Game Changer: How Strategic Pricing Shapes Businesses, Markets, and Society

By Jean-Manuel Izaret and Arnab Sinha

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 Changer: 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.

• Language: English
• Publisher: Wiley
• Release date: Oct 12, 2023
• ISBN: 9781394190591

Book preview

GAME CHANGER

How Strategic Pricing Shapes Businesses, Markets, and Society

Jean‐Manuel Izaret & Arnab Sinha

Global Leaders of the BCG Pricing Practice

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Copyright © 2024 by The Boston Consulting Group, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

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Library of Congress Cataloging‐in‐Publication Data

Names: Izaret, Jean‐Manuel, author. | Sinha, Arnab, author.

Title: Game changer : how strategic pricing shapes businesses,

markets, and society / Jean‐Manuel Izaret, Arnab Sinha.

Description: First edition. | Hoboken, New Jersey : Wiley, [2024] |

Includes index.

Identifiers: LCCN 2023025590 (print) | LCCN 2023025591 (ebook) | ISBN

9781394190584 (cloth) | ISBN 9781394190607 (adobe pdf) | ISBN

9781394190591 (epub)

Subjects: LCSH: Pricing. | Strategic planning. | Consumer behavior. | Game

theory.

Classification: LCC HF5416.5 .I943 2024 (print) | LCC HF5416.5 (ebook) |

DDC 658.8/16—dc23/eng/20230721

LC record available at https://lccn.loc.gov/2023025590

LC ebook record available at https://lccn.loc.gov/2023025591

Cover Design: BCG BrightHouse

Author Photos: Elijah Ellis & Lauren Janney

To our parents (Christiane, Pierre, Rita, and Tuhin), for the intellectual curiosity and rigor they fostered and the sense of collective responsibility and empathy they exemplified.

To our families (Christine, Axel, Ernest, Varsha, Arjun, and Saahil), for the joy and pride they bring us every day and for their tolerance for the enormous space the book took in our lives.

INTRODUCTION

Changing the Pricing Conversation

An illustration of a design.

Companies, governments, and individuals make countless price decisions every day, because every commercial transaction involves a price. The collective sum of the value they exchange represents not only the size of the world economy – estimated at roughly $100 trillion per year – but also all of the decisions about how that pie gets divvied up.¹ Prices are the numerical shorthand that allows the transacting parties to make quick, easy comparisons to other transactions and gives them trust and confidence that the money exchanged represents a fair trade.

That’s why business executives and economists acknowledge that prices play a critical role in markets and society. But the current conversation around pricing – as expressed in economics textbooks, anecdotal war stories, political discourse, and the backs of cocktail napkins – makes it easy to believe that pricing is nothing more than a technical, tactical, and, for most people, boring game based on four premises:

Zero sum: Think of your price as a position on a slider bar of fixed length. The more you charge, the less the other party gets, and vice versa.

Value extraction: Given a zero‐sum scenario, sellers have a natural and strong incentive to extract the maximum value, and buyers strive to strike the best bargains. Neither party wants to leave money on the table.

Static: Demand, customer needs, willingness to pay, capacity, and competition are all given. Markets set prices, whether guided by Adam Smith’s invisible hand or other interpretations of collective action. Your only incentive is to act and react to earn what you can within those constraints.

Numbers: The goal for every seller is always to find the right price. This elusive quest for the perfect number focuses an organization’s energy on analytical methods, each more sophisticated than the last. But no number is ever right for more than a few microseconds, because every factor is always in flux.

We think that this game and its underlying premises are myopic. It is important for business leaders to step back and look at two things: the choices they make before they set prices and the real‐life consequences their prices have on businesses, markets, and societal outcomes. This strategic perspective about pricing expands the degrees of freedom that business leaders can use to reshape their pricing models and enhance their competitive advantages. Customers, in turn, can do much more than simply evaluate whether the prices they pay are cheap or expensive, relative to the value they receive. They can pay attention to the seller’s pricing structure and decide whether it aligns with how they derive value.

