VeraSage

Recommended Reading

A man without a favorite author is a lost soul.
He remains an unimpregnated ovum, an unfertilized pistil.
One’s favorite author . . . is pollen for his soul.
—Lin Yutang, The Importance of Living, 1937

To deepen your learning of the topics explored by VeraSage and Ron Baker’s books, we provide the following suggested reading list including some of the best books written by leading thinkers.

Recommending books to others can be much like arranging a blind date. That probably explains why so many business books are never fully read. Nevertheless, we offer a long list, by topic, of strong intellectual capital. Several of our suggestions offer Ron Baker’s brief commentary on the book.

Ron is Currently Reading…

Ron’s Top Book Picks: Business

Antitrust Law

Dominick T. Armentano. Antitrust and Monopoly: Anatomy of a Policy Failure (second edition); and Antitrust: The Case for Repeal (revised second edition). Among the best books available repudiating antitrust policy and the unfounded economic assumptions that underlie it. They explode one myth after another, with historical accuracy and empirical evidence. After reading these volumes, you will understand why the majority of economists reject so many antitrust laws.

Robert H. Bork. Antitrust Paradox: A Policy at War With Itself. Judge Robert Bork provides a critique of the antitrust laws, and how they do not, for the most part, benefit consumers or increase economic welfare.

John R. Lott, Jr. Are Predatory Commitments Credible?: Who Should the Courts Believe? Lott conducts an empirical analysis of the accusation of predatory pricing over a 30-year period, concluding that predatory pricing is not an important phenomenon among profit-maximizing firms, thereby shattering one of the enduring myths of business folklore.

Richard Posner. Antitrust Law (second edition). Judge Richard Posner’s first edition of this work was considered a jeremiad against antitrust practices. In this edition, Posner admits the laws are here to stay, makes the argument that they exist to promote economic welfare, and offers new perspectives on dealing with vexing questions of the new economy, such as software, communication companies, and Internet service providers.

George J. Stigler. The Economist as Preacher and Other Essays; and Memoirs of an Unregulated Economist. This 1982 Nobel Prize–winning economist appeared before Congress in 1950 advocating that U.S. Steel Corporation be broken up. At the beginning of his career, Stigler was a proponent of vigorous antitrust enforcement. After studying the topic for most of his career, he concluded that the laws were counterproductive. These books are not his more scholarly works on the topic, but provide insight into why he changed his mind on antitrust laws over the course of his distinguished career.

Economics

Gary S. Becker. The Economics of Life. Becker is the 1992 Nobel Laureate, and this book is a compendium of his popular monthly columns from Business Week. Becker is famous for applying economics to a wide variety of public policy issues, from discrimination and marriage and family, to crime and punishment.

David D. Friedman. Price Theory: An Intermediate Text (second edition); and Hidden Order: The Economics of Everyday Life. David Friedman is Milton and Rose Friedman’s son and an outstanding economist from Santa Clara University. Both of these books are an excellent read, the latter being especially entertaining.

Milton and Rose Friedman. Free to Choose: A Personal Statement; Capitalism and Freedom; and Two Lucky People. Milton and Rose Friedman are each eminent economists, and these books are classics, and a must-read for anyone who wants an understanding of how free markets work.

**TOP CHOICE George Gilder. Recapturing the Spirit of Enterprise; and Wealth and Poverty: A New Edition of the Classic. In Baker’s opinion, Gilder is the best writer and thinker on economics, sociology, technology, and entrepreneurship that you will find. Discovery of his work, Wealth and Poverty, in 1981, forever altered his vision of the way the world works. These two books are Gilder’s classics, but he has written many others. If you read only two books from this entire list, read anything by Gilder—twice. Gilder is a senior fellow at Seattle’s Discovery Institute (http://www.discovery.org).

Henry Hazlitt. Economics in One Lesson. This book is a classic, originally published in 1946, written by a self-taught economist who worked as a journalist. F.A. Hayek said of this work, “It is a brilliant performance. It says precisely the things which need most saying and says them with a rare courage and integrity. I know of no other modern book from which the intelligent layman can learn so much about the basic truths of economics in so short a time.”

John Kay. The Business of Economics; Foundations of Corporate Success: How Business Strategies Add Value; and Culture and Prosperity. Kay is one of Great Britain’s leading economists, currently a visiting professor at the London School of Economics. Quite adept at explaining economic theory and how it applies to real-life business situations, his books are not easy reads, but worth the effort to understand how economic theory and business really are complements. Learn more about Kay at http://www.johnkay.com.

