Most CEOs take a narrow, tactical view of pricing and delegate pricing to lower levels of the organization. This myopic approach is costly, as it prevents companies from realizing their potential. In the hands of the best-run companies, pricing is not a battlefield tactic to win a particular competitive skirmish but a transformative long-term strategy for sustained competitive advantage. We present an agenda of six specific action items that defines how to unlock the power of pricing. CEOs and senior executives, our research suggests, should not set prices, but instead, they should create the context, the capabilities, the behaviors, the infrastructure, and the aspirations that enable their organization to excel in pricing.

In the face of rising business complexity and competitive pressure, many firms succumb to price pressures and enter pricing wars. Others focus on creating, quantifying, and capturing pricing power from their market. Since 2011, with help from Warren Buffet and Jim Cramer, Wall Street financial analysts have begun paying close attention to firms with great pricing power. But what is pricing power? How do firms know whether they have it? And how does it affect profit? This research, based on a survey of 128 organizations, identifies and validates the drivers of pricing power and its impact on firm performance. In this article, I create and validate a pricing power assessment instrument that firms can use to get started. This article offers practical recommendations for go-to-market functions on how to start the pricing power discussion, how to measure it, and how to operationalize it.

Few companies treat innovation in pricing as seriously as product innovation or business model innovation. However, after interviews with 50 executives and the analysis of pricing practices of 70 companies worldwide, our research suggests that innovation in pricing may be a company's most powerful--and, in many cases, least explored--source of competitive advantage. Innovation in pricing brings new-to-the-industry approaches to pricing strategies, to pricing tactics, and to the organization of pricing with the objective of increasing customer satisfaction and company profits; too many companies today see pricing as a win/lose proposition between themselves and their customers. Innovation in pricing breaks this deadlock and shows how to increase profits and customer satisfaction conjointly. As a result of our research, we present a canvas laying out more than 20 possible avenues for innovation in pricing, offering to any organization--regardless of size, industry, or nationality--a few key ideas on how to increase both profits and customer satisfaction.

This is an MIT Sloan Management Review article. In many companies, pricing receives surprisingly little attention. Following work that included a study of pricing at 15 small and medium-sized companies, the authors conclude that most companies can improve their pricing capabilities -and thus their profitability -over time by taking a disciplined approach. The authors identify two key elements of pricing -price orientation and price getting -and five levels of pricing capabilities. They observe that the companies they studied that achieved better pricing had top managers who championed the development of pricing skills. While competition, costs and price sensitivity within a market affect the parameters within which companies set prices, superior pricing is almost always based on skill, the authors maintain. Companies differ substantially in their approach to price setting, but most fall into one of three buckets: cost-based pricing, competition-based pricing or customer value-based pricing. Customer value-based pricing uses data on the perceived customer value of the product as the main factor for determining the final selling price, and many scholars consider customer value-based pricing often to be a preferable approach to price setting for existing products. The authors argue that according to their research many companies can improve their pricing capabilities by cultivating their understanding of the value they bring their customers. But implementing customer value-based pricing is not easy, the authors caution. They find that developing and implementing a sophisticated, customer value-based pricing program is a multiyear project that demands a high degree of executive attention and requires substantial changes in processes and thinking within the company.