Our mission with Game Changer: How Strategic Pricing Shapes Businesses, Markets, and Society is to change the game of pricing, literally and figuratively. We will expose the dangerous flaws behind the prevailing pricing game, because there is too much at stake to let misperceptions about pricing persist. But our larger and more important mission is to show you, step by step, how the right pricing strategy can change the entire trajectory of your business, your industry, and, in many cases, society as well.

To change the conversation around pricing, let’s start by refuting the flawed premises behind the current game of pricing. When you read the four new perspectives below, notice how the incentives and tradeoffs have changed. Notice how they create new opportunities and open more degrees of freedom for you to pursue them.

Collaborative growth, not zero sum: Before wondering about your position on that zero‐sum slider bar, you need to decide what variable calibrates it. Prices are expressed as an amount per unit, but the choice of unit can incentivize buyers and sellers to work collaboratively as opposed to against each other. The standard pricing unit in the music industry, for example, was per album or per song, until streaming services led a shift to pricing per person per month. This shift reversed a long decline in industry revenues. The International Federation of the Phonographic Industry (IFPI) reported that global recorded music revenues grew for the eighth consecutive year in 2022 to $26.2 billion – a level not seen in absolute dollar terms since 1999 – after having bottomed out at $13.1 billion in 2014. Streaming – a revenue source that barely existed at all 15 years ago – accounted for two‐thirds of overall revenue,² and revenue from physical formats such as vinyl grew as well. Consumers were willing to listen to more music and spend more on this category, but the old pricing unit had been constraining volume and overall market size. Pricing is your means to create and align incentives, grow your market, and escape the high–low constraints of a zero‐sum mentality.

Value sharing, not value extraction: When you view pricing as a way to share value rather than extract it, you foster a sense of fairness and give customers incentives to try and then reuse your offerings. By balancing how and when to share value, you also create opportunities to scale your business massively and quickly and then retain or upsell loyal customers over the course of a long relationship, not a transactional one. The question How much money should we leave on the table? is no longer heretical. It becomes an essential strategic question for every business leader.

Dynamic, not static: Demand, customer needs, willingness to pay, capacity, and competition are fluid and dynamic, not given. This helps explain why startups can successfully innovate and change markets by introducing new pricing models. Google reshaped the advertising industry by using auctions to sell advertising inventory. Salesforce.com revolutionized the software sector and created growth opportunities for its customers by selling software as a service. Uber created a new mobility business by charging by the ride rather than flat rates for the mile and minute.

Strategy, not numbers: No matter how many data scientists or advanced algorithms you deploy in the quest for optimal prices, the numbers aren’t helpful unless you have the right pricing models in place. A pricing model is the manifestation of your pricing strategy, a set of choices that aligns incentives across your entire business, both in the market and within your organization. These choices include defining the offer itself, the pricing basis, and how to determine and adjust prices as market conditions change. Business leaders need to make all of these choices before they ever set a price.

This new way to talk about pricing – eagerly, comfortably, and, above all, strategically – is long overdue. It takes pricing out of your company’s boiler room and places it in the boardroom, where it belongs. It allows pricing to inform and determine corporate strategy, rather than serve it, because it motivates vision and structure, not the myopic quest for better price points.

No matter how future markets around the world evolve, pricing will remain the common business challenge that every executive and manager must address. Every commercial transaction involves an exchange of value, and the amounts of money involved – for better or worse – are the direct results of strategic pricing decisions the seller makes long before the transaction takes place.

We define a pricing strategy as a business leader’s conscious decisions on how to shape their market by determining the amount of money available, how that money flows, and to whom. It reflects the company’s philosophy on how to acquire, retain, and satisfy customers 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. How much value a business leader wants to share depends on the company’s short‐ and long‐term objectives. The choices of sharing method and model reflect how they want to use the pricing agency at their disposal.

