knowledge@Wharton that's beginning to change:
Pricing is gaining new interest as management looks for ways to increase revenues after years of focusing their attention on downsizing and cost-cutting. Firms are only now beginning to apply to pricing some of the data collection and management tools they have been using in supply chain management and other parts of their businesses.
This new focus on pricing is due in large part to the increasing speed of the product lifecycle. As Wharton marketing professor John Zhang points out, "you don't have a lot of time to learn from your mistakes. You have to price the product right the first time." So how to do that? This is one instance in which it might be best not to go with the gut. Greg Cudahy, a managing partner at Accenture's pricing and profit optimization practice, points out that "pricing is the last bastion of gut feel." However,
"Companies that take a strategic approach to pricing throughout their business and monitor their success with hard numbers can raise revenue by between 1% and 8%."
One real world example is drug store chain, Duane Reade, who increased revenues generated by sales of baby products by 27% by using pricing software to analyze sales data. A more analytical approach to setting prices can have other benefits including cutting down on the time your team spends deciding on the price for a bid, or providing insights into what customers truly desire and are willing to pay a higher price for. For more details, check out the article.

(Image of hot dog pricing by sylvar, CC 2.0)

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    Jessica lives in London where she works as a freelance writer with interests in green business and tech, management, and marketing.