Steven E. Landsburg. The Armchair Economist: Economics and Everyday Life; Price Theory and Applications (fifth edition); and Fair Play: What Your Child Can Teach You About Economics, Values, and the Meaning of Life. Like David Friedman, Landsburg is an incredibly brilliant economist, besides being an excellent and entertaining writer. He will no doubt challenge, and in many cases persuade, you with his cogent analysis of contemporary issues. Fair Play is a book written for his young daughter, and relates complex economic issues down to the child’s sandbox—a truly fascinating read. To read Landsburg’s Everyday Economics columns, go to http://www.slate.com.

Steven D. Levitt. Freakonomics. Levitt is another dynamic economist applying price theory to the study of a multitude of current topics in this best-selling book, and reaching some unconventional—and sometimes controversial—conclusions. An astounding read. He is the director of the Initiative on Chicago Price Theory at the University of Chicago, and winner of the John Bates Clark Medal, awarded to the best American economist, every two years, under the age of 40.

Charles Murray. Human Accomplishment. Although not an economics book per se, it is such an important work it is worthy of inclusion in the study of human behavior. Murray studied outstanding human accomplishment from 800 B.C. to 1950, and concludes we stand on the shoulders of 4,002 individuals who invented, created, or otherwise innovated all human progress in the sciences (including technology), philosophy, music, visual arts, and literature. What is astonishing about these 4,002 individuals is that the mean age at the time of their contribution was 40. This book proves that there is, indeed, such thing as a free lunch. A good companion read is Benjamin Jones, “Age and Great Invention” available at http://www.kellogg.northwestern.edu/faculty/jones-ben/htm/Research.htm.

**TOP CHOICE Mark Skousen. Puzzles and Paradoxes in Economics; The Making of Modern Economics: The Lives and Ideas of the Great Thinkers; The Power of Economic Thinking; and Vienna and Chicago: Friends or Foes? Skousen is one of Baker’s favorite writers, and does an excellent job with the history of economics ideas, especially from an Austrian perspective. Each of these four books is an excellent read, the second one an engaging and engrossing survey of the leading economics thinkers, providing not only a summary of their work, but also their private and personal lives, while the last is an examination of the differences––and commonalities––between the Chicago and Austrian schools of economics.

Adam Smith. The Theory of Moral Sentiments (1759); and An Inquiry into the Nature and Causes of the Wealth of Nations (1776). These are Smith’s major books, which are the basis for the classical economics view of markets. Smith is wrongly attributed with saying—or making the case that—greed is good; he never said or implied any such thing. He believed in a system of natural liberty, operating under the guidance of an “invisible hand.” For an excellent summary of Smith’s thinking, in the genre of an academic novel, see Saving Adam Smith, by Jonathan B. Wight, a well-written, innovative work of economics history. The Liberty Fund has an excellent electronic library of each of Smith’s works, which you can search by topic, keyword, phrases, and so forth, at http://www.econlib.org.

Thomas Sowell. Applied Economics: Thinking Beyond Stage One; and Basic Economics: A Citizen’s Guide to the Economy (revised and expanded edition). Thomas Sowell is one of the nation’s leading economics writers and scholastic thinkers, and is the Rose and Milton Friedman Senior Fellow on Public Policy at the Hoover Institution, Stanford University. What is extraordinary about these works is that Sowell explains economics without using any graphs, equations, or charts, and makes the complex quite understandable. He has written many books, all of which are worth reading. Learn more about Thomas Sowell at http://www.tsowell.com.

Richard H. Thaler. The Winner’s Curse: Paradoxes and Anomalies of Economic Life. This book explains the famous winner’s curse (relevant to requests for proposals and other bidding situations). Thaler is one of the pioneers of a new area of research known as “behavioral finance” and offers many interesting examples and theories of human behavior, some of which challenge the economist’s assumption of rationality.

Knowledge Workers

Thomas H. Davenport.  Thinking for a Living:  How to Get Better Performance and Results from Knowledge Workers.  We are going to need more books like this, and more thinkers like Davenport, if we are going to keep Peter Drucker’s legacy alive of increasing the effectiveness of knowledge workers.  The fact that there are so many disagreements over the definition of a knowledge worker, their optimal working environment, how to manage them, among other points of contention, vivifies how much work is left to be done.

Richard Florida. The Rise of the Creative Class:  And How It’s Transforming Work, Leisure, Community and Everyday Life; and The Flight of the Creative Class:  The New Global Competition for Talent.  Florida is another thinker contributing to the knowledge worker topic, though he labels it the creative class.  While Baker has serious doubts about some of his proposals with respect to government “investing” in furthering creativity, his books are thought-provoking expositions of this important sector of the workforce, providing a global perspective on the coming competition for this type of talent.

