When it comes to pricing tactics, you would imagine that airlines are among the most strategic of businesses. Not so, according to Mike Marn, who says that too often top airlines pursue pricing initiatives only on a transaction level, and fail to elevate pricing to a product market or strategy one.
"Clearly, despite their sophistication they're just not getting the holistic pricing approach right," says Marn, who last year coauthored The Price Advantage (John Wiley & Sons, 2004) with two of his McKinsey colleagues. The book, perhaps the first of what may be a number with Marn's name attached, is now a line item in the bio of a consultant who was something of a trailblazer within his firm. Marn is today counted among the first McKinseyites to have been elected partner while pursuing a specialty as opposed to running on the firm's traditional business generalist track.
Among Marn's most influential texts was a 1990 Wall Street Journal column titled "When the Price is Not Right." The article asserted that if an average company improved its pricing by 1 percent, its operating profits would go up by 10 percent. "The point was that pricing is obviously a very sensitive operating profit lever," says Marn, who remembers fielding more than 100 phone calls from top corporate officers and CEOs following the article's publication.
Apparently, Marn's "1 percent" pricing calculation hit a nerve. "That response made it clear to me that there was an unstruck chord here, and that pricing really needed to be talked about in a more matter-of-fact way," explains Marn, who today characterizes his role as that of a pricing evangelist. One year after his book's publication, Marn says that the volume's content is now only a "small reflection" of the firm's total knowledge.
"We literally have made advances on 10 or 12 very important fronts … and the book has just moved the dialog of pricing forward," says Marn, who frequently circles back to emphasize his firm's knowledge-building capabilities. "The way that McKinsey is networked creates one of the most powerful platforms for building practical business knowledge in the world today," Marn ventures.
Having joined the firm's Cleveland office back in 1977, Marn participated in the birth of McKinsey's pricing practice, a specialty area that grew out of the firm's industrial marketing practice in the early 1980s. For his part, Marn sits on the board of advisers of the Pricing Institute and frequently chairs pricing conferences, where he's known to stir things up with his provocative discussion.
"When you go into a company that really prices well, that pricing superiority brings along in its wake functional excellence in a range of areas. And to price well, you really have to understand your customers and your competitors as well as yourself," says Marn, who suggests that the companies that are today "getting pricing right" aren't necessarily the ones you may suspect.
"Take packaged good companies often noted for having a lot of sophistication. I'm not sure that you can make the case that they do pricing well, whereas there are some industrial companies flying low on the radar that are very good at it," says Marn. He counts among his current clients a European automobile company, a specialty chemical company, and a giant tire manufacturer. Every industry has its own pricing challenge, he admits.
Still, when asked to reflect on the pricing challenge consultants faced due to the sector's downturn a few years back, Marn is somewhat glib. "It's a good question, but I just don't have a developed perspective on it," he explains.
Too bad. Having already received their own pricing lesson firsthand, consultants would likely savor Marn's knowledge. — Jack Sweeney
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