Review

One of the better books on pricing. The key insight is that customers can value the same product differently, and you can uncover hidden profits by understanding what your customers value and introducing different price points and offerings to capture their demand. I love that this approach takes the pressure off defining a single "magic price" that maximizes profit. However, the author didn't discuss how to mitigate showing or communicating the inevitably more complicated product-price offerings—to me, that's a significant oversight.

You Might Also Like

Curious about how are these recommendations generated? Learn more.

Don’t Just Roll the Dice

A crucial aspect of product management is balancing value exchange between users and the business. While responsibility for pricing may be ambiguous, all Product Managers should be adept at discussing pricing strategies and evolving business models. This tiny book covers some of the basic fundamental of software pricing.

andrewclark.co.uk

Tilt

Although I remain somewhat skeptical about the theory in this book, there’s no denying that there’s some practical discovery advice in here. The author’s generous list of exploratory questions will unlock value for most companies if followed to their conclusion.

andrewclark.co.uk

Monetising Innovation

The key insight of this book resonated strongly with me: pricing and customer value should be placed at the beginning of the innovation process, not the end. The book challenges traditional product-first thinking, instead advocating for starting with market needs and price points to create solutions customers truly value. This is a critical message for product managers - it's too easy to postpone pricing discussions until the end of the process, by which time it's likely too late.

andrewclark.co.uk

Key Takeaways

The 20% that gave me 80% of the value.

The conventional belief in a single "perfect" price for each product is fundamentally flawed. Different customers value the same products differently, creating opportunities for hidden profits through multi-tiered pricing strategies. The core insight is simple but powerful: pricing isn't just about setting numbers—it's about creating strategies to serve as many customers as possible while maximising profits.

Value, not cost, should drive pricing decisions. While costs set an important floor (pricing below incremental costs is unsustainable), they shouldn't dictate your pricing ceiling. Customers pay based on the value they perceive, not your production expenses. This explains why umbrella prices can double during rainstorms—the immediate solution to getting soaked becomes more valuable in that moment.

Even small pricing adjustments can significantly impact profitability. Rather than developing new products, companies can often achieve greater growth by intelligently adjusting how they price and sell existing offerings. These adjustments can typically be implemented quickly, creating immediate profit improvements.

A profit-focused culture ensures everyone understands how their decisions affect the bottom line. This shared mindset helps organisations identify opportunities and implement changes that generate significant new gains. When properly established, this culture becomes self-sustaining, continuously uncovering hidden profit opportunities. Practical steps to build this culture include: sharing margin information with frontline staff so they know which products, customers, and transactions are most profitable; establishing clear discount guidelines to prevent pricing below incremental costs and ensure discounts remain targeted; building product confidence so everyone understands why offerings are worth their price; plugging leaks by eliminating unclear promotions and unprofitable discounts; and measuring the right metrics tied to profitability rather than just sales volume. Some organisations create cross-departmental pricing councils to coordinate decisions, ensure consistent policies, and identify new profit opportunities—embedding accountability throughout the company structure.

The Value Decoder helps determine how much customers are willing to pay by analysing factors that shape perceived value. This framework has five key components:

1. Price & Availability of Substitutes: how competing products affect what customers will pay
2. Characteristics Relative to Competitors: how your offering stands out in terms of brand perception, convenience, quality, attributes/features, service, and style
3. Income: how customer wealth affects willingness to pay
4. Price/Strength of Demand for Related Products: how interdependent items impact perceived value
5. Market Environment: how external forces like trends, news, and timing affect perception

This framework helps identify exactly why different customers arrive at different valuations and where hidden profits may be found.

Rather than seeking one "perfect price," the book advocates for a multi-price mindset using three core strategies. The first strategy is Differential Pricing, which involves selling the same product at different prices to different customer segments to capture more overall profit. Seven key differential pricing techniques include:

1. Customer characteristics: using traits like age or organisation type to determine who receives discounts
2. Hurdles: requiring price-sensitive buyers to perform actions like using coupons or submitting rebates to get discounts
3. Time: leveraging customer willingness to pay more for immediate access
4. Quantity discounts: offering lower unit prices for larger purchases
5. Distribution: setting different prices based on sales channel or location
6. Mixed bundling: selling items individually or in discounted packages
7. Negotiation: customising prices based on individual customer signals

The second core strategy is Versioning, which involves creating variations of the same product at different price points to accommodate diverse customer needs and budgets. Seven approaches to versioning include:

1. A la carte: offering a base model with optional premium add-ons
2. More is better: adding quantity, quality, or premium content for higher-paying customers
3. Less can be profitable: stripping features to attract cost-sensitive customers
4. Add variety: creating horizontal variations to draw in new segments
5. Expedited service: charging premiums for faster turnaround
6. Avoid the wait: monetising convenience with skip-the-line options
7. Uncertainty: selling options that manage risk for either buyer or seller