Leadership

Gordon Bethune.  From Worst to First:  Behind the Scene’s of Continental’s Remarkable Comeback.  An excellent narrative on how one of the worst airlines was transformed into one of the best in a few years.  Bethune’s advice is common-sense leadership, with a focus on the customer, not the internal costs and finances of operating a business.  Worthwhile reading for anyone trying to change the culture of their business into one focused on the ultimate barometer of success:  creating loyal customers.

Stephen R. Covey.  The 8th Habit:  From Effectiveness to Greatness.  In this follow-up to his classic The 7 Habits of Highly Effective People, Covey provides a framework relevant to knowledge workers, even if a bit dense and convoluted.  Though Baker remains unconvinced by some of his arguments, such as his “5 ages of civilization”––from hunter/gatherer, agricultural, industrial, information/knowledge worker, to wisdom––which makes it sounds as if there was no wisdom prior to modern times (what about Aristotle, Adam Smith, etc.?).  That said, Covey does a wonderful job focusing on doing the right things (effectiveness) rather than doing things right (efficiency).

Management Consulting and Consultants

**TOP CHOICE Peter Block. The Answer to How is Yes: Acting on What Matters. This is a splendid book, detailing the importance of starting with “why” questions rather than “how” questions when confronted with any change. Anyone involved in changing people’s minds needs to read this illuminating and lucid book.

**TOP CHOICE Peter F. Drucker. Adventurers of a Bystander; Managing in a Time of Great Change; Management Challenges for the 21st Century; Managing in the Next Society; and Peter Drucker On the Profession of Management. Drucker is the one truly serious thinker the management consultant industry can point to with justifiable pride. Read anything, and everything, by Drucker. For excellent one book summaries of his life’s work, see The World According to Peter Drucker, by Jack Beaty, and Peter Drucker: Shaping the Managerial Mind, by John E. Flaherty.

John Micklethwait and Adrian Wooldridge. The Witch Doctors: What Management Gurus Are Saying and Why It Matters. This piercing work—by two editors from The Economist—gave voice to the backlash against the $100+ billion profession known as “consulting.” Although the authors bestow far too much power to the consultants in altering the course of life, referring to them as “the unacknowledged legislators of mankind,” their four defects of the “witch doctors” of our age are mortally accurate. The profession has yet to refute successfully the charges against it, so eloquently laid out in this book. For all those who have suffered through many a poorly written business book, Micklethwait and Wooldridge offer a refreshing alternative.

Richard Miniter. The Myth of Market Share: Why Market Share is the Fool’s Gold of Business. This little book makes a simple, but important, claim: Companies that pursue market share rather than profits hurt shareholders. A great read, which also provides the historical context for the term market share.

Henry Mintzberg.  Mintzberg On Management:  Inside Our Strange World of Organizations; and Managers Not MBAs:  A Hard Look at the Soft Practice of Managing and Management Development.  Mintzberg is Cleghorn Professor of Management Studies at McGill University in Montreal, Canada.  If you ever thought our business education—especially the MBA—is dysfunctional, you will find Mintzberg’s work compelling.  The second work is especially relevant, and Mintzberg is another management thinker who understands the importance of theory.

Marketing and Selling

Michael T. Bosworth. Solution Selling: A System for Difficult to Sell Products; and Customer Centric Selling. Both books look at the sales process from the perspective of the customer, how to focus on value-added services, and how a company’s sales methodologies can actually provide, in and of themselves, a competitive advantage.

**TOP CHOICE Seth Godin. Purple Cow: Transform Your Business by Being Remarkable. Godin has written many books on marketing, yet this is one of my favorites. The purple cow is the fifth P of marketing—how to make your product or service remarkable.

Christopher W. Hart. Extraordinary Guarantees: Achieving Breakthrough Gains in Quality and Customer Satisfaction. Examines the economics of offering your customers a 100 percent money back guarantee, especially for service firms. Required reading for any company wanting to utilize this strategy in order to gain a competitive advantage, add more value, and lower customer risk.

Theodore Levitt. “Marketing Myopia,” Harvard Business Review, September–October 1975; and “Marketing Success through Differentiation—of Anything,” Harvard Business Review, January–February 1980. Levitt is the marketer’s marketer, offering many thought-provoking insights, and forcing executives to think about their business from the perspective of the customer.

