Own the Future: 50 Ways to Win from The Boston Consulting Group

Chapter 26

Pricing Fluency

Sylvain Duranton, Jean-Manuel Izaret, and Rich Hutchinson

Pricing is the language of business. Through pricing, companies tell customers which products have the greatest value or when costs have gone up. Through pricing, companies can “ask” customers to change their behavior. As with all languages, fluency matters in pricing. Organizations fluent in pricing can persuade their customers to pay a little more or to buy a little more. Consequently, they routinely earn 1 to 3 percent more in revenue than their competitors do—an advantage that falls straight to their bottom line.

Fluency in the language of pricing—as in any other language—requires discipline. Yet it is not managed as a discipline in most organizations. Many people touch pricing, but no one owns it. Pricing decisions, expertise, and information are fragmented across a company's regions, business units, and functions.

Some organizations recognize this language barrier in pricing and try to address it. But too often they resort to narrowly focused initiatives—one-off pricing projects that provide only superficial results. To switch metaphors momentarily, that's like relying on a crash diet for a quick—and short-lived—fix when a lifelong regimen of exercise and discipline is needed to achieve sustainable goals.

One of BCG's clients learned this the hard way. Convinced that the sales force was giving away too much in price negotiations in order to capture volume, this company undertook a pricing ...