Expand the pie

The June 2012 issue of Harvard Business Review includes an article, "Pricing to create shared value", offering five pricing principles the authors claim can shift the traditional dynamic away from a zero-sum value extraction game.

Marco Bertini and John Gourville contend that "rethinking the way prices are set can expand the pie for everyone." The authors encourage suppliers to:

  • Focus on relationships, not on transactions
  • Be proactive, setting prices in ways that encourage mutually beneficial behaviors
  • Place a premium on flexibility
  • Promote transparency, offering consumers a coherent pricing rationale; and
  • Manage the market's standard for fairness

The work builds on an earlier HBR article, "Creating shared value", by Michael Porter and Mark Kramer, who defined the term:

"Shared value [is not] about 'sharing' the value already created by firms – a redistribution approach. Instead, it is about expanding the total pool of economic and social value."

Bertini and Gourville offer a number of examples of both good and poor pricing strategies. The favorable cases include the upcoming Olympic Games in London, Hilti (a tool manufacturer), Amazon, SKF Group (a bearing manufacturer), China Telecom and IKEA.

Both magazine and book publishers might gain from a focus on shared value. If relationships mattered more than transactions, long-term magazine subscribers might be offered the best deals, not the worst. If book publishers wanted to encourage mutually beneficial behavior, they might move more quickly to offer their most frequent readers a subscription option.

Publishing as a whole might be surprised to see a lift from greater transparency on prices. I might renew a subscription earlier (or not let one lapse) if I didn't think a cheaper price was just one more mailing away.

Managing the market's standard for fairness might have kept book publishers away from "windowing" eBook releases and even agency pricing, another attempt to protect demand for front-list hardcover books. Although "agency" was never synonymous with "higher pricing", the digital versions of books in most immediate demand were frequently offered at prices that the bulk of the market deemed unreasonably high.

While Bertini and Gourville aren't idealists (that role falls more quickly to me), some of their ideas might seem hard to implement in publishing. But if we really want direct relationships with customers (and publishers say they do), we need to develop the tools that help us meet audiences wherever they are.

About Brian O'Leary

Founder and principal of Magellan Media Consulting, Brian O’Leary helps enterprises with media and publishing components capitalize on the power of content. A veteran of more than 30 years in the publishing industry and a prolific content producer himself, Brian leverages the breadth and depth of his experience to deliver innovative content solutions.