Why Pricing Decisions Need More Than Management Intuition

The past year has wreaked havoc on many industries. Companies have faced a range of issues related to customer strategy: sharp drops in demand, excess capacity, heightened price sensitivity, and aggressive pricing decisions by competitors. One important takeaway from the unprecedented impact of this crisis is that executives need to question many of their long-held beliefs about the best way to deal with rapidly changing customer needs. In this article, we describe six real-world customer strategy and pricing scenarios that many executives have faced in the past year. We discuss the prevalent, intuitive responses that many companies have made in response to each type of challenge and then examine when and why those intuitive responses may not be that sensible after all. Drawing on Daniel Kahneman’s work on dual-process thinking, we contrast the effects of a System 1 (fast and automatic) response with a System 2 (slow and effortful) response and suggest more thoughtful ways to approach the six scenarios.