Abstract
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.
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Notes
- 1.
The use of the word “product” refers to both goods and services. In the digital economy it is often difficult to identify the boundary between the two. For example, mobile telephones are physical products, but they also provide services for their users.
- 2.
The example is based on research conducted at the School of Business, Economics and Law at the University of Gothenburg. We use this fictitious name for an actual hotel chain. The example has no connection with the Stay the Night B&B in New York City. In the pricing examples, we use our own analysis of the possible options presented.
- 3.
Between 2015 and 2019, Ryanair decreased their average price per seat with 25% while their revenues increased by about 36%, due to a rise of number of passengers from 90.6 million to 142.1 million. (Ryanair 2019).
- 4.
This section is based on Ax et al. 2015.
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Ax, C., Cöster, M., Iveroth, E. (2020). Strategic Pricing: The Relationship Between Strategy, Price Models and Product Cost. In: Nilsson, F., Petri, CJ., Westelius, A. (eds) Strategic Management Control. Management for Professionals. Springer, Cham. https://doi.org/10.1007/978-3-030-38640-5_5
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