Active Price Management

Table of Contents

1. Frontmatter

2. 1. Active Price Management: Fundamentals and Challenges

   Sven Reinecke, Laura Johanna Noll

   Abstract

   Active price management is a central and strategic marketing instrument. It involves actively designing, steering, and developing prices. Price changes have an immediate effect and are immediately reflected in the company’s demand, sales, and profit. While the other instrumental areas create value (value creation), price captures the value of a product or service (value capture).

3. 2. Conditions of Price Management

   Sven Reinecke, Laura Johanna Noll

   Abstract

   Price management focuses on three central determinants: costs, competition, and customer benefits (three Cs). Accordingly, a distinction is traditionally made between cost- and company-oriented, competition-oriented, and customer-oriented determinants and procedures of price management (Hinterhuber 2008; Hinterhuber and Liozu 2012; Indounas 2009).

4. 3. Goals of Price Management

   Sven Reinecke, Laura Johanna Noll

   Abstract

   In principle, the goals of price management should be known to everyone in the company involved in price decision-making and implementation (Monroe 2003, pp. 433). They must be considered in the context of overall marketing and oriented to a company’s marketing or positioning strategy. Common positioning strategies are higher price through better performance (or benefits) and non-price instruments or lower price through lower costs for the same performance (similar in Simon and Fassnacht 2016, pp. 47). In addition, different price targets must be considered for different offerings and customer groups (for more details, see Diller et al. 2021, pp. 130). All price targets are interdependent and must be understood as a target system. Overall, quantitative and qualitative price targets are distinguished (Reinecke and Hahn 2003, pp. 341).

5. 4. Price Management Strategies

   Sven Reinecke, Laura Johanna Noll

   Abstract

   Generally, static and dynamic price management strategies are distinguished.

6. 5. Price Management for Innovations

   Sven Reinecke, Laura Johanna Noll

   Abstract

   When companies launch innovations, they are confronted with different challenges: They may not yet have a clear idea of the target audience and the target application or function of the new offering. The go-to-market strategy may not yet be defined, and marketing and sales personnel may not yet be in place. Most importantly, a pricing model may not have been established, and the price-sales function for the company’s innovative offering may be unknown. Then, it is essential to estimate the perceived value of the innovation from the customer’s perspective.

7. 6. Auctions

   Sven Reinecke, Laura Johanna Noll

   Abstract

   Auctions are a standard method for determining and skimming willingness to pay (Diller and Hermann 2003). The prevalence of auctions has increased with digitalization (Skiera and Spann 2003, p. 625). Well-known examples of online and offline auctions are offered by Google, eBay, Ricardo.ch, Christie’s, Sotheby’s, United Charity, and MyHammer. Auctions increase transparency and intensify competition through spatial and temporal compression of the market.

8. 7. Price Management for Business-to-Business Services

   Sven Reinecke, Laura Johanna Noll

   Abstract

   In business-to-business markets, active price management is central to increasing profits (Homburg and Totzek 2011). More so, since hardware is currently losing relevance and value creation is shifting toward services. While the monthly wage of a worker has increased from CHF 1200 to 6000 between 1977 and 2019, the price of a drilling machine remained stable at CHF 700 (Hilti 2019, internal presentation). Furthermore, decreasing product or hardware margins requires commercializing services. Thus, the need to charge for rising expensive service expenses increases (see Fig. 7.1).

9. 8. Conclusion on Active Price Management

   Sven Reinecke, Laura Johanna Noll

   Abstract

   Price management is a central, strategic, and long-term marketing tool. It is neither tactical nor short-term or operational. It involves actively shaping, steering, and developing (Bleicher 2011, p. 46) prices. The price is more than the number of monetary units a customer must provide to purchase a product. On the one hand, the price must always be considered in the individually perceived price/performance ratio or value. On the other hand, price is the third determinant of profit alongside costs and sales volume. It has considerable entrepreneurial significance (Reinecke and Hahn 2003, p. 2).

10. Backmatter