Published: June 30, 2004 in Knowledge@Wharton Pricing, the intersection at which untold numbers of buyers and sellers meet every minute of every day, lies at the core of any business -- large or small, old or new, Rust Belt or high-tech, local or global. Yet pricing remains misunderstood and poorly managed, according to The Price Advantage, a new book by three consultants at McKinsey & Company. Even executives at highly successful companies may not fully appreciate how small changes in price can lead to large changes in profitability.

 

Several software programs have been developed in recent years to help companies strengthen their pricing capabilities. But the authors – Michael V. Marn, Eric V. Roegner and Craig C. Zawada – argue that companies can truly achieve the price advantage only by making deep and lasting changes in their organizations. Such a major shift takes time, they say, but the effort can pay big dividends. Wharton marketing professor David J. Reibstein recently spoke to Marn, a partner in McKinsey’s Cleveland office, about the major themes that he and his co-authors discuss in the book. Over the years, Marn has developed some of the most widely used analytics for identifying pricing opportunities.

 

Reibstein: Mike, a good place for us to start is with you defining what you mean by the price advantage.

 

Marn: When we talk about the price advantage what we mean is not that a company has a product with a low price relative to competition.  We’ve got a much more holistic definition.  We think of price advantage as a superior capability to use price as a source of real competitive advantage that at the end of the day makes your company more successful. You’ll often hear companies talk about their other advantages. They’ll talk about a purchasing advantage or a cost advantage or an innovation advantage or a distribution advantage or a service advantage.
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