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The Pricing Puzzle
Jan Y. Yang
The Pricing Puzzle
How to Understand and Create
Impactful Pricing for Your Products
Jan Y. Yang
Simon-Kucher & Partners
Cologne, Germany
ISBN 978-3-030-50776-3 ISBN 978-3-030-50777-0 (eBook)
https://doi.org/10.1007/978-3-030-50777-0
© Springer Nature Switzerland AG 2020
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The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
To my life companion and adoring wife Doreen for her unrelenting support and
patience over all these years, to whom I am deeply indebted
Foreword
This book is a treasure trove of pricing tactics illustrated by real-life examples.
And even more importantly, Jan Yang looks behind the scenes and offers his
analysis on various pricing stories that he personally collected over the years.
While observing the world through the lens of a pricing consultant, he puts
himself in the shoes of business leaders and consumers in his pricing narratives.
Business leaders should take pricing seriously, because price is undisputedly
the most important driver of profit and enterprise value. Price management
goes far beyond setting prices. Instead, price management should be seen as
active value management. Common practices like cost-plus pricing or follow-
ing the competition are ill-fated. In doing so, one effectively no longer takes
part in the quest for excellence. Failure to act on the heterogeneity of custom-
ers leads to mediocrity, the fate of a price taker. Even more importantly, busi-
ness leaders should take pricing seriously because of the net present value of
pricing. The fact is that no matter how great a product is, it has a finite shelf
life. During this limited window of opportunity, the prime years will contrib-
ute the lion’s share to revenue and profits, while residual value toward the end
of this time period threatens to fall swiftly. Therefore, it is imperative for any
business to get pricing right early on.
For their own benefit, consumers should not be beating themselves up with
the price they pay. As Benjamin Franklin said, “Bitterness of poor quality
remains long after the sweetness of low price is forgotten.” Price serves as a yard-
stick of value, especially when consumers have little knowledge of the product
or service in question. Life is short. Do not let the price get in your way. You
have many more important things to regret than having paid a little too much.
As a matter of fact, there is ample empirical evidence suggesting that people
are willing to pay extra in exchange for “peace of mind”.
vii
viii Foreword
At the end of the day, customers only make the purchase when the per-
ceived value of the goods in question is equal to or greater than the sacrifice,
which is the price they have to pay. It is a kind of equivalence that businesses
can search for through repeated trial and error, or by means of a more struc-
tured price finding method. The value added by pricing consultants lies in
helping one to find the sweet spot of the price-value equilibrium more reliably
and quickly. A pricing consultant can also help unravel hidden gems that
customers value greatly and have a high willingness to pay for.
The trio of business leaders, consumers, and pricing consultants provides
answers to the pricing puzzle that entangles our life. Enjoy the pricing stories
which chronicle Jan’s observations and reflections along his pricing journey of
more than a decade. You will encounter your own eureka moments in reading
this book and hopefully find solutions to your own pricing puzzle.
Simon-Kucher & Partners Prof. Dr. Dr. h.c. mult. Hermann Simon
Bonn, Germany
Summer of 2020
Acknowledgments
I am grateful to colleagues at Simon-Kucher & Partners, in particular Xiao-
Min Tung, Florence Wang, and Haotian Zhang for their contribution to the
write-up of several pricing stories with their research, creativity, and
suggestions.
I thank my editors Dr. Prashanth Mahagaonkar and Ruth Milewski for
their genuine interest in my book from the very beginning and their helpful
suggestions along the way.
Last but not least, I am indebted to Prof. Dr. Dr. h.c. mult. Hermann
Simon, Honorary Chairman at Simon-Kucher & Partners, who inspired me
from day one to go on my own “pricing journey,” and who reviewed the
manuscript of this book.
ix
Contents
Oh Price: Prelude 1
The Power of Choice 5
The Color of Pricing 11
Revelations in Germany 12
Reality Check in China 12
So, Who Spends More? Men or Women? 13
Good Morning Coffee 17
(In)dispensable Spicy Chicken Wings 21
Grocery Box in Parts 27
Random Thoughts Up in the Air 33
Carpe Diem 39
The Tale of the Midnight Diner 47
The Burden of Fame 53
xi
xii Contents
A Pricing Perspective on Double Eleven 61
The Premium Mass Product 69
Dyson 71
Thermomix 72
A Chilled Coke in Tehran 75
We Love Dynamic Pricing 81
Reference 87
The Conundrum of Price Cut 89
Behind the Scenes of Price Elasticity 97
Profit Phobia 103
Competitive Landscape 105
The Technology-Driven Company 107
The New Retail Model 108
iPricing 113
The Milky Solution to a Luxury Problem 121
The Coffee Revolution 127
Customer-Centric Thinking 130
Thoughtful Price Management 131
The Woes of MUJI 135
Reference 140
Why Do We Want Price Increases? 141
The Moral of Pricing 147
Reference 150
