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Management article
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Reference no. 92507
Published by: Harvard Business Publishing
Published in: "Harvard Business Review", 1992

Abstract

Managers miss out on significant profits because they shy away from pricing decisions for fear that they will alienate their customers. But if management isn''t controlling its pricing policies, the customers probably are. Two basic principles, the pocket price waterfall and the pocket price band, show managers how to control the pricing puzzle. The pocket price waterfall reveals how price erodes between a company''s invoice figure and the actual amount paid by the customer--the transaction price. It tracks volume purchase discounts, early payment bonuses, and frequent customer incentives that squeeze a company''s profits. The pocket price band plots the range of pocket prices over which any given unit volume of a single product sells. Wide price bands are common, with many manufacturer''s transaction prices ranging over 60%. Using the pocket price bank enables a manager to control the price range to greater profits.

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Abstract

Managers miss out on significant profits because they shy away from pricing decisions for fear that they will alienate their customers. But if management isn''t controlling its pricing policies, the customers probably are. Two basic principles, the pocket price waterfall and the pocket price band, show managers how to control the pricing puzzle. The pocket price waterfall reveals how price erodes between a company''s invoice figure and the actual amount paid by the customer--the transaction price. It tracks volume purchase discounts, early payment bonuses, and frequent customer incentives that squeeze a company''s profits. The pocket price band plots the range of pocket prices over which any given unit volume of a single product sells. Wide price bands are common, with many manufacturer''s transaction prices ranging over 60%. Using the pocket price bank enables a manager to control the price range to greater profits.

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