INTRODUCTION
Changing the Pricing Conversation

Companies, governments, and individuals make countless price decisions every day, because every commercial transaction involves a price. The collective sum of the value they exchange represents not only the size of the world economy - estimated at roughly $100 trillion per year - but also all of the decisions about how that "pie" gets divvied up.1 Prices are the numerical shorthand that allows the transacting parties to make quick, easy comparisons to other transactions and gives them trust and confidence that the money exchanged represents a fair trade.

That's why business executives and economists acknowledge that prices play a critical role in markets and society. But the current conversation around pricing - as expressed in economics textbooks, anecdotal "war stories," political discourse, and the backs of cocktail napkins - makes it easy to believe that pricing is nothing more than a technical, tactical, and, for most people, boring game based on four premises:

1. Zero sum: Think of your price as a position on a slider bar of fixed length. The more you charge, the less the other party gets, and vice versa.
2. Value extraction: Given a zero-sum scenario, sellers have a natural and strong incentive to extract the maximum value, and buyers strive to strike the best bargains. Neither party wants to leave money on the table.
3. Static: Demand, customer needs, willingness to pay, capacity, and competition are all given. Markets set prices, whether guided by Adam Smith's invisible hand or other interpretations of collective action. Your only incentive is to act and react to earn what you can within those constraints.
4. Numbers: The goal for every seller is always to find the "right" price. This elusive quest for the perfect number focuses an organization's energy on analytical methods, each more sophisticated than the last. But no number is ever "right" for more than a few microseconds, because every factor is always in flux.

We think that this game and its underlying premises are myopic. It is important for business leaders to step back and look at two things: the choices they make before they set prices and the real-life consequences their prices have on businesses, markets, and societal outcomes. This strategic perspective about pricing expands the degrees of freedom that business leaders can use to reshape their pricing models and enhance their competitive advantages. Customers, in turn, can do much more than simply evaluate whether the prices they pay are cheap or expensive, relative to the value they receive. They can pay attention to the seller's pricing structure and decide whether it aligns with how they derive value.

Our mission with Game Changer: How Strategic Pricing Shapes Businesses, Markets, and Society is to change the game of pricing, literally and figuratively. We will expose the dangerous flaws behind the prevailing pricing "game," because there is too much at stake to let misperceptions about pricing persist. But our larger and more important mission is to show you, step by step, how the right pricing strategy can change the entire trajectory of your business, your industry, and, in many cases, society as well.

To change the conversation around pricing, let's start by refuting the flawed premises behind the current game of pricing. When you read the four new perspectives below, notice how the incentives and tradeoffs have changed. Notice how they create new opportunities and open more degrees of freedom for you to pursue them.

1. Collaborative growth, not zero sum: Before wondering about your position on that zero-sum slider bar, you need to decide what variable calibrates it. Prices are expressed as an amount per unit, but the choice of unit can incentivize buyers and sellers to work collaboratively as opposed to against each other. The standard pricing unit in the music industry, for example, was per album or per song, until streaming services led a shift to pricing per person per month. This shift reversed a long decline in industry revenues. The International Federation of the Phonographic Industry (IFPI) reported that global recorded music revenues grew for the eighth consecutive year in 2022 to $26.2 billion - a level not seen in absolute dollar terms since 1999 - after having bottomed out at $13.1 billion in 2014. Streaming - a revenue source that barely existed at all 15 years ago - accounted for two-thirds of overall revenue,2 and revenue from physical formats such as vinyl grew as well. Consumers were willing to listen to more music and spend more on this category, but the old pricing unit had been constraining volume and overall market size. Pricing is your means to create and align incentives, grow your market, and escape the high-low constraints of a zero-sum mentality.
2. Value sharing, not value extraction: When you view pricing as a way to share value rather than extract it, you foster a sense of fairness and give customers incentives to try and then reuse your offerings. By balancing how and when to share value, you also create opportunities to scale your business massively and quickly and then retain or upsell loyal customers over the course of a long relationship, not a transactional one. The question "How much money should we leave on the table?" is no longer heretical. It becomes an essential strategic question for every business leader.
3. Dynamic, not static: Demand, customer needs, willingness to pay, capacity, and competition are fluid and dynamic, not given. This helps explain why startups can successfully innovate and change markets by introducing new pricing models. Google reshaped the advertising industry by using auctions to sell advertising inventory. Salesforce.com revolutionized the software sector and created growth opportunities for its customers by selling software as a service. Uber created a new mobility business by charging by the ride rather than flat rates for the mile and minute.
4. Strategy, not numbers: No matter how many data scientists or advanced algorithms you deploy in the quest for optimal prices, the numbers aren't helpful unless you have the right pricing models in place. A pricing model is the manifestation of your pricing strategy, a set of choices that aligns incentives across your entire business, both in the market and within your organization. These choices include defining the offer itself, the pricing basis, and how to determine and adjust prices as market conditions change. Business leaders need to make all of these choices before they ever set a price.

This new way to talk about pricing - eagerly, comfortably, and, above all, strategically - is long overdue. It takes pricing out of your company's boiler room and places it in the boardroom, where it belongs. It allows pricing to inform and determine corporate strategy, rather than serve it, because it motivates vision and structure, not the myopic quest for better price points.

No matter how future markets around the world evolve, pricing will remain the common business challenge that every executive and manager must address. Every commercial transaction involves an exchange of value, and the amounts of money involved - for better or worse - are the direct results of strategic pricing decisions the seller makes long before the transaction takes place.

We define a pricing strategy as a business leader's conscious decisions on how to shape their market by determining the amount of money available, how that money flows, and to whom. It reflects the company's philosophy on how to acquire, retain, and satisfy customers by sharing value with them fairly. How much a company can share depends on the characteristics of their market and how they choose to play in that market with their competitive advantages. How much value a business leader wants to share depends on the company's short- and long-term objectives. The choices of sharing method and model reflect how they want to use the pricing agency at their disposal.

Those decisions will shape not only your own business, but your market and society as well. In the following three examples, none of the business leaders or companies could have made their choices within the constraints of zero-sum, value extraction, static, and number mentalities. We found in our work with thousands of companies that this strategic perspective can add points of margin and growth to almost any business. In our work with social ventures the impact can multiply their reach. The strategic view of pricing we introduce in this book is what makes their changes possible.

How pricing strategy shapes a business

Imagine that you are planning a large function such as a wedding or a graduation party. Several caterers offer you quotes, and you choose the one that best fits your plans and budget.

But how do caterers arrive at their prices? Most use the "cost-plus" method, the world's oldest and still most widely used way to set a price.3 They sum up their costs - for food and drink, preparation, delivery, and service - and then add their desired profit margin.

Judgment then comes into play, because the caterers want to avoid the high-low anxiety of zero-sum pricing. Strong demand may boost their confidence to nudge prices higher,...