Thinking strategically about pricing decisions

Abstract

PurposeHarsh economic conditions have put pricing higher on the agenda but responses to pricing challenges have frequently been tactical. The intent is to build on basic pricing principles to emphasize a strategic perspective on pricing built around opportunities to deliver superior customer value.Design/methodology/approachOur logic is drawn from the observation of company pricing practices and interesting moves from conventional to innovative pricing strategies.FindingsOur observations underline the need for executives to adopt a more strategic view of price and to examine the scope for raising prices, especially in a post‐recession economic scenario.Practical implicationsOur action agenda addresses: why there is an urgent need to make pricing decisions strategically, particularly as economic recovery occurs, with important insights coming from innovative pricing models designed to deliver superior customer value; the role of price in strategic positioning – key management considerations are whether price is to play an active or passive role in marketing the product or service, and whether price is high or low compared to alternatives; the challenges of raising prices in recession and recovery conditions, where analysis underlines the importance of considering product differentiation from a customer perspective and comparing this with how strongly the customer needs the product; and the need to design a value‐based pricing strategy which integrates the conclusions reached about the strategic role of price.Originality/valueViewing pricing as a “quick fix” and the only route to maintaining sales or protecting market share underplays the strategic importance of pricing and its long‐term strategic implications. We propose a management action agenda for making pricing decisions strategically.