Pricing and Revenue Analytics Readings
Sommario
Reading Class 1- “The Six Pricing Myths That Kill Profits”, Andreas Hinterhuber (2016). ... 2
Core Idea ............................................................................................................................. 2
1. Pricing Guided by Principles or Driven by Myths? ................................................................ 2
The Six Pricing Myths and Their Truths ................................................................................... 3
Myth 1 – Costs → Price ............................................................................................................................ 3
Myth 2 – Small Price Changes Don’t Matter .............................................................................................. 3
Myth 3 – Customers Are Very Price Sensitive............................................................................................ 4
Myth 4 – Products Can’t Be DiCerentiated................................................................................................ 4
Myth 5 – High Market Share = High Profit .................................................................................................. 4
Myth 6 – Managing Price = Changing Price ............................................................................................... 4
3. Why Executives Cling to Myths .......................................................................................... 4
4. Guiding Principles of Pricing Excellence ............................................................................ 5
Exam Focus Checklist .......................................................................................................... 5
Reading 2 – "Pay What You Want: A New Participative Pricing Mechanism" ..................... 5
1. Introduction to Pay What You Want (PWYW) Pricing Mechanism.......................................... 5
Background on Participative Pricing: ....................................................................................................... 5
2. Theoretical Framework: .................................................................................................... 6
Economic and Behavioral Motivations for PWYW: .................................................................................... 6
Why Do Consumers Pay More Than Zero? ................................................................................................ 6
3. PWYW: Definition and Classification ................................................................................. 6
4. Previous Research on Participative Pricing ......................................................................... 6
5. Motivations Behind Payment in PWYW ............................................................................... 7
Motivating Factors:................................................................................................................................. 7
6. Field Studies..................................................................................................................... 7
Study 1: Restaurant BuCet (Frankfurt, Germany): ..................................................................................... 7
Study 2: Cinema Tickets: ........................................................................................................................ 7
Study 3: Hot Beverages (Delicatessen): ................................................................................................... 8
7. Factors Influencing Price Paid in PWYW ............................................................................. 8
8. Revenue Impact for Sellers ............................................................................................... 8
Revenue Analysis: .................................................................................................................................. 8
9. Conclusion: ...................................................................................................................... 8
10. Future Research Directions: ............................................................................................ 9
Key Takeaways: .................................................................................................................... 9
Reading 3 - A comprehensive examination of own- and cross-price elasticities of tobacco
and nicotine replacement products in the U.S .............................................................. 9
Purpose and Context ............................................................................................................ 9
Data and Method .................................................................................................................. 9
Key Findings ....................................................................................................................... 10
1
, 1. Own-price Elasticities....................................................................................................................... 10
2. Cross-price Elasticities (Substitution vs. Complementarity) ............................................................... 10
Interpretation and Policy Implications ................................................................................. 11
Limitations......................................................................................................................... 11
Exam-relevant Takeaways ................................................................................................... 11
Reading 4 - Violations of Rational Choice Principles in Pricing Decisions ..................... 11
2. Customer Perspective – Biases in Purchase Price Decisions ............................................................... 12
3. Manager Perspective – Biases in Price Setting .................................................................................... 14
4. Overall Insights ................................................................................................................................ 15
5. Outlook............................................................................................................................................ 15
Link to Your Lecture (Pricing2025 – L2)................................................................................................... 15
Reading 5 - Sales Promotion: The Long and the Short of It ............................................ 16
Reading Class 6: Toward an Understanding of Price Wars ............................................ 20
1. Why Price Wars Matter .................................................................................................... 20
2. What Exactly Is a Price War? (Key Exam Definition) ........................................................... 20
3. What Triggers Price Wars? – Early Warning Signals (EWSs) ................................................ 21
A. Market-level EWSs ........................................................................................................................... 21
B. Firm-level EWSs ............................................................................................................................... 21
C. Product-level EWSs .......................................................................................................................... 22
D. Consumer-level EWSs ...................................................................................................................... 22
4. Key Insights From Game Theory ....................................................................................... 22
5. E\ects of Price Wars ....................................................................................................... 23
6. What Managers Should Do .............................................................................................. 23
Ultra-Short Summary.......................................................................................................... 23
Reading Class 1- “The Six Pricing Myths That Kill Profits”,
Andreas Hinterhuber (2016).
Core Idea
Pricing is the single most powerful driver of profits, yet it is poorly managed.
Most managers hold six persistent myths that distort pricing decisions and destroy
profitability.
Hinterhuber’s goal is to replace these myths with evidence-based, value-oriented pricing
principles.
