Jean-Manuel Izaret, Arnab Sinha

Cost, competition, and customer value … are the three fundamental information sources for the development of any business strategy. The traditional pricing perspective, however, treats these information sources as inputs into price calculations… From this tactical perspective, customer value sets a price ceiling or a maximum price, while costs define the floor or the minimum price. To calibrate the range in between, leaders take competitor prices into account before deciding on the price they will charge for a product or service. But costs, competitor prices, and customer value can generate important and more powerful strategic insights when leaders look at their interactions rather than how they behave in isolation.