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Game Changer: How Strategic Pricing Shapes Businesses, Markets, and Society
The right pricing strategy can change the entire trajectory of a business, a market, and even society at large. To help you create your best pricing strategy efficiently and confidently, two leaders from BCG are introducing fresh perspectives on pricing that take you far beyond the realm of mind-numbing numbers.In their new book Game How Strategic Pricing Shapes Businesses, Markets, and Society, Jean-Manuel Izaret and Arnab Sinha simplify and clarify pricing strategy by integrating its many frameworks and concepts into seven distinct pricing games, each with its own proven tools, rules, forces, and structures. To help you pick the right game and play it well, Izaret and Sinha have developed the Strategic Pricing Hexagon, a tool refined through years of testing, iteration, and adaptation. The Hexagon is your portal to a business world where stronger growth and better financial performance come from a set of strategic pricing decisions, not endless myopic quests for optimal prices.But more than that, the Hexagon will change the way you think about and talk about pricing. The current conversation around pricing – as expressed through economics textbooks, Excel spreadsheets, political discourse, and educated guesswork – makes it easy to believe that pricing is nothing more than a technical, tactical and, for most people, boring game of numbers. Game Changer changes that conversation bysharing stories and research that bring the Hexagon and its seven pricing games to life.With research from BCG’s Bruce Henderson Institute and real-world examples from the world's most influential companies, the authors and their colleagues at BCG define pricing strategy as a business leader’s or business owner’s conscious decisions about how money flows in their market. They show how companies succeed in the long term when they focus on collaborative growth and value sharing with customers, not zero-sum value extraction from them.Discover how you can create and implement a winning pricing strategy that changes the trajectory of your business, your market, and even society.
423 pages, Kindle Edition
Published October 12, 2023
38 people are currently reading
115 people want to read
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Displaying 1 - 5 of 5 reviews
June 26, 2024
I’m 90% sure these reviews are all consultant colleagues.
Pretty much here’s my take: this is consulting bullshit amplified into a single hexagon about pricing.
Some parts of I found useful, and the explanations of the “games” and how they fit markets was helpful. Now that being said I have not had so much hexagon chart bullshit in a hot second. This is a book written by, and probably for consultant slide garbage.
I wish it was written a bit more simply and didn’t try to put everything into a framework. That being said partially helpful for me!
I would rate this book 3/5 if I wasn’t in the mood of trying to lower these super fake reviews. Anyways on to the next one.
Pretty much here’s my take: this is consulting bullshit amplified into a single hexagon about pricing.
Some parts of I found useful, and the explanations of the “games” and how they fit markets was helpful. Now that being said I have not had so much hexagon chart bullshit in a hot second. This is a book written by, and probably for consultant slide garbage.
I wish it was written a bit more simply and didn’t try to put everything into a framework. That being said partially helpful for me!
I would rate this book 3/5 if I wasn’t in the mood of trying to lower these super fake reviews. Anyways on to the next one.
January 9, 2026
This is not a M/M hockey romance.
August 19, 2024
I heard one of the authors on Mark Gandy’s podcast, CFO Bookshelf, and was intrigued. I agree with the authors that a lot pricing is tactical (to make the next sale) and based on four faulty premises: zero sum; value extraction; static; and numbers. They offer, instead, four new perspectives: Collaborative growth, not zero sum; value sharing, not value extraction; dynamic, not static; strategy, not numbers.
I did not know that the authors cited me in their Acknowledgments, and I thank them for that recognition.
Yet I don’t agree that “pricing should inform and determine corporate strategy, rather than to serve it.” They give a valiant argument for this: “pricing informs the company’s philosophy on how to acquire, retain, and satisfy customer by sharing value with them fairly. How much a company can share depends on the characteristics of their market and how they choose to play in that market with their competitive advantages.”
