Doug Garnett wrote a blog post titled Price and Complexity (Part 1): Communication Affects the Pricing Wilderness.
« Pricing is at the center of a very complex system… In a complex system the parts are inter-related and a decision made in one area immediately affects the decisions for one or two (or all) of the other areas as well… Price is tightly connected, in fact, to each of the other 3Ps as well as the rest of a company, to competitive moves, to distribution channel and to a wide range of customer behavior and psychology. »
« Pricing is not simple. Price is not complicated. Price is complex. »
« In math, discontinuities happen when outcome jumps dramatically even when the input changes only slightly. These jumps can be quite disorienting to managers… In business, discontinuous situations are where some of the biggest opportunities lie — right alongside our biggest challenges. Price is one area where there are huge discontinuities based on connections to other parts of marketing. »
« Companies far more often err by pricing far too low than they err by pricing too high. The only times I’ve seen products overpriced come either when products are over-engineered for what consumers are willing to pay (I’ve seen this often) or when products mature and companies become hooked on their high margins — unable to anticipate their vulnerability and opening themselves to classic Christensen disruption. »
« In my experience, the first, and most important step, when dealing with a complex system is to accurately name it as such. And when you do that, also be sure to name those things which make it complex and how they frustrates decisions. »
Garnett’s blog post also includes a case study of Allegro cookware.
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