Strategic Pricing: The Relationship Between Strategy, Price Models and Product Cost

This chapter addresses the question: How do product prices reflect business strategy and how can they be set? We attempt to answer this question by using ideas from the field of strategic management control, which integrates several elements: competitive strategy, customer value, cost structure, and pricing. We present an analytical concept—the price model equalizer—which can be used to facilitate and support strategic dialogues in such assessments and analyses. The chapter also presents the Value Creation Model (VCM), which is a tool supporting pricing decisions. The VCM enables a company to match customers’ valuation of product attributes and its activity costs for providing these attributes. In addition, the VCM has analytical features that enables a company to focus on, and have a strategic dialogue about, the relationship between price, cost, and product value attributes. A conclusion drawn in the chapter is that strategically anchored pricing is based on a certain logic, focusing on assessing and analysing the business environment, business models, and price models. Taken together, the approach to pricing described in this chapter enables a strategic dialogue that contributes to the realization of business strategies.