Neil Rackham. SPIN Selling; and Rethinking the Sales Force: Redefining Selling to Create and Capture Customer Value. The first book presents a sales method, backed by significant empirical evidence from effective sales forces around the world. The second book will help companies move from “transaction selling” to “consultative selling,” and finally to the most valuable relationship of all, “enterprise selling.”

Roy H. Williams. The Wizard of Ads: Turning Words into Magic and Dreamers into Millionaires; Secret Formulas of the Wizard of Ads; and Magical Words of the Wizard of Ads. Three splendidly written books with many insights into human behavior and effective advertising.

Mahan Khalsa. Let’s Get Real or Let’s Not Play: The Demise of Dysfunctional Selling and the Advent of Helping Clients Succeed. This book outlines a sales methodology focused on value, while recognizing that both the seller and the buyer have to benefit from the transaction. It is well written and the advice is practical.

Morality, Ethics, Capitalism, and Profits

Norman E. Bowie. Business Ethics: A Kantian Perspective. An interesting look at how philosopher Immanuel Kant’s teachings can be applied to the ethical issues facing business leaders today. Although Baker does not agree with all of the conclusions of the author, he says it is a thought-provoking book.

Peter F. Drucker. “What is Business Ethics,” The Public Interest, Spring 1981. In this article, Drucker challenges the whole notion of business ethics, arguing that if it continues to be discussed as separate from everyday right and wrong behavior, it will degenerate into casuistry. Claiming that it should not matter if a person acts as an employee of a manufacturer, hospital, or government agency, ethical behavior should be judged on standards of right and wrong, which is not specific, nor exclusive, to business enterprises.

**TOP CHOICE Milton Friedman. “The Social Responsibility of Business Is to Increase Its Profits.” The New York Times Magazine, September 13, 1970. In this most cited article on the issue of corporate social responsibility, Friedman argues that corporations should focus on what they do best—maximizing profits by offering valuable products and services to its customers, while staying well within the bounds of the law. Corporate managers—who are not owners—should not spend other people’s money on charitable programs. Not only are they not competent to judge the effectiveness of these programs, they are taking money out of the owner’s pockets. Far better to maximize profits, distribute them, and let individual shareholders make their own charitable decisions. As usual, Friedman offers a very compelling argument, even though Baker wishes he would claim profits are the result of offering value to customers, not the main purpose of a business.

George Gilder. “The Soul of Silicon.” Speech delivered to the Vatican (May 1997), published September 9, 1997. This is Gilder at his best. This is one of the best defenses of capitalism, free markets, profits, and the morality of enterprise ever written. See the George Gilder Archives at the Discovery Institute web site at http://www.discovery.org.

Richard John Neuhaus. Doing Well and Doing Good: The Challenge to the Christian Capitalist. An excellent book, exploring the moral foundations of work, enterprise, and profits, as well as the late Pope John Paul’s encyclical of May 1, 1991, Centesimus Annus (“The Hundredth Year”) Neuhaus is a theologian and editor of the religious magazine First Things.

Michael Novak. The Catholic Ethic and the Spirit of Capitalism; and Business as a Calling: Work and the Examined Life. Two exceptional books from one of the most thoughtful and cogent writers of our times, also a theologian. Novak makes a profound argument for why business is a serious moral enterprise. Required reading for anyone interested in morality, ethics, and enterprise. For more information on Novak, visit www.michaelnovak.net.

Other

David Boyle.  The Sum of Our Discontent: Why Numbers Make Us Irrational. This very well-written work, which Baker read five years ago, had such a profound influence on his thinking it inspired him to write his Measure What Matters to Customers book. It is an excellent history of counting and measuring and includes the ten Paradox’s of Counting, which helped him shape his Seven Moral Hazards of Measuring in that book. Highly recommended.

Christopher Cerf and Victor Navasky. The Experts Speak: The Definitive Compendium of Authoritative Misinformation. This book dispels any illusions one might have about the ability of anyone to predict the future, especially so-called experts. An educational and entertaining read.

Clayton M. Christensen, et. al.  The Innovator’s Solution: Creating and Sustaining Successful Growth; and Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change. Clayton is one of the few management thinkers who understands the importance of utilizing theory in the embryonic discipline of management science, and these two books are excellent examples of the usefulness of positing, testing, falsifying and advancing theories in business. With more thinkers like Christensen, the discipline of management might some day reach parity with economics.

H. Thomas Johnson and Robert S. Kaplan.  Relevance Lost:  The Rise and Fall of Management Accounting.  An indictment of the management accounting profession and how it has lost relevance in terms of helping businesses measure the right things.  The book launched the activity based costing movement, and is also a historically fascinating read.

