Pricing Done Right

CHAPTER 2 Value-Based Pricing

Why does a firm exist? Who are the key stakeholders it serves?

These may seem to be odd questions for a book about pricing, but the answers to these questions underpin the approach firms take to pricing. The answers to these questions have also evolved over time, across geographies, and within societies and the firms themselves. As the defining purpose of the firm evolved, so did the definition of good pricing. So starting with the fundamental purpose of a firm will lead to an understanding of the culture and philosophy around pricing practiced at the world’s leading firms.

The Purpose of Firms: Serve Customer Needs Profitably

The key stakeholder group served by firms has waxed and waned over decades between shareholders, employees, customers, and the greater society at large. Each of these key stakeholder groups has had its moment of glory. Shifts in stakeholder dominance have had dramatic effects on how pricing is done, how it is managed, and even on the culture of profitable pricing.

In the latter part of the twentieth century, firms elevated the shareholder to the key stakeholder role. Some went so far as to think that firms existed solely to enrich shareholders and that all decisions should be made in the context of maximizing shareholder return. After all, the pundits rightfully pointed out, shareholders own the firms.

This shareholder focus impacted the culture of pricing in a relatively logical and straightforward manner. In order to ...