The third core strategy is Segment-Based Pricing, which introduces new payment methods or usage models without changing the product itself. Ten segment-based pricing techniques include:

1. Interval ownership: splitting items into smaller units like timeshares
2. Bundling: combining products into convenient packages
3. Leasing: making larger purchases affordable through regular payments
4. Prepaid: requiring upfront deposits for usage over time
5. Rental: offering short-term use without ownership
6. Two-part pricing: combining entry fees with per-use charges
7. Hurdles: creating conditions that segment audiences without overt discrimination
8. Payment plans: spreading costs over time to match customer cash flow
9. Customised: tailoring prices to specific usage patterns
10. All-you-can-eat: charging fixed rates for unlimited usage

Beyond capturing value, pricing is also an art that influences perceptions. Strategic refinements can enhance customer psychology and market positioning. These include psychological pricing techniques (using 9-endings for value perception or 0-endings for premium positioning); prestige pricing (setting higher prices to convey status and quality); anchor pricing (positioning products against expensive alternatives to create perceived bargains); framing costs (breaking large sums into smaller chunks to ease purchase decisions); and creating a bargain feel (highlighting discounts to appeal to deal-seeking behaviour).

Sometimes holding prices below what a strict value calculation suggests makes strategic sense—to generate publicity, to ensure selling to the right customers (especially loyal ones), to encourage repeat purchases, or to align with customer psychological thresholds. There are also four situations where fairness particularly matters:

1. When dealing with customers unfamiliar with value-based approaches
2. In established relationships where pricing is viewed as an emotional bond
3. When price differences become transparent
4. For essential products with few substitutes

Implementation can begin with two immediate steps: build a profit culture by helping staff understand how small price changes affect margins, and align prices with perceived customer value. Organise a pricing summit to reaffirm how your product delivers value; reveal top margins to guide sales emphasis; identify underperforming promotions; brainstorm new pricing approaches; address potential fairness concerns; and consider psychological pricing adjustments.

Even a 1% net price improvement can generate double-digit profit increases—often making the difference between merely covering costs and achieving significant growth. The path to improving profits typically involves less about launching new products and more about smartly adjusting how existing offerings are priced and sold. By recognising that different customers value things differently, and implementing differential pricing, versioning, and segment-based pricing strategies, businesses can uncover substantial hidden profits while better serving diverse customer needs.

Deep Summary

Longer form notes, typically condensed, reworded and de-duplicated.

Chapter 1: Hidden Profits

Conventional thinking assumes there is a single "perfect" price for each product or service. This often leads to a profit-leaking dilemma: price too high and lose customers unwilling to pay that much, or price too low and forfeit profits from those who would pay more. In reality, people value things differently. Recognising this fact uncovers a range of hidden profits that most businesses fail to capture.

Pricing isn't just about setting numerical prices; it's about creating a set of strategies to serve as many customers as possible in a manner that maximises your company's profits.

We should take a deliberate approach that considers the varied demands of different customer segments.

Hidden profits arise when firms overlook the fact that different customers are willing to pay different amounts, or would happily buy if offered different purchasing plans. Many companies simply pick a price that feels "safe" or that follows competitors, leaving money on the table and missing out on growth opportunities. Adopting a multi-price mindset (offering different price levels or structures) can help businesses quickly tap into undiscovered profits.

Pricing is critical because it directly transforms the value created by the product into revenue and profits. Studies show even small price changes can make a disproportionate impact on profitability. Paying attention to these nuances of pricing can often be the difference between just covering costs and achieving significant growth. Once companies acknowledge this, they discover that the path to improving profits may be less about launching new products and more about smartly adjusting how they price and sell existing offerings.

Crucially, these changes can often be implemented quickly. Adopting a multi-price mindset can mean offering premium versions or discounted tiers, bundling products differently, or experimenting with new payment options to serve customers with varying preferences. This approach capitalises on the simple fact that customers are different. Instead of searching for one perfect price, dynamic or tiered strategies let firms capture more value from those willing to pay extra while still attracting additional customers who might otherwise opt out at higher prices.

Chapter 2: The Culture of Profit

A culture of profit is a shared mindset that ensures everyone in a company understands how their decisions affect profits—and takes responsibility for improving them. This goes beyond a single department: marketing, sales, finance, distribution, and senior executives all play a role in pricing. When a culture of profit is in place, two main benefits emerge:

• Straightforward, incremental changes can generate sizeable new gains ("Basic Information + Small Changes = Large Benefits")
• The mindset endures and becomes self-sustaining, guiding the organisation to continually find hidden profit opportunities.