Those decisions will shape not only your own business, but your market and society as well. In the following three examples, none of the business leaders or companies could have made their choices within the constraints of zero‐sum, value extraction, static, and number mentalities. We found in our work with thousands of companies that this strategic perspective can add points of margin and growth to almost any business. In our work with social ventures the impact can multiply their reach. The strategic view of pricing we introduce in this book is what makes their changes possible.

How pricing strategy shapes a business

Imagine that you are planning a large function such as a wedding or a graduation party. Several caterers offer you quotes, and you choose the one that best fits your plans and budget.

But how do caterers arrive at their prices? Most use the cost‐plus method, the world’s oldest and still most widely used way to set a price.³ They sum up their costs – for food and drink, preparation, delivery, and service – and then add their desired profit margin.

Judgment then comes into play, because the caterers want to avoid the high–low anxiety of zero‐sum pricing. Strong demand may boost their confidence to nudge prices higher, while weak demand may lead them to cut prices to get cash to cover themselves and their fixed costs. Ultimately, they settle on a price that represents the safest compromise.

How can the caterers escape this anxiety? It may sound paradoxical, but an experienced caterer in the western US named Mark escaped it by focusing on upside opportunities in ways that are less risky for his business over time than making safe compromises. Instead of being everything to everybody at whatever price he can negotiate, he formulated a pricing strategy by making conscious choices about how to shape demand, share value, and design his prices.

He started by rethinking how he creates value to meet his customers’ needs. That is an easy statement to make, but it’s little more than pricing pixie dust without a way to apply it. The caterer’s customers want the best fit to the venue, the menu, the desired level of refinement in food preparation, and the nature and length of service. Each of these requirements will vary significantly across different types of customers. Some customers will have fixed budgets, while others can afford to spend more, perhaps because they will ask attendees to participate financially in the event.

Based on what he learned, Mark decided how to use these variations to his own advantage. What imbalances will allow him to play to his strengths, by aligning what he does best with the customers who want that kind of service? Knowing that allowed him to craft a few packages with different options, with a fixed price per either event or person. That fixed price – which can include some allowance for changes within a similar range of menu items or service level – offered more certainty to customers with a fixed budget and avoided the hassle of change orders.

Academics, consultants, and other observers often refer to this approach as value‐based pricing. But that phrase grossly oversimplifies what Mark could now accomplish. His new pricing strategy went far beyond the numbers. It changed every aspect of his business, from procurement to marketing to sales to staffing. It also changed the level of ambition he could pursue. Catering is a business with few barriers to entry, so margins can be thin. A value‐based pricing approach increased the predictability and stability of his business, both on the volume side (thanks to higher win rates) and on the profitability side.

How pricing strategy shapes an industry

Carriers in the cellular service industry face frequent innovate or die challenges. Over the past few decades, they have survived the transition from analog to digital, the launch of the iPhone, and the successive introduction of next‐generation technologies from (so far) 2G to 5G.

To encourage customers to join their networks, carriers once subsidized the adoption of new mobile devices in exchange for the predictable revenue stream of a contract, typically lasting two years. But this stability – and the carriers’ profits – came under threat when global spending on phone subsidies ballooned by an estimated 40% to $48.5 billion per year between 2009 and 2011, thanks to the introduction of more expensive smartphones.⁴ ,⁵

The prevailing pricing model also posed a threat to carriers’ profits. Churn rates spiked for customer cohorts reaching the end of their two‐year contracts, because customers had strong incentives to shop around for another subsidized device. Why should they keep paying the same monthly amount when they had already amortized the cost of a device that was likely obsolete anyway? Churn substantially reduced customer lifetime value and forced carriers to increase their already high levels of spending on new customer acquisition.

These dynamics changed in June 2012, when Verizon reshaped the market by changing the pricing model from uniform individual plans to plans that bundled devices, minutes, messages, and data allowance under one household account with one bill.⁶ The Share Everything Plan gave customers a strong incentive to stay with the same carrier, because the hassle of coordinating among family members would outweigh the benefits of switching.

