16 Sep 2015
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Rethink pricing to create shared—and expanded—value


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John T. Gourville, the Albert J. Weatherhead Jr. Professor of Business Administration, advocates that value be shared by a firm and its customers. “Without a willing customer, there is no value,” he says. “When companies view customers as partners in value creation, particularly in terms of setting prices, everyone benefits.” Pricing sends a loud message, and missteps can bring swift retribution from consumers, as when Bank of America tried to charge a $5 monthly debit card fee.

Gourville outlines five pricing principles by which firms can engage with customers to expand value, leading to new revenue and increased consumer satisfaction and loyalty. First, focus on relationships rather than transactions (see customers as “people, not wallets”). Be proactive by setting prices that benefit both the firm and its customers. Design pricing flexibly so it can change in response to shifting consumer needs, and be transparent about pricing rationales. Finally, make certain that pricing is consistent with customers’ sense of fairness.

(Published September 2015)

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