How smart pricing helps firms thrive

When markets are volatile and uncertainty looms, pricing is often treated as a technical exercise – a matter of supply, demand and algorithms. But according to Oded Koenigsberg, Professor of Marketing at London Business School, this narrow view misses the bigger picture.

“My first experience with pricing was as a young manager in the late 80s,” he recalls. “I thought it was all about numbers – microeconomics exercises and heuristics to find the ultimate price. But I soon realised it’s much more complicated. There are biases, behaviours and irrationalities that algorithms alone can’t capture.”

For Oded, this insight was transformative. Pricing isn’t just about setting a number; it’s about understanding value – and how that value is perceived by customers. “For too many years, companies were charging for outputs, not outcomes,” he explains. “Pricing should be part of the strategic vision of a company. Firms need to monitor the value they create and translate it into pricing.”

Outputs versus outcomes

The distinction matters. Outputs are what businesses produce – a product, a service, a subscription. Outcomes are what customers actually want: the benefit, the experience, the solution. The first decision is to understand the gap between what you sell and what customers buy, Oded says. “If you can’t charge for the outcome directly, what proxies can you use? And if there’s a gap, what kind of waste does it create – performance waste, consumption waste, excess waste?”

Closing this gap requires more than a pricing department. While the rise of chief pricing officers is welcome, Oded argues it’s not enough. “Pricing is part of the value journey,” he says. “Companies need someone who oversees value from creation and design through to development and the decision of how to split it between the firm and the consumer.”

Value as the organising principle

Ultimately, pricing is about dividing value – but done strategically, it can do more than that. “Not only can we divide value more effectively,” he notes, “we can highlight hidden parts of value that customers may not even recognise.”

This is where technology comes in. Artificial intelligence and machine learning can make pricing more efficient, helping firms analyse data and recommend price points. AI is an excellent tool for the technical aspects, but Oded cautions against over-reliance: “AI cannot replace decision-making in many products. The last word should always be yours, informed by business understanding and context.”

The differentiator in turbulent times

In a world of crises and instability, pricing becomes a lever for agility and resilience. It enables firms to pivot quickly, adapt revenue models and align with customer needs. What will differentiate excellent companies from good ones, Oded concludes, is their ability to use revenue models in a more efficient way – to think strategically about pricing as part of innovation and growth.

For leaders navigating complexity, the message is clear: pricing isn’t a back-office function. It’s a strategic capability – and in the right hands, a powerful engine for thriving in a complex world.

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