AT&T launched a similar bundle in August 2012.⁷ Sprint and T‐Mobile initially resisted, but eventually launched their own shared data plans in 2014.⁸ One year after introduction, their average monthly churn rates for postpaid contracts decreased by 64 basis points and 19 basis points, respectively.⁹ ,¹⁰

The extent and impact of bundling in the telecommunications industry goes well beyond family plans for cellular service. In Europe, mobile and fixed‐line offerings started converging under one bill in the early 2010s. Spain’s Telefónica saw the penetration of its fixed‐mobile bundle increase from 16% in 2013 to 48% in 2017, and its churn rates fall by half.¹¹ ,¹² Average revenue per user (ARPU) for the bundle rose by around 25% between 2014 and 2017, suggesting that the sharing of value under the new model benefited both Telefónica and its customers.

How pricing strategy shapes society

Tipping incentivizes good service, because it allows customers to show their gratitude to the individuals who served them. The practice has existed in many countries for several centuries, but it is not universal.¹³ It is impolite to tip service workers in Japan, for example, because of the implicit assumption that the server lacks the means to survive without the tip. In the United States, however, service workers in hospitality, foodservice, and other sectors rely on tips to make a living.

Tipping may seem like a benign and convenient two‐part pricing structure. The customer pays for the service – such as the meal, the repair, or the valet parking – and then adds an incremental amount for the server, who has an incentive to perform their job well. That tipped amount is usually either a percentage of the service charge (say, 15%) or a flat amount, such as a $20 cash tip for a mechanic who provided roadside assistance.

By using this two‐part structure, the seller shifts some of the responsibility for labor costs from themselves to the customers. This shift shapes society, because it leaves vulnerable groups susceptible to mistreatment and lower incomes, which in turn magnifies the effects of existing class biases. All else being equal, customers tend to tip service workers differently on the basis of race, sex, or other characteristics protected under labor laws.¹⁴

Male customers often get away with harassing female service workers, who are caught in the dilemma of either saying nothing or reporting the harassment and possibly forfeiting extra tips, which represent a significant portion of their salary.¹⁵ The Washington Post reported in 2016 that the restaurant industry generates five times the average number of sexual harassment claims per worker.¹⁶ Only 7% of American women work in restaurants, but 37% of all sexual harassment complaints to the Equal Employment Opportunity Commission come from this industry.¹⁷ Tipping also has implications along racial lines. Studies show that this structural bias is so pervasive in American society that even Black customers tip white service workers more on average for the same level of service.¹⁸

Recent evidence from the United States shows that changing this pricing model could start to reshape society. Seven states – Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington – have passed laws to raise minimum cash wages for tipped workers to the state’s full minimum wage, while 15 states still keep it at the US federal minimum of $2.13 per hour.¹⁹ Those seven states show consistently higher restaurant sales per capita and tipped worker job growth than the others.²⁰

It’s time to change the game of pricing

As we said earlier, one of our primary objectives with this book is to change the game of pricing, literally and figuratively. That takes us beyond refuting the four premises that underpin the generally accepted version of how the game of pricing works. Game Changer: How Strategic Pricing Shapes Businesses, Markets, and Society replaces that game with seven distinct pricing games that, in aggregate, cover nearly every challenge and opportunity a business leader will encounter.

These games and their distinct natures are not arbitrary or gimmicky choices, nor are they mere byproducts of what we and our colleagues have experienced over the past few decades. They are, in fact, the logical outcomes of a thought process that integrates familiar pricing inputs, frameworks, and methods in a systematic way.

This process culminates in the Strategic Pricing Hexagon, a proven empirical framework we have designed to help executives make strategic choices about pricing with greater speed, confidence, efficiency, and impact.

