Macro Pricing Strategies

However beautiful the strategy, you should occasionally look at the results.

—Winston Churchill

At the macro level, there are only three pricing strategies: skim, penetration, and neutral. There is no doubt price can be an effective way to compete for some companies. Think of Wal-Mart, Southwest Airlines, Costco, Dell Computers, or Timex watches—all use a penetration pricing strategy. All of these companies have used price as an effective competitive differentiation and have relentlessly driven out needless costs from their operations, passing the savings on to its customers.

On the opposite side of the spectrum there are Apple, BMW, Bose, Disney, FedEx, Godiva, Gucci, Lexus, and Nordstrom, all of which command premium prices—a skim pricing strategy—because they offer premium quality, Total Quality Service, and exceptional experiences.

In the middle are companies such as Buick, Kodak, Seiko and Casio watches, JC Penney, Sony televisions, and Toyota, where price plays a more neutral role.

Not only does this apply to new services your firm may be offering, but also to newly established firms. Far too many professional firms assume they need to offer a lower price than the competition to establish itself. This results in attracting low-value customers, which the firms usually regret in the long run. Far more consideration should be given to which of the three generic pricing strategies will guide the firm’s pricing. Let us examine them to gain an ...

Get Implementing Value Pricing: A Radical Business Model for Professional Firms now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.