Empowering employees and giving them the freedom to drive profitability by:

• Sharing information: Get the right information about margins to frontline staff. They should know which products, customers, and transactions are most profitable so they can prioritise their time and attention.
• Having clear guidelines on when to cut prices: Avoid dropping below incremental costs, ensure discounts remain targeted and discreet and don't let discounted sales crowd out those willing to pay full price.
• Creating confidence in your product: Everyone should understand why the product or service is worth its price. With this clarity, they can hold firm and demonstrate genuine enthusiasm for the value customers receive.

Plugging leaks in pricing policies calls for a thorough look at how discounts and promotions are granted.

• Eliminate unclear or overlapping promotional offers that encourage over-discounting
• Weed out any ongoing or one-off promotions that lose money or attract the wrong customers.
• Selectively reward loyal, profitable customers, avoid giving premium perks to everyone.
• Shift from fixating on sales volume or market share to tracking the right metrics—those tied directly to profitability.

Revisiting metrics is especially important. If a sales team is measured purely on how many units it sells, deep discounts become routine. Instead, measure performance based on profit per sale, net price after promotions, or overall margin improvements. Conducting a "naked price audit"—subtracting all discounts from the invoice price—often reveals that different customers are paying wildly different net amounts. This might be perfectly valid in some cases, but it should always be intentional and aimed at maximising overall profitability rather than randomly distributing discounts.

Pricing touches so many parts of the business that it makes sense to configure your organisation around it. Some companies form cross-departmental pricing councils to coordinate decisions, ensure consistent policies, and identify new profit opportunities. By embedding this accountability into the company's structure, everyone remains vigilant about pricing and can react quickly when changes in the market or customer behaviour create opportunities—or risks.

Chapter 3: It’s All About Value

The price of an umbrella changes with weather conditions. Customers pay for value, not cost. A vendor can double the price when it rains because an immediate solution to getting soaked is more valuable at that moment. This insight frames all pricing decisions: if demand or context raises the product's perceived value, price can follow.

Value, rather than cost, is the true foundation of pricing. Costs are important but only as a guide to setting a floor—pricing below incremental costs is unsustainable. But simply adding a markup to costs is a pricing fallacy; customers don't decide what to pay based on production expenses. Instead ask: How much value does this product provide, and what will customers pay for that value?

Value-based pricing has caveats. Competition limits how much you can charge before rivals lure customers away. Certain events, like natural disasters can trigger ethical issues. Finally, some strategies (like Sony's pricing on the PlayStation) reflect a bigger picture: a modest base price may be essential for selling complementary products over time and maximising the profit of a bigger ecosystem.

Outside of core pricing companies can leverage what they know about customers to create new offers:

• Enhanced Service: Additional or personalised services that customers will happily pay extra for, such as fast scheduling, priority access, or boutique-style attention.
• Insurance: Extended warranties and other assurances give customers peace of mind and generate high-margin revenue.
• Financing: Offering payment plans or private-label credit cards can attract more buyers and boost profits beyond the core product's sale.

Profiting from value often means to "stop giving it away." A small tweak like charging more for appointments at a barbershop can yield pure profit if customers genuinely value saving time. Different prices can also shift customer behaviour, as seen in discounted weekend rates that fill vacant hotels. Uniform pricing across markets often ignores local differences in value and competition, leaving hidden profits untouched.

Expanding pricing capabilities involves recognising that different customers assign different values to the same product. Two-tier or multi-tier structures (like higher subscription rates for out-of-town buyers or city-specific hotel discounts) let firms capture these disparities. Viewing price as more than a single number but rather as a flexible set of strategies unlocks new margins, loyal customers, and lasting growth.

Chapter 4: Lessons from An Auction

Value is in the eye of the beholder. Auctions show people drop out of bidding at different points because they each have a unique sense of how much an item is worth. Value is subjective, one person might pay a fortune for a rare collectible while another sees no value in it at all.

Price has a superpower-like influence on demand. A small cut can shift people from “not interested” to “I’ll buy it,” while a higher figure can prompt them to walk away. This direct link to market behaviour makes price a swift lever for adjusting sales, whether to boost volume or to maximise margins.

Recognising that different people place different values on the same product opens up opportunities for a multi-price mindset. Remember how people differ:

• People will value the same product differently.
• People will value specific features or options differently
• People will have different preferences to payment plans

When well-handled, multiple pricing options can draw in more customers and capture higher profits. There are 3 primary strategies to the multi-price approach:

1. Differential pricing: Offering the same product at varied prices to suit different customers (e.g., discounts for seniors or students).
2. Versioning: Creating different quality or feature levels, so those willing to pay more can do so while cost-sensitive buyers still participate at a lower price point.
3. Segment-based pricing: Designing entirely new ways to package or sell a product, attracting untapped segments, such as leasing schemes or bundled options.