1. Pricing Guided by Principles or Driven by Myths?
• Fewer than 5 % of firms have a Chief Pricing Officer; responsibility is scattered across
sales, finance, and marketing.
• As a result, pricing often “falls between the cracks.”
• Case contrast:
2
, o General Motors (GM): pursued market share, discounted heavily, treated cars
as commodities → bankruptcy.
o Continental AG: invested in systems, processes, and value-based selling →
among the most profitable suppliers.
Lesson: Firms fail when pricing is myth-driven and succeed when guided by
value-based principles.
The Six Pricing Myths and Their Truths
# Myth Truth Key Learning
1 Costs are the basis Pricing must be based on Understand and create
for pricing customer value and customer value; costs set the
willingness to pay (WTP) floor, not the price.
2 Small price Tiny price shifts have huge “Fight for pennies”; train sales
changes have little effects on profit (1 % ↑ price ≈ to defend list prices.
impact +5-20 % profit)
3 Customers are Most consumers don’t know orSegment markets; serve price-
highly price notice small price differences (<
driven vs value-driven
sensitive 2 %) segments differently.
4 Products are Even “commodities” can be Differentiation is perceptual:
difficult to differentiated design, branding, service,
differentiate storytelling.
5 High market share Market share and profitabilityPursue customer-insight
= high profit are not correlated leadership, not share; profit >
volume.
6 Managing price Managing price = improving Quantify and prove value;
means changing value communication, systems, teach sales to sell ROI rather
price and skills than cut prices.
Myth 1 – Costs → Price
• Problem: Firms love cost-plus pricing for its “security,” but it ignores demand.
• Evidence: Only 15–20 % of firms use value-based pricing; those achieve higher
profitability (Liozu & Hinterhuber 2013b).
• Examples:
o Nike shifted from cost-plus to consumer-value pricing → surge in profits.
o Car metallic paint costs ≈ $80 but sells $600-1500 → price reflects WTP, not cost.
• Quote: “It is better to be approximately right (value-based) than precisely wrong (cost-
based).”
Myth 2 – Small Price Changes Don’t Matter
• 1 % price increase → ≈ 11 % profit gain (Marn & Rosiello 1992).
• At low margins (e.g., VW 3.5 %), effect ≈ +28 %.
• Managers underestimate this leverage, give sales too much discount authority.
• Practice: Teach teams to “fight for every penny.”
3
Sommario
Reading Class 1- “The Six Pricing Myths That Kill Profits”, Andreas Hinterhuber (2016). ... 2
Core Idea ............................................................................................................................. 2
1. Pricing Guided by Principles or Driven by Myths? ................................................................ 2
The Six Pricing Myths and Their Truths ................................................................................... 3
Myth 1 – Costs → Price ............................................................................................................................ 3
Myth 2 – Small Price Changes Don’t Matter .............................................................................................. 3
Myth 3 – Customers Are Very Price Sensitive............................................................................................ 4
Myth 4 – Products Can’t Be DiCerentiated................................................................................................ 4
Myth 5 – High Market Share = High Profit .................................................................................................. 4
Myth 6 – Managing Price = Changing Price ............................................................................................... 4
3. Why Executives Cling to Myths .......................................................................................... 4
4. Guiding Principles of Pricing Excellence ............................................................................ 5
Exam Focus Checklist .......................................................................................................... 5
Reading 2 – "Pay What You Want: A New Participative Pricing Mechanism" ..................... 5
1. Introduction to Pay What You Want (PWYW) Pricing Mechanism.......................................... 5
Background on Participative Pricing: ....................................................................................................... 5
2. Theoretical Framework: .................................................................................................... 6
Economic and Behavioral Motivations for PWYW: .................................................................................... 6
Why Do Consumers Pay More Than Zero? ................................................................................................ 6
3. PWYW: Definition and Classification ................................................................................. 6
4. Previous Research on Participative Pricing ......................................................................... 6
5. Motivations Behind Payment in PWYW ............................................................................... 7
Motivating Factors:................................................................................................................................. 7
6. Field Studies..................................................................................................................... 7
Study 1: Restaurant BuCet (Frankfurt, Germany): ..................................................................................... 7
Study 2: Cinema Tickets: ........................................................................................................................ 7
Study 3: Hot Beverages (Delicatessen): ................................................................................................... 8
7. Factors Influencing Price Paid in PWYW ............................................................................. 8
8. Revenue Impact for Sellers ............................................................................................... 8
Revenue Analysis: .................................................................................................................................. 8
9. Conclusion: ...................................................................................................................... 8
10. Future Research Directions: ............................................................................................ 9
