Book Review – “The Price is Wrong” by Sarah Maxwell

Enhancing pricing strategies within the context of price fairness! This is the topic of a recently published book entitled “The Price is Wrong”, Dr. Sara Maxwell — Associate Professor at Fordham University and Co-Director of the Fordham Pricing Center.Here Is Greg Thomas' review of the book

Dr. Maxwell calls attention to the resulting costs and foregone profits that go along with consumers’ perception of unfair prices. Perceived unfair prices irritate consumers who externalize their feelings by stopping their purchases of your products or services.

Dr. Maxwell proposes a model aimed at identifying consumers’ perception of the unfairness of particular pricing strategies and applies the model to various real world situations.

“The evidence shows that if sellers do not play fair, consumers will quit. But what is a fair price?” (p. 6)

In her analysis, Dr. Maxwell emphasizes that consumers judge those prices fair which comply with two types of fairness norms: personal and social. A personally fair price is recognized when it matches the product’s expected value in the exchange.

Recognition of a socially fair price occurs when the process of setting prices complies with the social norms of a society, which are the rules of expected and appropriate actions based on custom and tradition (p.11). For instance, Dr. Maxwell delineates how it is social acceptable to raise prices when there is an increment in costs, but not when there is an increment in demand (p. 8). Furthermore, she provides empirical evidence by describing how the majority of participants (82%) in a price experiment found it unfair that a hardware store increases snow shovel prices after a large snowstorm (p. 43).

Throughout the book, Dr. Maxwell pursues questions such as: what is priced?; who establishes the price?; how is the price charged?; when can the price change? Her answers to these questions constitute reliable guidelines for the understanding of the conflicts between pricing strategies and social norms.

One of the most revealing findings of the book is that consumers’ reaction to a personally unfair price is mild relative to their reaction to a socially unfair price!

Written in an accessible style, “The Price is Wrong” combines theoretical expositions with clear exemplifications and leads to a better understanding of the elusive definition of price fairness helping the readers to make more informed pricing decisions.

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Pricing Strategy for Database Marketing-Case Study

This is a case study of using databases of customers and using proper pricing to cross sell other products.Mining its own database of customers helped the company achieve spectacular results. This case study builds up an argument for using internal data at a customer level for decreasing marketing costs and enhancing brand recall. By pricing the database exchange properly the company built up value for itself, for its partner, besides reducing any internal or regulatory opposition to the deal......


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This is a case study of using databases of customers and using proper pricing to cross sell other products.Mining its own database of customers helped the company achieve the following-

a) Increase profitability
b) Improve brand recall and enhance the existing relationship
c) Cut down on marketing costs by targeting more responsive customers
d) Improve the life time value of revenues earned from each customer

This case study builds up an argument for using internal data at a customer level for decreasing marketing costs and enhancing brand recall. By pricing the database exchange properly the company built up value for itself, for its partner, besides reducing any internal or regulatory opposition to the deal.

Closed Customers aren’t really closed; they stay on in your database.
By Ajay Ohri*

You can use pricing strategies to generate revenue even from closed customer databases.By pricing the database exchange properly you can build up value for yourself,and for your marketing partner.

Database marketing can help you win revenue even after a customer relationship is discontinued. This is illustrated by the following example –

A prominent global financial services giant, with nearly 100 years of history, faced a unique problem while operating in India. While it had been one of the earliest entrants in the credit card industry in India, it had rapidly been losing market share to newer and nimbler more aggressive local competitors.

Indian customers have one of the lowest levels of debt worldwide due to cultural aversion to debt and lack of competition in the pre 1990 era. The credit cards receivables business in India is also a loss making operation as of 2006, because of rampant competition and discounting on annual fees and charges. Lending in India is complicated because the credit bureau CIBIL was only in nascent stages, and declared income and actual income of people varied due to the tax laws and ‘black money’ economy.

