THE ART OF PRICING
How to Find the Hidden Profits
to Grow Your Business
By Rafi Mohammed
Crown Business; $25
The Art Of Pricing is an entertaining primer on how to unlock "hidden" profits and growth by aligning your product's price with the value that customers place on it. Author Rafi Mohammed, a Batten Fellow at the University of Virginia's Darden Graduate School of Business, takes readers far beyond the traditional, and often woefully inadequate, markup.
"Pricing is not about setting numerical prices," says Mohammed. "It's about creating a set of strategies to maximize your company's profits." Even the smallest change makes a big difference; Mohammed cites a 2004 study finding that, for large public companies, a net price increase of 1% would bring an 11% increase in operating profits.
The correct pricing strategies for any company or product depend on a number of variables described by the author. If any one of them changes, so too should prices. Ideally, entrepreneurs will create a menu of pricing options -- often with varying profit margins -- to appeal to different customers. If your product is in short supply in a region, for instance, consider charging more for it there.
Mohammed has a point. If you think of your products as items at an auction, he writes, you'll realize that different people will value the same items differently.
That's why bundling products -- cheeseburgers, french fries, and soft drinks -- can entice more buyers and boost your margins. When you start uncovering those hidden profits, Mohammed writes, "It's always thrilling." Ah, capitalism.
By Marilyn Harris