I find this unpersuasive. A concierge and DPC doctor can have the same offering, they just target different market segments. That’s not solely driven by price, but by the type of practice the doctors want to create. I’m not doubting price is important, but I think you have to know the strategy and positioning first. Southwest Airlines strategy was different than legacy carriers. Yes, price was important—not to compete against other airlines, but rather with driving yourself or taking the bus—but there’s a lot more to that strategy than pricing (same planes, fast turnaround, no assigned seating, point-to-point not hub-and-spoke, etc.). McDonald’s and Morton’s both sell beef, but there’s a lot more to their strategy than pricing. I believe: Purpose > Strategy > Positioning > Pricing (either Skim, Neutral, or Penetration). I’ll concede this is not linear, but an interrelated system that you can’t break apart. But the authors would have to concede that same point. As they write in Chapter 10: “Pricing cannot solve nonpricing problems.” This is why Richard Rumelt suggests that strategy starts with the crux of the problem (in his book, The Crux). One more point on this: Strategy is designed, it’s not chosen or selected, such as the seven pricing games laid out in the book. They are helpful, but strategy is more abstract than trying to fit into known categories. I’m more interested in the unknown because that’s what leads to innovative new offerings and dynamism (and creative destruction), not just what game we want to play.
In any event, they replace current pricing with seven distinct pricing games that “cover nearly every challenge and opportunity a business leader will encounter,” based on their four new perspectives above:
1. Value game: Align price with customer value: High-tech, luxury goods, pharmaceuticals.
2. Uniform: Optimizing the same price for all customers: retailers, consumer goods.
3. Cost: Driving efficiency to set prices in commoditized markets (Wal-Mart, perhaps?).
4. Power: Negotiating high-stakes deals in concentrated markets (price the customer; Wachtell Lipton, professional firms that use Value Pricing).
5. Custom: Customizing offers and discounts to beat competitors.
6. Choice: Shaping customer behavior with segmented offers.
7. Dynamic: Managing floating prices based on real-time dynamics. Airlines, hotels, Uber, etc.
Fair enough. But once you decide which game you fit into, you still must decide on Skim, Neutral, or Penetration. They have three questions to ask:
1. How do you create and share value?
2. What pricing game do you want to play?
3. What pricing model best fits your value creation strategy?
I like their idea of value sharing, rather than merely value capture. However, the customer always receives more value than they pay for (including transaction costs), and since value is subjective, I don’t believe this is a quantifiable number. Value is a feeling, not a number. Consider the value people receive from their iPhones. You can get a sense for this by asking them: How much would you need to be paid to never, ever, use your iPhone again? It’s a retirement number, I assure you. That’s enormous value. Economist William Nordhaus estimates that most entrepreneurs capture around 2% of the total value they create.
The authors posit that the Model T receives credit for standardizing the product (any color, as long as it’s black), but it was Ford’s pricing strategy that created the standardization. Yes, Ford understood that price justifies costs, and that no one knows what a cost should be (I wrote extensively about Ford in my pricing books). But he also blew the strategy by not offering financing to buy the car. GMAC was formed about a decade sooner than Ford Motor Credit, and that’s why Ford lost market share. You could argue that payment terms are part of pricing strategy, and they are, so there’s more to strategy and pricing than merely paying attention to cost of manufacture. They cite the example of Rolls Royce creating the “Power-by-the-hour” strategy in 1962 for airplane engines, which was quickly copied by General Electric and others, so it didn’t create long-term sustainable advantage. Pricing strategy is easier to copy than corporate strategy, which is why the latter is the senior partner.
I enjoyed Chapter 5 where they discuss the political angles of pricing decisions, noting that pricing wields enviable power, and it should be a team sport. This is a perennial debate within companies, decentralized vs. centralized pricing. Of course, it depends, but I lean towards the latter as a default unless convinced that the “team” truly understands value and pricing. In my experience, that’s rarely the case. But that could just be in professional firms, though I don’t think so.
I do agree with the authors that the question is not: “What is the right price?” But rather, “What is the right pricing strategy?” And their distinction between pricing strategies and pricing methods is useful. Though I don’t find the value ladder, game theory, or the distinction between usage value and functional value very useful in the real world. But that’s because I’m influenced by the Austrian economists’ argument that you cannot carve up value, it’s holistic. I don’t make a distinction between the chef at French Laundry and the janitor, since eating a 5-star meal in a place that smelled like a sewer would greatly diminish the value.
And this is exemplified by what the authors write in Chapter 7: [it’s] “usually not in a seller's best economic interest to “extract” all the value, because the loss of customers will be more than offset by the additional margin they will capture.” But this can’t happen, because customers also make a profit on every transaction, or they wouldn’t have exchanged. A transaction can only take place, by definition, if the buyer and seller disagree about the value. This misunderstanding causes more complexity and fallacies than anything else. I’m reminded of Thomas Sowell’s famous line: “People who pride themselves on their “complexity” and deride others for being “simplistic” should realize that the truth is often not very complicated. What gets complex is evading the truth.” Value is subjective, it cannot be quantified. I know it’s a difficult truth, but it is the way the world works.
