The 1% Windfall: How Successful Companies Use Price to Profit and Grow — Book Notes

Rafi Mohammed

Published: 2010

Critical pricing decisions are often made using arbitary “this is the way we’ve always done it” methods.

• Instead of a driver of new profits, prices are a mix of marking up costs, maintaining margins, matching competitors and seat-of-the-pants analyses.
• A small change in price can have a big effect on a company’s financial bottom line.

The Foundation of Pricing: Value-Based Pricing

• A price that is based on cost bears no relation to what customers might pay. Instead, capture value by thinking like your customers.

Methodology #1: One-on-one pricing

Step 1: Identify target customers. E.g vacationers looking to rent a beach house for a week.

Step 2: Identify their next-best alternative. The beach house next door. Use this product’s price as a starting point.

Step 3: Determine your product’s difference. Your house has a pool.

Step 4: Calculate your product’s value based on its differentiation. Suppose you’ve determined that the average vacationer will pay a 20% premium over their next-best…