H. Thomas Johnson.  “Reflections of a Recovering Management Accountant”; and Profit Beyond Measure: Extraordinary Results through Attention to Work and People. The first is an excellent paper Johnson delivered that especially resonated with Baker since he, too, considers himself a recovering accountant. The second is the book that is Johnson’s study of the legendary Toyota (and Scania) production process, all done without a standard cost accounting system. Baker believes both of these works are seminal, and will further the debate between managing by results vs. managing by means.

Michael Lewis.  Moneyball:  The Art of Winning an Unfair Game.  The parallels between Lewis’ book and the arguments made to trash timesheets by utilizing Key Predictive Indicators are uncanny. The conventional measures in baseball are not predictive of team success, and it took an outsider—Harvard economist Bill James—to prove why. In fact, conventional wisdom within baseball is still resisting his hypothesis, which corroborates the history of how long it takes a new theory to diffuse into a given population—decades, if not centuries. This book provides an apt sport metaphor on the importance of measures being guided by a theory. Even if you are not a baseball fan—and Baker is not—this is an astonishing book.

David Whyte.  Crossing the Unknown Sea: Work as a Pilgrimage of Identity. Another unusual book to include, especially since Whyte describes himself as a corporate poet; yet what he has to say about work is especially relevant to knowledge workers and hence worth reading. He is also a terrific writer.

Lin Yutang.  The Importance of Living. You will thoroughly enjoy this classic. Superbly written and an enchanting read.

Pricing

Ronald J. Baker. Professional’s Guide to Value Pricing (seventh edition; CCH, Incorporated). The author’s first book, written specifically for accountants, lawyers, and other professional service firms. It challenges the pricing by the hour paradigm (a form of cost-plus pricing) and offers alternatives for professionals to get out from under the artificial ceiling imposed—on themselves—of the billable hour, while offering alternatives to maintaining time sheets.

Ronald J. Baker and Paul Dunn. The Firm of the Future: A Guide for Accountants, Lawyers, and Other Professional Services (John Wiley & Sons). This book explores the Old and New Practice Equations for leveraging intellectual capital in today’s knowledge economy. Topics discussed include intellectual capital; customer selection; pricing; key performance indicators; leadership; and issues facing the professions.

Ronald J. Baker. Burying the Billable Hour; Trashing the Timesheet; and You Are Your Customer List. This quick reference series was published by the Association of Chartered Certified Accountants (ACCA), the world’s largest, fastest-growing international professional accountancy organization, with nearly 300,000 members and students in 160 countries. You can download these books (in pdf) for free Burying the Billable Hour pdf

Robert G. Cross. Revenue Management: Hard-Core Tactics for Market Domination. Cross was instrumental in developing dynamic pricing for Delta Airlines, and this book explains the concepts of what he calls revenue management, marketers call yield management, and Ron Baker calls price discrimination.

John L. Daly. Pricing for Profitability: Activity-Based Pricing for Competitive Advantage. This book is valuable for the activity-based costing advice it gives, yet Ron Baker disagrees with the author’s conclusion that pricing is not an art. Unfortunately, it is far too focused on the inside of the company, completely ignoring a theory of value, which is the ultimate determinant of price, not more accurate activity-based cost accounting.

Robert G. Docters, Michael R. Reopel, Jeanne-Mey Sun, and Stephen M. Tanny. Winning the Profit Game: Smarter Pricing, Smarter Branding. An excellent book on pricing written by two consultants from A.T. Kearney, a professor, and a consultant, it offers many real-world examples of effective pricing strategies. While it does not present a theory of value, and makes the hyperbolic claim that you can eliminate pricing mistakes with the strategies presented, pricers will still find it useful for current thinking on pricing and branding smarter.

H. Thomas Johnson and Anders Bröms. Profit Beyond Measure: Extraordinary Results through Attention to Work and People. This is the book co-authored by one of the founders of activity based costing, who has since gone on to develop managing by means. The book is a study of the legendary Toyota (and Scania) production process, all done without a standard cost accounting system. It is an embryonic book, but one that offers many avenues for further research.

Michael V. Marn, Eric V. Roegner, and Craig C. Zawada. The Price Advantage. Written by three consultants from McKinsey & Company, this book also offers valuable advice for professional pricers in all companies. The authors claim that while less than one-third of major companies around the world had functional pricing departments ten years ago, today four out of five do. Baker especially likes the Pocket Price Waterfall concept presented, as well as the practical advice for strategic pricing (although it lacks a theory of value).

