Pricing is a strategic capability for companies that requires investment in human capital, systems capital, and social capital. When companies invest in developing pricing expertise among employees, implementing pricing software and systems, and coordinating cross-functional pricing teams, they can build an organizational capability to routinely set prices that align with their strategy, customers, suppliers and market conditions. This pricing capability strengthens competitive advantage and is difficult for competitors to copy. The document provides examples of how Roche, Polaroid and Sun Country Airlines demonstrated varying levels of pricing capability.

1. Pricing as aStrategic Capability S. Dutta (Marshall, Univ. of Southern California),M.Bergen (Carlson, Univ. of Minnesota),D.Levy (Bar-Ilan University, Israel),M.Ritson (London Business School),M.Zbaracki (Wharton, Univ. of Pennsylvania) Rotman School of Management

2. How is it a Capability ? Companies can invest to build capability of routinely setting prices that fit with: its positioning, its customers, its suppliers and evolving market conditions If not investing, capability becomes liability with: angry customers & competition seizing the opportunity 2 Rotman School of Management

3. So where exactly do we invest ? Invest in the 3 corners of our organization: Human Capital Systems Capital Social Capital Leads to *ORGANIZATIONAL CAPABILITY* of always pricing correctly! Competitors find this is hard to copy -> so we have now strengthened our Sustainable Competitive Advantage! 3 Rotman School of Management

4. Example: Polaroid 4 source: Giorgio Verdiani on Flickr Rotman School of Management

5. Example: Polaroid vs. Fuji & Kodak 5 Depended on razors & blades model Failed to fit digital technology in that model Pricing capability could no longer support its strategy source: Giorgio Verdiani on Flickr Rotman School of Management

6. Example: Sun Country Airlines 6 source: Bill Shemley on Flickr Rotman School of Management

7. Example: Sun Country vs. North West 7 Pricing based on immediate demand Skimming strategy but NW had different goals, costs, needs No investment on organizational glue & on pricing capability source: Bill Shemley Rotman School of Management

8. Example: Roche 8 source: Greg Wake on Flickr Rotman School of Management

9. Example: Roche 9 Human Capital: hiring pricing experts Systems Capital: internal center of learning + new software systems Social Capital: involve various departments to reduce conflict & build consensus source: Greg Wake on Flickr Rotman School of Management

10. Human Capital Understand the company in all its complexities i.e. strategy, range of products/services, customers, suppliers, competitors Train internal staff to increase pricing expertise e.g. Roche Marketing University Package to help negotiate a good deal Info on co.s’ net profit before taxes, fixed costs, variable costs & freight expenses  immensely helps sales people Hire the talent with sophisticated pricing knowledge 10 Rotman School of Management

11. “ Companies that don’t have people who deeply understand dynamic pricing, auction theory, bundling, game theory, and so on, are going to be involved in a daily game of catch-up with rivals who have invested in human capital. ” 11 Rotman School of Management

12. Systems Capital Sears: Absence of infrastructure to set prices differently for different stores  inflexible in responding to competitors market by market  lagged behind the curve on pricing. Electronic Pricing Tools to tracking customer purchase history, price-sensitivity and category management systems to improve profitability Tools to relay prices to salespeople in the field with real-time comparison to competitor prices Human Capital & Systems Capital reinforce each other 12 Rotman School of Management

13. Social Capital is the “internal glue” that coordinates & holds participants in the pricing process. Hard to build and hard to copy! Build teams: to not over-focus on the changing pricing process anticipate consumer reactions by involving lead users conduct market research & analyze reactions to previous price changes Helps to prevent a meltdown of customer relationships 13 Rotman School of Management

14. “ Most CEOs will never set a single price. They can, however, give their managers the ability to win price wars, maintain price leadership, and hold a competitive edge in pricing. ” Rotman School of Management 14