Key Takeaways: .................................................................................................................... 9
Reading 3 - A comprehensive examination of own- and cross-price elasticities of tobacco
and nicotine replacement products in the U.S .............................................................. 9
Purpose and Context ............................................................................................................ 9
Data and Method .................................................................................................................. 9
Key Findings ....................................................................................................................... 10
1
, 1. Own-price Elasticities....................................................................................................................... 10
2. Cross-price Elasticities (Substitution vs. Complementarity) ............................................................... 10
Interpretation and Policy Implications ................................................................................. 11
Limitations......................................................................................................................... 11
Exam-relevant Takeaways ................................................................................................... 11
Reading 4 - Violations of Rational Choice Principles in Pricing Decisions ..................... 11
2. Customer Perspective – Biases in Purchase Price Decisions ............................................................... 12
3. Manager Perspective – Biases in Price Setting .................................................................................... 14
4. Overall Insights ................................................................................................................................ 15
5. Outlook............................................................................................................................................ 15
Link to Your Lecture (Pricing2025 – L2)................................................................................................... 15
Reading 5 - Sales Promotion: The Long and the Short of It ............................................ 16
Reading Class 6: Toward an Understanding of Price Wars ............................................ 20
1. Why Price Wars Matter .................................................................................................... 20
2. What Exactly Is a Price War? (Key Exam Definition) ........................................................... 20
3. What Triggers Price Wars? – Early Warning Signals (EWSs) ................................................ 21
A. Market-level EWSs ........................................................................................................................... 21
B. Firm-level EWSs ............................................................................................................................... 21
C. Product-level EWSs .......................................................................................................................... 22
D. Consumer-level EWSs ...................................................................................................................... 22
4. Key Insights From Game Theory ....................................................................................... 22
5. E\ects of Price Wars ....................................................................................................... 23
6. What Managers Should Do .............................................................................................. 23
Ultra-Short Summary.......................................................................................................... 23
Reading Class 1- “The Six Pricing Myths That Kill Profits”,
Andreas Hinterhuber (2016).
Core Idea
Pricing is the single most powerful driver of profits, yet it is poorly managed.
Most managers hold six persistent myths that distort pricing decisions and destroy
profitability.
Hinterhuber’s goal is to replace these myths with evidence-based, value-oriented pricing
principles.
1. Pricing Guided by Principles or Driven by Myths?
• Fewer than 5 % of firms have a Chief Pricing Officer; responsibility is scattered across
sales, finance, and marketing.
• As a result, pricing often “falls between the cracks.”
• Case contrast:
2
, o General Motors (GM): pursued market share, discounted heavily, treated cars
as commodities → bankruptcy.
o Continental AG: invested in systems, processes, and value-based selling →
among the most profitable suppliers.
Lesson: Firms fail when pricing is myth-driven and succeed when guided by
value-based principles.
The Six Pricing Myths and Their Truths
# Myth Truth Key Learning
1 Costs are the basis Pricing must be based on Understand and create
for pricing customer value and customer value; costs set the
willingness to pay (WTP) floor, not the price.
2 Small price Tiny price shifts have huge “Fight for pennies”; train sales
changes have little effects on profit (1 % ↑ price ≈ to defend list prices.
impact +5-20 % profit)
3 Customers are Most consumers don’t know orSegment markets; serve price-
highly price notice small price differences (<
driven vs value-driven
sensitive 2 %) segments differently.
4 Products are Even “commodities” can be Differentiation is perceptual:
difficult to differentiated design, branding, service,
differentiate storytelling.
5 High market share Market share and profitabilityPursue customer-insight
= high profit are not correlated leadership, not share; profit >
volume.
6 Managing price Managing price = improving Quantify and prove value;
means changing value communication, systems, teach sales to sell ROI rather
price and skills than cut prices.
Myth 1 – Costs → Price
• Problem: Firms love cost-plus pricing for its “security,” but it ignores demand.
• Evidence: Only 15–20 % of firms use value-based pricing; those achieve higher
profitability (Liozu & Hinterhuber 2013b).
• Examples:
o Nike shifted from cost-plus to consumer-value pricing → surge in profits.
o Car metallic paint costs ≈ $80 but sells $600-1500 → price reflects WTP, not cost.
• Quote: “It is better to be approximately right (value-based) than precisely wrong (cost-
based).”
Myth 2 – Small Price Changes Don’t Matter
• 1 % price increase → ≈ 11 % profit gain (Marn & Rosiello 1992).
• At low margins (e.g., VW 3.5 %), effect ≈ +28 %.
• Managers underestimate this leverage, give sales too much discount authority.
• Practice: Teach teams to “fight for every penny.”
3