Kent B. Monroe. Pricing: Making Profitable Decisions (third edition). Monroe is one of the leaders in making pricing a strategic function in corporations around the world. For the serious student of pricing, Monroe’s work is essential, offering in-depth analysis on all facets of pricing.

**TOP CHOICE Thomas T. Nagle and Reed K. Holden. The Strategy and Tactics of Pricing: A Guide to Profitable Decision Making (third edition). If you only read one pricing book from this list, make sure it is this one. Ron Baker says this is the single best pricing book he has ever read, one to which he owes many of the insights in this work. Nagle and Holden are pricing pioneers, each with their own pricing consulting firms, Nagle at http://www.strategicpricinggroup.com (now owned by Monitor Group, and Holden.

Psychology

Nathaniel Branden. The Six Pillars of Self-Esteem; and Self-Esteem at Work: How Confident People Make Powerful Companies. Branden has written extensively on self-esteem, with the first book being his treatise on the topic, while the second discusses the importance of this topic in a business environment.

Robert B. Cialdini. Influence: The New Psychology of Modern Persuasion. A fascinating book, shedding much light on human behavior.

Segmenting Customers for Price Discrimination

According to Tom Nagle and Reed Holden in their book The Strategy and Tactics of Pricing, there are seven effective segmentation strategies to specifically identify different types of customers in order to capture the consumer surplus.

Segmenting by Buyer Identification

Senior discounts, children’s prices, college students, and coupon clippers are all examples of different buyers. Barbers may cut children’s hair at a substantial discount, realizing that home haircutting is an effective substitution. They may offer these prices when they have excess capacity (midweek, usually), so as to not interfere with the demand of customers who can get their haircuts only on certain days (on Saturdays, for example).

Airlines, hotels, and rental car companies discriminate against business travelers, and while they don’t have ways to specifically identify them, they use other methods that approximate this information. These includes the booking dates compared to the departure dates, Saturday layovers, etc. While these methods are by no means absolutely certain to identify a business traveler from a leisure traveler, they produce approximate results, which are relatively accurate.

Another way to identify the price sensitivity of different customers is through salespeople. This is why car salesman are trained to ask a litany of questions designed to approximate the value to any one customer of purchasing from their dealership: Where do you live, is the car for business or pleasure, what do you do for a living, how long have you lived in the area, what kind of car do you drive now and where did you purchase it, what are the alternatives you are considering, etc. This is all valuable information for the salesman to place the particular buyer on the demand curve and gauge their price sensitivity.

Segmenting by Purchase Location

Ski lift and amusement park tickets can be purchased cheaper at grocery stores than they can on–site, where the less affluent (or those seeking deals) would tend to take the time to purchase them. Dentists, opticians, and other professionals sometimes maintain separate offices, in different parts of the same city, or in different cities, that charge different prices based upon the economic and demographic make-up of each. When you factor in the international market, location becomes very complex. Note the prices for golfing in areas favored by Japanese tourists, who cannot get tee times in Japan.

One of the dangers of segmenting by location is arbitrage. Norplant, for example, sells for $350 in the United States, but for as low as $24 in less developed countries. With arbitrage, some buyers might purchase in the low–cost area and sell in the high-priced area, thereby keeping the consumer surplus for themselves. This isn’t an issue with services or goods that are consumer on location, but it certainly is if you are selling widgets in different locations. With the increasing use of the Internet to make purchases, being able to segment by location will become more and more difficult.

Segmenting by Time of Purchase

Theaters offering midday matinees, restaurants having cheaper prices for lunch rather than dinner, cellular and utility companies pricing based upon peak and off–peak times, vacation spots vary prices between on– and off–season, and publishers pricing hardcover books higher than soft covers because of their earlier publication dates.

All of these methods are a way to segment the market between high–value and low–value users. If one is making a cellular phone call on the way home to order a pizza (at an off–peak time), that is a low–value use. If the same person made a call in the middle of the same day and closed a big account, that is a much higher–use call, and thus they will be less sensitive to its price. Again, the company does not possess perfect information on what each customer is doing, so they resort to methods that approximate the value delivered.

Segmenting by Purchase Quantity

Quantity discounts are usually based on volume, order size, step discounts or two–part prices. Customers who buy in large volumes tend to be more price sensitive, less costly to service and have more incentive to shop for a cheaper price. Thus, they are offered volume discounts. When offering discounts to business buyers, one must be careful not to violate the antitrust laws against price discrimination, as discussed in Chapter 18. Order discounts are usually given based upon the size of one order. Sometimes it behooves competitors to pool their orders in order to receive these favorable prices and maybe even transportation discounts. Step discounts, on the other hand, don’t apply to the total quantity purchased, but only to the excess beyond a specified amount. The rationale behind this policy is to encourage the individual buyer to purchase more of the item, without discounting the price on smaller quantities for which they might be price insensitive.