Schematic illustration of the Strategic Pricing Hexagon

FIGURE I.1 The Strategic Pricing Hexagon

The locations of the seven games within the Strategy Hex, as we will refer to it throughout the book, are not coincidental. They arise from intersections and interactions across information sources (cost, competition, and customer value), economic frameworks (elasticity, differentiation, game theory, and supply and demand), and specific market characteristics. Each game is subject to six well‐defined market forces, and each game has a function within an organization that serves as its natural leader for strategic pricing decisions.

By synthesizing all this information, the Strategy Hex becomes a decision support tool that enables any business leader to formulate a clear pricing strategy and shape their business and markets with authority. It is a logical, common‐sense guide to help you identify the imbalances in your market, assess the resulting opportunities and risks, and then frame your options based on your pricing strategy and your pricing agency. It also prevents you from acting on incomplete information, falling prey to the misconceptions about how pricing works, or applying frameworks or techniques that are ineffective or inefficient for a particular game.

For a variety of reasons – from university training to corporate legacy to experience – you might easily and intuitively imagine that your company is playing one of the three games at the top of the Hex.

Value: Aligning prices of unique solutions with customer value

Think breakthrough or highly differentiated products. Companies succeed when they express their differentiation convincingly and match it with a pricing model that reinforces the value. Companies in the high‐tech, luxury goods, and pharmaceuticals sectors tend to choose the Value Game.

Uniform: Optimizing the same price for all customers

Crack open an Economics 101 textbook and at some point, you’ll see the hallmarks of the Uniform Game: companies offering one transparent price to all customers. Sellers weigh the tradeoffs between volume and margin to optimize their own uniform price and maximize profits. Retailers and many consumer goods companies choose to play the Uniform Game.

Cost: Driving efficiency to set prices in commoditized markets

Cost‐plus is common in markets with a high proportion of variable costs and several small suppliers competing for the business of very large customers. A seller needs a pricing model that incentivizes customers to work with them toward the shared goal of optimal efficiency. Tailoring their offers in a cost‐effective way is paramount. Many industrial suppliers and distributors play the Cost Game very well.

But these three games apply, in aggregate, only to a minority of the challenges that confront business leaders. That brings us to the four games in the middle and lower half of the Strategy Hex.

Power: Negotiating high‐stakes deals in concentrated markets

The stakes are high in markets where a small number of sellers with highly standardized offerings negotiate with a small number of customers. Losing even one major deal can wreck a seller’s business. Customers, meanwhile, can suffer when they give a seller an exclusive deal and that seller suddenly faces supply constraints and cannot deliver. In the Power Game, it is vital for sellers to understand the very fine advantages they might have versus each competitor at each customer. Their pricing model must enable them to keep prices in harmony within this delicate balance of power.

Custom:Customizing offers and discounts to beat competitors

Think of an industry with a handful of suppliers selling to hundreds or thousands of customers. The core offerings of each competitor are usually comparable, but the negotiated terms, conditions, and supplemental offerings can make each deal unique. In that sense, the Custom Game is the polar opposite of the Uniform Game. Individual customer discounts form the primary tool for price differentiation.

Choice: Shaping customer behavior with segmented offers

When a few companies in a market offer a variety of products or services at a wide range of prices, how those prices compare to each other matters far more than the individual prices themselves. The way that the offers are presented – factually and emotionally – influences how customers choose, which means that behavioral biases drive outcomes much more than the precision of price points do. A well‐structured lineup of offerings incentivizes returning customers to upgrade progressively and choose higher‐margin options.

Dynamic: Managing floating prices based on real‐time dynamics

Pricing can become dynamic when demand fluctuates, capacity is fixed, marginal costs are low, and competitive prices constantly shift over time. Airlines were the first ones to price dynamically, but this approach has spread to hotels, sports teams, e‐commerce retail, and many more sectors. Technology is critical, because it enables a company first to collect all the inputs at high frequency and second to process them and determine prices for every customer at any point in time. Some companies have begun to apply artificial intelligence together with human judgment to make initial attempts to play this game, but in many industries the evolution of the Dynamic Game remains in its early stages.

