Game Changer

CHAPTER 1Three Information Sources

Costs, competition, and value are ways to categorize the business and market information most commonly used as inputs to pricing decisions. These three inputs, shown in Figure 1.1, form the foundation of the Strategy Hex at its deepest basic level.

Most companies currently use one or two of these inputs as the basis for price setting, often directly in a formulaic way. Each is the primary input for a classic pricing method that generates a number from that narrow perspective: cost‐plus pricing, pricing relative to the competition, or value‐based pricing. But those price methods have inherent limitations that go beyond the fact that they keep companies trapped in the “numbers game” we described in the Introduction.

Perhaps the most fundamental limitation is that there is no standard, off‐the‐shelf definition for defining costs, competitors, or value that applies universally to any business. Nor is any of them an immutable given that lies beyond the influence of business leaders. This often explains why many companies struggle to establish a single source of truth for their decision making.

Listed below are the high‐level definitions we will use consistently throughout the book. The precise definitions for any company and any offering are the conscious choice of its business leaders.

FIGURE 1.1 Three information sources used to make pricing ...