Two–part pricing involve two separate charges to consume a single product. Amusement parks might charge an entrance fee and then price tickets for certain attractions extra. Rental car companies use a flat price plus a price per mile, health care and country clubs charge both membership fees and monthly dues, while night clubs charge a cover at the door as well as for drinks and food.

Segmenting by Product Design

Different versions in a product or service offering are a very effective way to segment a market. Premium gasoline, for instance, only costs the oil companies approximately $0.04 more in refining, but sells at the pump anywhere from $0.10 to $0.15 more. Business travelers value highly the ability to change, on short notice, their tickets, and thus one advantage to paying the higher prices they do is this privilege. This is one reason airlines require positive identification of the passenger; otherwise, firms would soon start-up to purchase discounted tickets and sell them to businesspeople closer to flight times.

Certainly cosmetics use design features in their packaging and ingredients to cater to different market segments. Cadillac sells for a relatively higher premium over its cost to manufacture than, say, an Oldsmobile, even though are manufactured in the same plants, with slight cost differences.

Segmenting by Product Bundling

Newspapers usually have a morning and evening edition, selling advertising in bundles for each. Restaurants bundle food on the dinner menu as opposed to a la carte, usually at cheaper prices. Symphonies, theaters, and sports teams bundle a package of events into season tickets Why is this such an effective pricing tactic? Because the bundled products have a particular value to different buyer segments. Advertising space in the morning edition of the newspaper is valued more by one segment (grocers, retailers) than by another segment (theaters, restaurants), whereas the reverse is true for the later edition.

Microsoft bundles its Internet access software with its operating system, and new computers come bundled with various software packages. Automobiles can be purchased with various options, and come with standard options, a very effective way to bundle of offerings to different price sensitive segments. Airlines will sometimes bundle entire travel packages, offering golf, tennis, or other activities. Disney’s cruise line bundles a trip to Walt Disney World in Orlando, Florida, as part of the price of the cruise. (See the discussion of menu pricing, and how this type of bundling applies to the professional service firm, in Chapter 12).

Segmenting by Tie-Ins and Meterings

In Chapter 5 we discussed how IBM used to sell their punch cards at a price premium in order to charge a higher price to those who used and thus valued their computers more. Before the Clayton Antitrust Act of 1914, tie–in sales were common. American Can, for instance, leased its canning machines with the requirement that they be used to close only American’s cans. Since the passage of the Clayton Act, the courts have refused to accept tying agreements, except for service contracts where it is essential to maintain the performance and/or the reputation of a new product. While using the tying method with a contract may be illegal, opportunities still exist to use this tactic without contract. For example, razor–blade manufacturers design unique razors that require customers to purchase their blades for refill.

Segmenting by metering is common among photocopy manufacturers, because they know a customer who makes 20,000 copies a month values their machine more than the customer who makes 5,000 copies a month. This tactic is also employed by printer manufacturers, charging a premium for toner cartridges and other supplies, thereby effectively charging higher prices to those customers who use and thus value the product more.

Segmented pricing is among the most effective pricing tactics that a business can employ, and it also among the most difficult. It takes enormous creativity, market and customer research in order to be effective. With the increasing propensity for customers to utilize the Internet to make their purchases, market segmentation will take on a new dynamic. While it will become easier to segment potential customers based upon their profiles and buying habits, it will also require experimentation with different pricing policies. Nevertheless, customer segmentation is a part of any effective marketing strategy, and its potential to add to profitability should never be ignored.

Take a Stand for Your Brand

Building a Great Agency Brand from the Inside Out

Take a Stand for Your Brand: Building a Great Agency from the Inside Out shows how marketing firms can do for themselves what they do for their clients—build a great brand.

It’s ironic that advertising agencies preach differentiation but behave like commodities. They are usually so eager to be a “full–service integrated agency” that they try to stand for everything. They forget that standing for everything is just another way of standing for nothing. Just like any other successful product or service, agencies need a meaningful and distinctive position in the marketplace. 

Positioning your firm means moving from the middle and taking a side. It means realizing that you can’t “boil the ocean.” If you don’t claim a position, you will be positioned simply by your location—which is really no position at all. And if you don’t have a branding strategy, you’ll become part of someone else’s.