I agree with this: “Marketing is the function with the strongest influence on pricing, because of the importance of sustaining the brand value and the price premium.” As Peter Drucker wrote, marketing and innovation are the only two functions that create results, the rest are costs. This is another reason I don’t believe it completely subsumes strategy and positioning, since innovation is crucial.
In Chapter 12 they write about Starbucks and how it plays the choice game. But Starbucks has lost its purpose of being a “Third place,” and their pricing can’t fix this issue. They cite Starbuck’s mobile app, “which is second only to Apple Pay in usage among consumers with over 31 million customers,” and how it does precision targeting. But this is precisely part of how Starbucks is devaluing its own brand! Is it trying to be a fast food place, or a “third place”? That’s not a pricing question, it’s a purpose, strategy and positioning question. Pricing has to align with purpose, not just growth in revenue for the sake of growth in revenue. See Joe Pine’s HBR article on what Starbucks can do to stop commoditizing itself: https://hbr.org/2024/06/how-starbucks.... More proof for my contention that purpose and strategy precede pricing.
It's Part IV where I have the most vehement disagreements with the authors: “Shaping Society Through Pricing Decisions.” That sounds like central planning to me, but I read it with an open mind. Here’s how they explain: “Now in Part IV we push those boundaries even further by exploring how strategic pricing can have a positive impact on many pressing social issues. These include how to make health care and education more accessible and how to accelerate efforts to mitigate the effects of climate change. What is a fair price? or What is a fair way to share value between buyer and seller? Paradoxically, getting no value is better than getting an unfair amount of value. A price accepted by both parties is therefore an insufficient definition of a fair price.”
That last sentence are fighting words. What about capitalist acts between consenting adults? There’s no such thing as a “fair” price. How would you even define “fair?” Who would decide, and when would they decide? What’s the opposite of “fair.” It’s foul, as in foul ball. Can there be a foul price? Then don’t buy. The authors do cite me: “Ron Baker, a pricing specialist and founder of VeraSage Institute, put it this way: ‘The problem with a ‘just’ price is who gets to decide what is just? The free market already provides an answer to this question – whatever someone is willing to pay.’”
They then recount examples where markets create unfairness:
• “Higher prices for minority and female car buyers
• Higher food prices for poor people
• Higher risk‐adjusted insurance rates for poor and middle‐income drivers
• Higher drug prices for poor patients, even among the uninsured”
I’ll ignore the fact that the above examples are all refuted if you measure time prices, as documented in the book Superabundance. I’ll also ignore the fact that Thomas Sowell has debunked every one of these arguments in his books, especially Basic Economics. They then cite this definition of fair from Sally Blount, a professor of strategy at the Kellogg School of Management: “According to her logic, fairness for most people is a function of how buyers and sellers split the economic pie. There is no guarantee that market prices result in a fair sharing of value, as we have defined in this book.” Natural disaster “price gouging” is another example of unfairness. How you increase desperately needed supply is ignored. The authors provide what they learned from their fairness research:
“All of our fairness research has confirmed that respondents find cost variations to be a good rationale for price variations, because that rationale depends the least on other circumstances. Therefore, we consider the best way to define the transaction value that buyers and sellers can share as the difference between customer value and variable costs.”
But prices don’t come from costs. Prices justify costs. And costs certainly have nothing to do with value. Again, they are complicating reality with these fallacies. And I shudder to think how this would be regulated in a liberty-loving, free market economy. Can you point to any successful examples of where this logic worked? It’s redolent of Marx’s labor theory of value. Here’s why this isn’t workable, as they write: “One prerequisite is that the buyer and seller need to estimate and agree on value. We have seen that this is neither easy nor always possible.” But a transaction only takes place when seller and buyer disagree about value. That’s the entire point of the subjective theory of value. There’s no way to measure proportional value in their misnamed “progressive pricing model.”
The contention that “the fairest price—not the highest price—optimizes profits” is a completely untestable hypothesis, because (again), value is subjective. Value cannot be measured; it’s a feeling. Not recognizing this leads to these types of errors. Of course value and maximum willingness to pay are not the same thing—no Austrian thinks they are, since the value received must be greater than the price paid by the buyer. This is a straw man argument, at least to an Austrian. Then this: “…the seller’s share that optimizes profit is slightly above 50%.” Yikes, this is scientism gentlemen.
