Pricing in a VUCA World: How to Optimize Prices, if the Economic, Social and Legal Framework Changes Rapidly

Abstract

Typically, three parameters (cost, competitors and customers) are seen as pivotal, when determining the optimal price for a product. While a focus on the cost of production leads to a cost-plus pricing and a focus on competition leads to a price matching, a value-based pricing is derived from the customer perspective.

In a world characterized by uncertainties and rapid structural changes, these landmarks only have a limited value. It is an illusion and rather naïve to assume the maximum willingness to pay for individual decision makers is robust and remains unchanged over a long period of time. In addition, modern IT-systems allow a fast reaction of the competition on individual pricing-decisions taken by a company. Against this background, the author recommends, when deriving the value-based pricing from the customer perspective, to use an extended holistic approach. This “pricing-in-3-D” approach takes into account different decision criteria: (1) the customers’ willingness to pay for the product or service, (2) psychological factors influencing the customer decision and (3) impact of price decisions on the long-term customer relationship.