Take a Stand for Your Brand explores not only why agencies need to do a better job of branding themselves, but how, including:

• Focusing your firm to attract more of the clients and people you really want.
  
• The perils of a business model that’s a mile wide but only a few inches deep.
  
• Discovering what has made your agency successful up to this point.
  
• Defining what business you’re really in.
  
• How agencies have become famous by doing what they do best.
  
• Giving prospects outside your marketplace a compelling reason to do business with you.
  
• Aligning your agency brand throughout all departments and disciplines of your organization.
  
• Why an effective agency positioning means appealing to some clients, but not all clients.
  
• Telling your agency story in a sentence, a paragraph, and a page.
  
• How a strong focus can help you playing in a new business game you’re favored to win.
  

Defining what makes your organization different, then making it different, is the best leadership you could possibly provide your agency. Take a Stand for Your Brand shows how.

Available at www.adbuzz.com or www.amazon.com.

The shoemaker story about holes in their shoes applies to ad agencies as well. ‘Take a Stand for Your Brand’ inspires the people who market for a living to market themselves.
Jonathan Bond, Kirshenbaum & Bond

This is a handbook for any agency that wants to set itself apart from the pack. Tim Williams has distilled much of the best thinking ever done about brands and applied it single–mindedly to the agency business model. It ought to be mandatory reading for serious students of the business.
Robert F. Lauterborn, Professor of Advertising |University of North Carolina

Tim Williams has the best grasp on agency brand positioning I have ever seen. It deserves as wide an audience as possible within our industry.
Cindy Gallop, Former Chairman | Bartle Bogle Hegarty

About the Author. Tim Williams is a recognized thought leader in the creative services industry. As founder of Ignition Consulting Group, Tim is a regular presenter for major advertising industry associations. He has authored numerous articles in leading business and trade magazines, and consults with marketing communications firms throughout North America.

Total Quality Service, Autobiographies and Biographies

Karl Albrecht. The Only Thing That Matters: Bringing the Power of the Customer into the Center of Your Business; The Northbound Train: Finding the Purpose, Setting the Direction, Shaping the Destiny of Your Organization; and Service America in the New Economy. Albrecht is the modern founder of the customer service revolution, with the publication of his 1985 book, Service America! These later works expand on his theory, while the last book explains why he thinks the service revolution has, for the most part, died.

Jan Carlzon. Moments of Truth: New Strategies for Today’s Customer-Driven Economy. Carlzon was head of SAS Airlines when this book was published, and was the inspiration for some of Albrecht’s later work on Total Quality Service. This exploration of the Moment of Truth strategy—looking at each interaction the customer has with your company—still holds many relevant lessons for today’s leaders.

Henry Ford and Samuel Crowther. My Life and Work. This book was originally published in 1922, and is remarkable for the insight it provides on pricing, essentially mirroring the Pricing On Purpose value chain presented in Ron’s books, and illustrating how Ford understood that, ultimately, price drives costs, not the other way around.

Disney Institute. Be Our Guest: Perfecting the Art of Customer Service. A behind-the-scenes look at the best practices and systems used by Disney’s theme parks to provide moments of magic for its guests.

Stanley Marcus.  Quest for the Best; The Viewpoints of Stanley Marcus:  A Ten-Year Perspective; Minding the Store:  A Memoir; and Stanley Marcus from A to Z:  Viewpoints Volume II.  Stanley Marcus was the son of one of the founders of Neiman-Marcus, and ran the store during the Great Depression until the late 1960s.  Baker considers Marcus the leader in customer service, and the many stories and examples in these works support this view.  An amazing man and a great life story.

Eugene O’Kelly.  Chasing Daylight:  How My Forthcoming Death Transformed My Life.  This may seem like a peculiar book to suggest, but it is profound.  Baker knew the author, he was a partner in the same office while he was at Peat, Marwick, Mitchell (now KPMG) in the mid-1980s.  In the last week of May 2005, he was told he had three months to live, at the age of 53.  When he consulted another specialist on how long he had, the doctor replied:  “You’re not a statistic.” What is fascinating is how O’Kelly, who went on to become CEO of KPMG—the international accounting firm and one of the Big Four—changed his perspective on evaluating people from competency, proficiency and quality, to the energy with which someone puts into a task.  He admits he could have limited his office schedule, spent more time with his family, and probably have been more focused and creative at work, and gotten more done.  This is especially relevant to increasing the effectiveness of knowledge workers, and one can only hope we have the wisdom to learn from it—and practice it—without having to wait for a fatal diagnosis.