One consequence of the Strategy Hex is that there are no standard off‐the‐shelf pricing strategies that you can quickly cut and paste to your own situation. To assume that pricing strategies or pricing methods are universally applicable and fungible is tantamount to saying that playing golf, basketball, soccer, and baseball all demand the same skills and fitness, simply because each sport involves a ball.

Deciding which of the seven games you will play is one essential part of defining your pricing strategy. The following section introduces the full step‐by‐step process.

Define your own pricing strategy

Our book offers you a structured and powerful way to craft a well‐founded pricing strategy with speed, confidence, efficiency, and impact. The process builds on three questions:

How do you create and share value?

What pricing game do you want to play?

What pricing model best fits your value creation strategy?

Answering each question, in turn, depends on your answers to a block of more detailed questions.

Question 1: How do you create and share value?

Your answer to this first fundamental question derives from your answers to these three questions:

1a. What do you do to create measurable value for your customers?

1b. What are your main drivers of value and the limitations to value creation?

1c. How well do your differentiation and growth objectives justify how you share value with your customers?

Our foundations for pricing strategy begin with the premise that pricing is about value sharing in a repeated game – which describes virtually all markets – rather than maximizing one’s own outcome by extracting value from a zero‐sum game. We also assert that business leaders themselves set the rules and guidelines for shaping demand and sharing value.

We are not referring to value sharing in the sense of what Michael Porter and Mark Kramer defined over a decade ago. They referred to shared value as creating economic value in a way that also creates value for society by addressing its needs and challenges.²¹ While we address the important societal impact of pricing in Part IV, our definition of shared value is narrower and more precise. We focus on the voluntary exchanges between buyers and sellers, regardless of how large or small the impact on society may be.

Question 2: What pricing game do you want to play?

Your initial answer to the second fundamental question – what game do you want to play? – derives from your answers to these three questions:

2a. Which game aligns best with the characteristics of your market?

2b. Which game aligns best with your current pricing approach?

2c. Which game aligns best with the market forces and your competitive advantages?

We feel confident that your answers will evolve over the course of our book. Here are the seven games again in summary form:

The Seven Games in the Strategic Pricing Hexagon

Value Game: Aligning prices of unique solutions with customer value

Uniform Game: Optimizing the same price for all customers

Cost Game: Driving efficiency to set prices in commoditized markets

Power Game: Negotiating high‐stakes deals in concentrated markets

Custom Game: Customizing offers and discounts to beat competitors

Choice Game: Shaping customer behavior with segmented offers

Dynamic Game: Managing floating prices based on real‐time dynamics

Question 3: What pricing model best fits your value creation strategy?

Your answer to this third fundamental question derives from your answers to these three questions:

3a. What should your pricing architecture be (i.e., pricing basis, offer structure, and pricing mechanism)?

3b. What should drive your price variation (e.g., geography, channel, and time)?

3c. What price adjustment levers should you use (i.e., customer programs, transaction incentives, and fees and functional discounts)?

Figure I.2 – which we will use throughout the book – provides an organized view of these questions. The pricing architecture assembles all the decisions that leaders need to make before they can even set a price: the unit to express the price, the offer that people get when they pay the price, and the way the number is determined. Once a company can set a price, it needs to decide what will make that price vary, whether over time, by location, by store, by customer, or other factors. Finally, in markets where companies first anchor their prices around a number – a list price or reference price – they adjust those prices, sometimes by very small amounts and sometimes by much larger amounts. We refer to the means they use to make these changes as price adjusters and classify them by the purpose they serve. All these pricing model decisions have one point in common: implicitly or explicitly, they come before a buyer and a seller agree on any price. These decisions provide the strategic frame for the price.