And to compound the error, let’s fix the pharmaceutical industry in one fell swoop:
“One way to improve the perceived fairness of drug prices would be for the manufacturer and the payer to look at how they could share the total economic value of a new drug (cost of standard of care less marginal cost).”
Of course you could try this, but what would it do to innovation? Would investors be willing to spend the enormous amount of money (and time) it takes to bring a new drug to market? Well, yes, as the authors write: “Pharmaceutical innovations fit very well to the Value Game,” because in Chapter 22, the authors propose their “payer licensing agreement (PLA)” model for drug pricing, distinguishing between managing and curing a disease:
“The pharmaceutical company would sell health care system payers a license – on a per‐population rather than per‐patient basis – for universal access to a treatment for a few years at a fixed annual charge. Ideally, the period of the license would correspond to the length of time that a payer determines is required to cure most of the population.”
The barriers to this plan: “…number of barriers. First, the PLA model is best suited to single‐payer systems, such as those in Canada, the UK, France, and Japan.” Fine, then let’s try it there first. I realize we don’t have a free market healthcare system in the USA, but I certainly don’t want a single-payer system just so we can try this idea. As the old USSR joke says, communists were crueler than scientists. Scientists would have tried it out on rats first.
Chapter 23 deals with climate change, pollution, and resource depletion. They are correct about the Green Premium Quandary: “the green premium average willingness to pay is inferior to the green premium cost.” Since we are subsidizing it to the tune of trillions, I wonder if the authors would deem that an “unfair price.” I just call it what it is: corporatism. They suggest segmenting the market based on willingness to pay, which makes sense. The bigger problem is if “green” were so good, it wouldn’t need subsidies. Just look at the waste recycling has created.
So much of this is misguided. I would recommend the book Superabundance that offers empirical evidence that we are not running out of resources, nor is climate change an existential threat. I’d also suggest Bjorn Lomborg’s books on these topics.
Chapter 25 deals with poverty, disease, and inequity. Please define inequity? The only known antidote to poverty is wealth creation, and that takes the free market, along with all the dynamism, creative destruction, and inequality that comes with it. If you want equality, visit a cemetery, as the German proverb teaches. Pricing tweaks are not going to solve these issues. See the work of Deirdre McCloskey, Thomas Sowell, Milton Friedman, Magatte Wade, and George Gilder, on how to create wealth, the only known cure to poverty.
The authors ask: “What good is installing a water pump in a rural sub‐Saharan village if no one uses it because it is not trusted?” I’ll ask: What good is it even if they use the water pump but there’s no market to fix and maintain it? And how do you get them to a point where they can install their own water pumps, and maintain them? Clayton Christensen has a wonderful book on this, The Prosperity Paradox. These countries don’t need better pricing, they need free markets, less regulations, less government corruption, and more liberty and freedom so the average person can have a go. And no, microfinance is not the solution—it’s been underwhelming, to be charitable. Nor is progressive taxation, which does not create wealth, it just moves it around and destroys incentives to production—the only path to prosperity.
I’d like to thank the authors for recognizing me in their Acknowledgments, especially along with some of my pricing mentors (Nagle, Simon, Monroe, Holdens, Mohammed, Mitchell, Docters).
Despite these disagreements, the book is a well-written and thoughtful exploration of pricing strategies. It presents valuable insights and challenges readers to think critically about how pricing can influence business success and broader societal outcomes. You will learn a lot, and there are some excellent examples, such as how Amazon’s AWS uses cost-plus pricing. I highly recommend it to anyone serious about understanding pricing, even if you, like me, may not agree with all of its conclusions. The debates it sparks are precisely what make it a worthy read.
I did not know that the authors cited me in their Acknowledgments, and I thank them for that recognition.
Yet I don’t agree that “pricing should inform and determine corporate strategy, rather than to serve it.” They give a valiant argument for this: “pricing informs the company’s philosophy on how to acquire, retain, and satisfy customer by sharing value with them fairly. How much a company can share depends on the characteristics of their market and how they choose to play in that market with their competitive advantages.”
