Pricing as a Strategic Capability

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For too long, most people who run companies have made a variety of unwarranted but detrimental assumptions about pricing. Changing prices, for example, has been looked upon as an easy, quick and reversible process, and new technologies have only reinforced that way of thinking. Similarly, extracting value from a product by pricing it correctly has been seen as relatively uncomplicated; the hard part is creating the valuable product in the first place. But these dismissive attitudes toward pricing miss the mark. Pricing is complex, and it's only growing more so as new tools and techniques become available.

The ability to set the right price at the right time, any time — the very definition of a pricing capability — is also becoming increasingly important. In fact, in the course of working with dozens of companies in the past couple of years, the authors have spoken with several executives who believe that developing a pricing capability is essential to their business's survival. And they are backing up their views by investing in three areas: human capital, systems capital and social capital.

The authors explain the nature of these investments and how they come together to form a pricing capability that competitors will have a hard time imitating. They don't mean to say that building such a capability is a simple task accomplished by committing a few resources to it. It requires an effort that some companies may not be in a position to undertake. Those that do take a comprehensive approach, however, will be able to make superior pricing decisions that fit with their positioning, with their customers, with their suppliers and with evolving market conditions for years to come.

Shantanu Dutta is an associate professor at the University of Southern California's Marshall School of Business in Los Angeles. Mark Bergen is an associate professor at the University of Minnesota's Carlson School of Management in Minneapolis. Daniel Levy is an associate professor at Bar-Ilan University in Ramat Gan, Israel. Mark Ritson is an assistant professor at London Business School. Mark Zbaracki is an assistant professor at the University of Pennsylvania's Wharton School in Philadelphia. Contact them at sdutta@marshall.usc.edu, mbergen@csom.umn.edu, levyda@mail.biu.ac.il, mritson@london.edu and zbaracki@wharton.upenn.edu.

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