ffirs.qxd 1/5/04 3:34PM Pagei The Price Advantage ffirs.qxd1/5/043:34PMPageii Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Aus- tralia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding. The Wiley Finance series contains books written specifically for finance and investment professionals, sophisticated individual investors and their financial advisors, and senior business executives. Book topics range from portfolio management to e-commerce, risk management, financial engi- neering, valuation, financial instrument analysis, and pricing strategy, as well as much more. For a list of available titles, visit our Web site at www.WileyFinance.com. ffirs.qxd1/5/043:34PMPageiii The Price Advantage MICHAEL V. MARN ERIC V. ROEGNER CRAIG C. ZAWADA John Wiley & Sons, Inc. ffirs.qxd 1/5/04 3:34PM Pageiv Copyright © 2004 by McKinsey & Company, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800- 762-2974, outside the United States at 317-572-3993 or fax 317-572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Marn, Michael V. The price advantage / Michael V. Marn, Eric V. Roegner, Craig C. Zawada. p. cm. Includes bibliographical references and index. ISBN 0-471-46669-7 (CLOTH) 1. Pricing. I. Roegner, Eric V. II. Zawada, Craig C. III. Title. HF5416.5.M365 2004 658.8'16—dc22 2003017896 Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1 ffirs.qxd 1/5/04 3:34PM Pagev For Nancy, Kristina, and Gail ffirs.qxd 1/5/04 3:34PM Pagevi ftoc.qxd 1/5/04 3:34PM Pagevii Contents Preface xi Acknowledgments xv PART ONE Pricing Fundamentals CHAPTER 1 Introduction 3 CHAPTER 2 The Three Levels of Price Management 13 PART TWO Exploring the Levels CHAPTER 3 Transaction 23 CHAPTER 4 Product/Market Strategy 43 CHAPTER 5 Industry Strategy 74 PART THREE Special Topics CHAPTER 6 New Product Pricing 93 vii ftoc.qxd 1/5/04 3:34PM Pageviii viii CONTENTS CHAPTER 7 Solutions, Bundles, and Other Packaged Offerings 112 PART FOUR Unique Events CHAPTER 8 Postmerger Pricing 127 CHAPTER 9 Price Wars 143 PART FIVE Expanding the Boundaries CHAPTER 10 Technology-Enabled Pricing 161 CHAPTER 11 Legal Issues 177 PART SIX Bringing It Together CHAPTER 12 Pricing Architecture 193 CHAPTER 13 Driving Pricing Change 207 CHAPTER 14 The Monarch Battery Case 220 CHAPTER 15 Epilogue 237 ftoc.qxd 1/5/04 3:34PM Pageix Contents ix APPENDIX 1 Sample Pocket Price and Pocket Margin Waterfalls 239 APPENDIX 2 Antitrust Issues 253 APPENDIX 3 List of Acronyms 278 About the Authors 279 Index 280