I find this unpersuasive. A concierge and DPC doctor can have the same offering, they just target different market segments. That’s not solely driven by price, but by the type of practice the doctors want to create. I’m not doubting price is important, but I think you have to know the strategy and positioning first. Southwest Airlines strategy was different than legacy carriers. Yes, price was important—not to compete against other airlines, but rather with driving yourself or taking the bus—but there’s a lot more to that strategy than pricing (same planes, fast turnaround, no assigned seating, point-to-point not hub-and-spoke, etc.). McDonald’s and Morton’s both sell beef, but there’s a lot more to their strategy than pricing. I believe: Purpose > Strategy > Positioning > Pricing (either Skim, Neutral, or Penetration). I’ll concede this is not linear, but an interrelated system that you can’t break apart. But the authors would have to concede that same point. As they write in Chapter 10: “Pricing cannot solve nonpricing problems.” This is why Richard Rumelt suggests that strategy starts with the crux of the problem (in his book, The Crux). One more point on this: Strategy is designed, it’s not chosen or selected, such as the seven pricing games laid out in the book. They are helpful, but strategy is more abstract than trying to fit into known categories. I’m more interested in the unknown because that’s what leads to innovative new offerings and dynamism (and creative destruction), not just what game we want to play.
In any event, they replace current pricing with seven distinct pricing games that “cover nearly every challenge and opportunity a business leader will encounter,” based on their four new perspectives above:
1. Value game: Align price with customer value: High-tech, luxury goods, pharmaceuticals.
2. Uniform: Optimizing the same price for all customers: retailers, consumer goods.
3. Cost: Driving efficiency to set prices in commoditized markets (Wal-Mart, perhaps?).
4. Power: Negotiating high-stakes deals in concentrated markets (price the customer; Wachtell Lipton, professional firms that use Value Pricing).
5. Custom: Customizing offers and discounts to beat competitors.
6. Choice: Shaping customer behavior with segmented offers.
7. Dynamic: Managing floating prices based on real-time dynamics. Airlines, hotels, Uber, etc.
Fair enough. But once you decide which game you fit into, you still must decide on Skim, Neutral, or Penetration. They have three questions to ask:
1. How do you create and share value?
2. What pricing game do you want to play?
3. What pricing model best fits your value creation strategy?
I like their idea of value sharing, rather than merely value capture. However, the customer always receives more value than they pay for (including transaction costs), and since value is subjective, I don’t believe this is a quantifiable number. Value is a feeling, not a number. Consider the value people receive from their iPhones. You can get a sense for this by asking them: How much would you need to be paid to never, ever, use your iPhone again? It’s a retirement number, I assure you. That’s enormous value. Economist William Nordhaus estimates that most entrepreneurs capture around 2% of the total value they create.
The authors posit that the Model T receives credit for standardizing the product (any color, as long as it’s black), but it was Ford’s pricing strategy that created the standardization. Yes, Ford understood that price justifies costs, and that no one knows what a cost should be (I wrote extensively about Ford in my pricing books). But he also blew the strategy by not offering financing to buy the car. GMAC was formed about a decade sooner than Ford Motor Credit, and that’s why Ford lost market share. You could argue that payment terms are part of pricing strategy, and they are, so there’s more to strategy and pricing than merely paying attention to cost of manufacture. They cite the example of Rolls Royce creating the “Power-by-the-hour” strategy in 1962 for airplane engines, which was quickly copied by General Electric and others, so it didn’t create long-term sustainable advantage. Pricing strategy is easier to copy than corporate strategy, which is why the latter is the senior partner.
I enjoyed Chapter 5 where they discuss the political angles of pricing decisions, noting that pricing wields enviable power, and it should be a team sport. This is a perennial debate within companies, decentralized vs. centralized pricing. Of course, it depends, but I lean towards the latter as a default unless convinced that the “team” truly understands value and pricing. In my experience, that’s rarely the case. But that could just be in professional firms, though I don’t think so.
I do agree with the authors that the question is not: “What is the right price?” But rather, “What is the right pricing strategy?” And their distinction between pricing strategies and pricing methods is useful. Though I don’t find the value ladder, game theory, or the distinction between usage value and functional value very useful in the real world. But that’s because I’m influenced by the Austrian economists’ argument that you cannot carve up value, it’s holistic. I don’t make a distinction between the chef at French Laundry and the janitor, since eating a 5-star meal in a place that smelled like a sewer would greatly diminish the value.
