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Business: The price is wrong; Pricing strategies
The Economist. London: May 25, 2002. Vol. 363, Iss. 8274; pg. 72
Abstract (Summary)

Airlines and hotels, with their fancy yield-management systems, have long led the way in sorting customers into categories, based on their willingness to pay. But now, thanks to downward pressure on prices, other industries, from retailers to chemicals, arecatching on and trying to become as sharp at varying their prices as the airlines. The trick is to do it without annoying customers. Few business schools teach pricing as a discipline; instead, they see it as a branch of marketing. Raising prices is likely to remain tough even as the world economy rebounds. Inflation is likely to remain low in rich countries, for several reasons. Globalisation hasincreased the number of competitors. The Internet has made it easier for buyers to shop around and to compare prices. The days of annual upward revisions to price lists look to be over.

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Full Text (1005 words)
(Copyright 2002 The Economist Newspaper Ltd. All rights reserved.) Clever companies are finding new ways to boost prices. But most firms are stillgetting it wrong FOR a glimpse of today's pricing wars, try booking an air ticket on Expedia, a travel website. Recently, a ticket from Toronto to San Francisco on Expedia's Canadian website was listed for around $750. On the American site, the same trip cost about half as much. But do not try to use your Canadian credit card to buy the cheaper seat-- the American website won't take foreignplastic. Your American office would have to buy it and post it to you. That is a minor inconvenience, compared with the other restrictions that have plagued travellers, such as minimum-stay requirements and massive premiums for flexibility. Airlines and hotels, with their fancy "yieldmanagement" systems, have long led the way in sorting customers into categories, based on their willingness to pay. Butnow, thanks to downward pressure on prices, other industries, from retailers to chemicals, are catching on and trying to become as sharp at varying their prices as the airlines. The trick is to do it without annoying customers. Most bosses assume they can change prices often and with little effort. But, says Mark Bergen, a professor at the University of Minnesota, this ignores the costs ofmanagement time, as well as the risk of alienating some customers while soothing others. Once a bad price is established, he says, it can be devilish to fix. Mr Bergen argues in a recent article* that chief executives need to pay more attention to pricing. He sees a need to go beyond today's tactics, and to invest in "pricing capital"--including better computer systems as well as price-savvy managers.These may be hard to find. Few business schools teach pricing as a discipline; instead, they see it as a branch of marketing. He cites Polaroid, which went bust last year largely because it failed to price its digital-photography products properly. Contrast that with the American subsidiary of Roche, a Swiss drug company. One of its top managers, Ron Andrews, arrived to find prices set deal by deal,with wide latitude given to the company's salesmen. He introduced software for every salesman's laptop computer to provide instant--and profitable--price quotes in the field. The hard bit, of course, is to get the salesmen on board. To help, he created a new post of director of pricing strategy.

Raising prices is likely to remain tough even as the world economy rebounds. Inflation is likely toremain low in rich countries, for several reasons. Globalisation has increased the number of competitors. The Internet has made it easier for buyers to shop around and to compare prices. The euro has made prices more transparent in Europe, even if consumers worry that retailers have used its introduction to mark up their goods (see box on next page). And big buyers, such as Wal-Mart, are...