Schematic illustration of the elements of a pricing model

FIGURE I.2 The elements of a pricing model

* * *

Preview of what you’ll find in the book …

Part I introduces the logical building blocks of the Strategy Hex – information sources, economic frameworks, market characteristics, and market forces – and then shows how typical functions within any organization, such as marketing, sales, and finance, fit to each game. Part I concludes with guidance on how to use the Hex to understand and exercise your pricing agency. By the end of Part I, you should already be able to answer the second fundamental question for defining your pricing strategy: What game do you want to play?

Part II devotes one full chapter to each of the seven games. By the end of Part II, you should have a complete basis for understanding each game and how you can win yours. You should also be able to answer the third fundamental question for defining your pricing strategy: What pricing model best fits your value creation strategy?

But we do not stop there.

Part III brings the Strategy Hex to life by showing you how to play the games when market‐shaping events occur. How do you bring an innovation to market? How do you make a transition to an as a service pricing model? Your choice of which game to play is not permanent. Companies change their games or defend their positions as their businesses and markets evolve.

Part IV shows that pricing strategies have social consequences. Think, for example, about how you would define a fair price. You may be surprised to read how your definition stands up to scrutiny. At the same time, pricing strategy can address social problems that people normally don’t view as pricing challenges, such as how a nonprofit can achieve a greater impact or how societies can reduce net emissions of CO2.

… and some shortcuts as you start reading

This book’s structure should allow you to navigate toward the parts and chapters that align with your strongest interests. As with most business books, you will probably not read the chapters in this book sequentially. But we do have some specific recommendations to guide your reading plan.

In Part I, Chapters 1 and 2 cover very familiar ground for people with a basic economics background. But we advise all readers to read Chapter 3 carefully. It explains what makes the games so different from each other. Understanding the rationale behind how market characteristics define the games is foundational for all the arguments we make in the book. Chapter 3 should also enable you to identify the one or two games that best fit your market situation. Chapters 4 through 6 develop a more nuanced understanding of the games. You can read them sequentially or skim them and come back later as needed, say, if you are wondering why we connect different organization functions, market trends, or pricing levers to their natural positions in the Hex.

If you have an appetite for targeted reading, skip straight to the chapters in Parts II and III that you find most intriguing. Part III chapters should be easy to navigate, depending on what is happening in your market. We hope that chapters focused on adjacent games will be instructive as well, highlighting opportunities for strategic moves or risks of market shifts.

Unique among pricing books, this one is not only for people who need to set pricing strategies and prices. It is also for all those interested in understanding how our modern free‐market societies are shaped by the way commercial transactions are structured. Chapters 20 and 21 cover age‐old questions such as the fairness of prices and how value is shared or distributed between buyers and sellers. They provide a more detailed logic behind some of our more provocative claims about the ethical case for price differentiation or the importance for businesses to share value.

Chapters 22 to 25 address specific societal challenges where strategic pricing approaches can help contribute to solutions. They include the challenges to provide broad or universal access to drugs or education, how to shape demand in order to scale sustainable, environment‐friendly products, and solutions on how to disincentivize CO2 emissions.

Finally, we suspect that this is going to be a book worth keeping in your library for frequent reference. We hope you will find many connections between the real world and the games that will trigger diving into the relevant chapter. No matter how you use this book, though, we welcome feedback and reactions to the ideas we present.

Now let’s answer Question 1

To help with the active reading of this book, we will have some brief exercises to help you translate the ideas of the book into practical real‐world consequences. If you are working in a business or a nonprofit organization, we assume that you can articulate your answers to Question 1 in a few sentences. If you are a student, pick a business you are familiar with. This is the starting point of your journey.

Question 1: How do you create and share value?

1a. What do you do to create measurable value for your customers?

1b. What are the main drivers of value and the limitations to value creation?

1c. How well do your differentiation and growth objectives justify how you share value with your customers?

Try to keep your answers simple and pragmatic, perhaps no longer than what you could scribble on a small