And this is exemplified by what the authors write in Chapter 7: [it’s] “usually not in a seller's best economic interest to “extract” all the value, because the loss of customers will be more than offset by the additional margin they will capture.” But this can’t happen, because customers also make a profit on every transaction, or they wouldn’t have exchanged. A transaction can only take place, by definition, if the buyer and seller disagree about the value. This misunderstanding causes more complexity and fallacies than anything else. I’m reminded of Thomas Sowell’s famous line: “People who pride themselves on their “complexity” and deride others for being “simplistic” should realize that the truth is often not very complicated. What gets complex is evading the truth.” Value is subjective, it cannot be quantified. I know it’s a difficult truth, but it is the way the world works.
I agree with this: “Marketing is the function with the strongest influence on pricing, because of the importance of sustaining the brand value and the price premium.” As Peter Drucker wrote, marketing and innovation are the only two functions that create results, the rest are costs. This is another reason I don’t believe it completely subsumes strategy and positioning, since innovation is crucial.
In Chapter 12 they write about Starbucks and how it plays the choice game. But Starbucks has lost its purpose of being a “Third place,” and their pricing can’t fix this issue. They cite Starbuck’s mobile app, “which is second only to Apple Pay in usage among consumers with over 31 million customers,” and how it does precision targeting. But this is precisely part of how Starbucks is devaluing its own brand! Is it trying to be a fast food place, or a “third place”? That’s not a pricing question, it’s a purpose, strategy and positioning question. Pricing has to align with purpose, not just growth in revenue for the sake of growth in revenue. See Joe Pine’s HBR article on what Starbucks can do to stop commoditizing itself: https://hbr.org/2024/06/how-starbucks.... More proof for my contention that purpose and strategy precede pricing.
It's Part IV where I have the most vehement disagreements with the authors: “Shaping Society Through Pricing Decisions.” That sounds like central planning to me, but I read it with an open mind. Here’s how they explain: “Now in Part IV we push those boundaries even further by exploring how strategic pricing can have a positive impact on many pressing social issues. These include how to make health care and education more accessible and how to accelerate efforts to mitigate the effects of climate change. What is a fair price? or What is a fair way to share value between buyer and seller? Paradoxically, getting no value is better than getting an unfair amount of value. A price accepted by both parties is therefore an insufficient definition of a fair price.”
That last sentence are fighting words. What about capitalist acts between consenting adults? There’s no such thing as a “fair” price. How would you even define “fair?” Who would decide, and when would they decide? What’s the opposite of “fair.” It’s foul, as in foul ball. Can there be a foul price? Then don’t buy. The authors do cite me: “Ron Baker, a pricing specialist and founder of VeraSage Institute, put it this way: ‘The problem with a ‘just’ price is who gets to decide what is just? The free market already provides an answer to this question – whatever someone is willing to pay.’”
They then recount examples where markets create unfairness:
• “Higher prices for minority and female car buyers
• Higher food prices for poor people
• Higher risk‐adjusted insurance rates for poor and middle‐income drivers
• Higher drug prices for poor patients, even among the uninsured”
I’ll ignore the fact that the above examples are all refuted if you measure time prices, as documented in the book Superabundance. I’ll also ignore the fact that Thomas Sowell has debunked every one of these arguments in his books, especially Basic Economics. They then cite this definition of fair from Sally Blount, a professor of strategy at the Kellogg School of Management: “According to her logic, fairness for most people is a function of how buyers and sellers split the economic pie. There is no guarantee that market prices result in a fair sharing of value, as we have defined in this book.” Natural disaster “price gouging” is another example of unfairness. How you increase desperately needed supply is ignored. The authors provide what they learned from their fairness research:
“All of our fairness research has confirmed that respondents find cost variations to be a good rationale for price variations, because that rationale depends the least on other circumstances. Therefore, we consider the best way to define the transaction value that buyers and sellers can share as the difference between customer value and variable costs.”
But prices don’t come from costs. Prices justify costs. And costs certainly have nothing to do with value. Again, they are complicating reality with these fallacies. And I shudder to think how this would be regulated in a liberty-loving, free market economy. Can you point to any successful examples of where this logic worked? It’s redolent of Marx’s labor theory of value. Here’s why this isn’t workable, as they write: “One prerequisite is that the buyer and seller need to estimate and agree on value. We have seen that this is neither easy nor always possible.” But a transaction only takes place when seller and buyer disagree about value. That’s the entire point of the subjective theory of value. There’s no way to measure proportional value in their misnamed “progressive pricing model.”