However the average receivables per card had been steadily increasing in India and it had potential to make huge profits once Indian customers became comfortable with rotating balance and paying finance charges. The credit card division also had a culture of conservative lending only to prime customers, with a good track record. On the other hand, the company’s personal loan business was making great strides in both revenue and profitability growth due to aggressive selling to both prime and sub prime customers. As a result of this the company had built up a database of 3 million customers, out of which nearly 2 million had paid off their loans.


To improve the profitability of the credit card division, and offer its customers a more value added portfolio of financial services, the company embarked on a data mining project of cross selling to its closed personal customers. After extensive tests and research based on selective tele-calling to its customer database, the company found out the following analytical findings-

1) Customers who had paid back their loans on time were the customers who were good credit customers. These customers had also increased their income since the time they had closed their personal loan.

2) People who had closed their personal loans were targeted for re churning by the person loans business. However after 6 months of closing their loans, if the customer did not take another personal loan, they were unlikely to ever take a personal loan. Thus if these customers were called again for personal loan, it would be unprofitable since the incremental expenses were not justified by incremental revenues.

3) People who bounced cheques but paid off their entire loan were bad credit risks, especially for a revolving line of credit as in for credit cards.

4) People who were called by the credit card division had better brand recall if they had an earlier relationship with personal loans division. Since they paid off their loans on time, their experiences with the company as a whole were very positive. This goodwill of the company’s brand helped to trigger higher response ratios (almost 20 % of such people took the credit card compared to only 5 % for the general population)

5) De to regulatory reasons both the credit card division and the personal loan division had to maintain an arm’s length distance.

PRICING STRATEGY- In order to facilitate exchange and avoid regulatory approval, the credit card company decided on a transfer price of 600 rupees plus 1% of average card receivables---- to the personal loan company. This helped track the profitability of the exercise better.In return the personal loan company also received some additional data from the credit card company at a different rate.

The price was arrived at by the following formula - Expected Conversion % Multiplied by Net Present Value of Revenue Stream from a Product Sale * ( 1 - Operating Margin on the deal). Care was taken to benchmark the price using existing channels of acquisition to ensure it is a value plus deal for all parties

As a result of the exercise the company managed to sell an extra fifty thousand credit cards. The program was such a success that it was adopted world wide. The personal loan division earned tens of millions of rupees from its closed customer database, and the credit card division managed to increase its market share slightly.



Ajay Ohri is an alumnus of the Indian Institute of Management, Lucknow. He has worked in the fields of data mining and cross selling for over five years with two of India’s largest listed BPO’s and a global financial services firm. He also writes on technology at www.decisionstats.com

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Value And Pricing In Wine

How do you stand out in a world of 10 000 brands?

http://www.slideshare.net/LoicAtPSL/value-and-pricing-in-wine-industry

Go vote for it in Slideshare's competition for this year's best presentation

http://www.slideshare.net/contest/worlds-best-presentation-contest-2008/entries/business?order=popularity#top

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Very nice graphics, but it also touches on some of the Key issues of Targeted Value Propositions and Pricing strategies to stand out from competition: from Branding to micor-segmentations and psychological pricing... good interesting read (& you can download it) - and don't forget to vote for it in Slideshare best presentation of 2008 contest (in the Business Category)

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Revenue Management Strategies in the Hospitality Industry

Presentation delivered at Paris Seminar on Marketing, Value Propositions & Pricing strategies for Travel, Tourism & Hospitality...

Value & Pricing Solutions for Tourism


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With the product Value centered on the 'client experience' the hospitality is aced with numerous & complex challenges in the development o targeted value propositions and in its pricing strategies & management. Yest it has in many ways been a pioneer in the development of highly effective Yield management approaches. During this short presentation these challenges are presented in a graphical and thought provoking manner which led to a very interesting & lively debate amongst attendants.

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Global Pricing Management

Global Pricing strategies is a complex challenge. I found that interesting presentation of some of the issues at: http://www.slideshare.net/kvarun/global-pricing

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Particularly I would like to discuss approaches to establishing 'Price corridors' or to coordinating client conditions across countries & markets.
Please post contributions here or comment on this post.

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