Product Pricing

WSJ has a fascinating story on how one company prices its product:

In early 2001, shortly after Donald Washkewicz took over as chief executive of Parker Hannifin Corp., he came to an unnerving conclusion. The big industrial-parts maker’s pricing scheme was crazy.

While touring the company’s 225 facilities in 2001, Mr. Washkewicz had an epiphany: Parker had to stop thinking like a widget maker and start thinking like a retailer, determining prices by what a customer is willing to pay rather than what a product costs to make. Such “strategic” pricing schemes are used by many different industries. Airlines know they can get away charging more for a seat to Florida in January than in August. Sports teams raise ticket prices if they’re playing a well-known opponent. Why shouldn’t Parker do the same, Mr. Washkewicz reasoned.

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