The contention that “the fairest price—not the highest price—optimizes profits” is a completely untestable hypothesis, because (again), value is subjective. Value cannot be measured; it’s a feeling. Not recognizing this leads to these types of errors. Of course value and maximum willingness to pay are not the same thing—no Austrian thinks they are, since the value received must be greater than the price paid by the buyer. This is a straw man argument, at least to an Austrian. Then this: “…the seller’s share that optimizes profit is slightly above 50%.” Yikes, this is scientism gentlemen.
And to compound the error, let’s fix the pharmaceutical industry in one fell swoop:
“One way to improve the perceived fairness of drug prices would be for the manufacturer and the payer to look at how they could share the total economic value of a new drug (cost of standard of care less marginal cost).”
Of course you could try this, but what would it do to innovation? Would investors be willing to spend the enormous amount of money (and time) it takes to bring a new drug to market? Well, yes, as the authors write: “Pharmaceutical innovations fit very well to the Value Game,” because in Chapter 22, the authors propose their “payer licensing agreement (PLA)” model for drug pricing, distinguishing between managing and curing a disease:
“The pharmaceutical company would sell health care system payers a license – on a per‐population rather than per‐patient basis – for universal access to a treatment for a few years at a fixed annual charge. Ideally, the period of the license would correspond to the length of time that a payer determines is required to cure most of the population.”
The barriers to this plan: “…number of barriers. First, the PLA model is best suited to single‐payer systems, such as those in Canada, the UK, France, and Japan.” Fine, then let’s try it there first. I realize we don’t have a free market healthcare system in the USA, but I certainly don’t want a single-payer system just so we can try this idea. As the old USSR joke says, communists were crueler than scientists. Scientists would have tried it out on rats first.
Chapter 23 deals with climate change, pollution, and resource depletion. They are correct about the Green Premium Quandary: “the green premium average willingness to pay is inferior to the green premium cost.” Since we are subsidizing it to the tune of trillions, I wonder if the authors would deem that an “unfair price.” I just call it what it is: corporatism. They suggest segmenting the market based on willingness to pay, which makes sense. The bigger problem is if “green” were so good, it wouldn’t need subsidies. Just look at the waste recycling has created.
So much of this is misguided. I would recommend the book Superabundance that offers empirical evidence that we are not running out of resources, nor is climate change an existential threat. I’d also suggest Bjorn Lomborg’s books on these topics.
Chapter 25 deals with poverty, disease, and inequity. Please define inequity? The only known antidote to poverty is wealth creation, and that takes the free market, along with all the dynamism, creative destruction, and inequality that comes with it. If you want equality, visit a cemetery, as the German proverb teaches. Pricing tweaks are not going to solve these issues. See the work of Deirdre McCloskey, Thomas Sowell, Milton Friedman, Magatte Wade, and George Gilder, on how to create wealth, the only known cure to poverty.
The authors ask: “What good is installing a water pump in a rural sub‐Saharan village if no one uses it because it is not trusted?” I’ll ask: What good is it even if they use the water pump but there’s no market to fix and maintain it? And how do you get them to a point where they can install their own water pumps, and maintain them? Clayton Christensen has a wonderful book on this, The Prosperity Paradox. These countries don’t need better pricing, they need free markets, less regulations, less government corruption, and more liberty and freedom so the average person can have a go. And no, microfinance is not the solution—it’s been underwhelming, to be charitable. Nor is progressive taxation, which does not create wealth, it just moves it around and destroys incentives to production—the only path to prosperity.
I’d like to thank the authors for recognizing me in their Acknowledgments, especially along with some of my pricing mentors (Nagle, Simon, Monroe, Holdens, Mohammed, Mitchell, Docters).
Despite these disagreements, the book is a well-written and thoughtful exploration of pricing strategies. It presents valuable insights and challenges readers to think critically about how pricing can influence business success and broader societal outcomes. You will learn a lot, and there are some excellent examples, such as how Amazon’s AWS uses cost-plus pricing. I highly recommend it to anyone serious about understanding pricing, even if you, like me, may not agree with all of its conclusions. The debates it sparks are precisely what make it a worthy read.
April 8, 2024
This is an exceptional book on a very relevant topic that usually does not get the deserved attention and qualifications behind the decisions in the industry I work more- telecoms. The ideas are presented in a very comprehensive, yet very easy to follow manner. The solutions are didactic and spark the curiosity of everyone working in business, especially in the client facing (marketing, sales, customer success and finance disciplines). This is a must read for any manager/executive!
April 16, 2024
This book is just excellent. Truly next level insights on pricing/market drivers and the writing is really dynamic.
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