How the Pricing Function Will Evolve in the Future

Author: Kevin Mitchell

In the 1940s, archaeologists found well-preserved clay tablets near present day Baghdad, Iraq.  These more than 4,000 years old documents, the Laws of the City-Kingdom of Eshnunna, preceded Hammurabi’s Code by centuries, and they included many topics of interest to those living in the Tigris-Euphrates valley circa 2,100 BCE:  Who were the officials in charge, what were their jurisdictions, how are marriage and divorce administered, and what the punishments were for certain crimes. 

But here is what’s interesting to us - The Laws of Eshnunna also included very detailed information such as the maximum that citizens could charge for several basic commodities; as far as we can tell, this was the first published price list.

Subscription models remain the backbone of software monetization, but they’re no longer enough. The data is clear: pure subscription is losing ground, while hybrid models – combining subscriptions for core functionality with usage-based components for high-cost features – are gaining momentum. This shift isn’t theoretical. It’s a direct response to the need for pricing strategies that reflect actual consumption, control costs, and ensure transparency for customers.

Pricing, as an art and a science, has changed in the 4,000 years since Eshnunna, but the humble price list will likely outlive us all.

This clerical duty, maintaining a list of goods and services and what we charged for them, just like one of Eshnunna’s scribes did millennia ago, has been the main pricing job for most of history.  Similarly, price setting certainly was based on the most powerful concerned person’s gut reaction, perhaps supplemented by the word on the street or their increasing or decreasing inventories of goods.

Pricing has become more of an analytical function, more of a negotiation, and more of a managerial duty over time.  Corporations have reams of data and armies of cost accountants who determine exactly how much it costs their organization to produce goods and services.  Simple, easy, cost-plus pricing takes these figures and adds on a margin (either percentages or currency amounts) to produce prices.  Some salespeople have incentives based on profitability metrics over mere volumes; they are much more likely to negotiate higher prices for themselves and for their companies. 

Now, publicly traded companies are tasked by their shareholders and analysts to discuss how they are selling, what price they are selling at, and how their margins compare to their competitors, not merely how much they are selling or how their market share has changed.

Market segmentation, win-loss analysis, and pricing based on customers’ perceived value and willingness-to-pay are additional steps in the evolution of pricing.  These are now commonly accepted as the cost of doing business, from both a buyer’s and a seller’s perspective.  Deep down inside, we know that everyone else paid a different price for our crowded flight than we did.

Since pricing is so critical to the organization’s success, we will see massive changes in the pricing function going forward. Pricing will become even more of a C-Suite focus and pricing professionals will have to become better connected to several distinct internal parties (senior management, operations, sales, marketing, product development, finance, supply chain, and others) and external entities (customers, marketplaces, governments, and macroeconomic forecasts).

We are long-overdue for a Fortune 500 CEO who primarily made his or her career by moving up to and through the pricing function in their company’s organization chart, instead of sales or finance.  Future business leaders will have to be masters of all trades, and progression through a pricing department is a wonderful and necessary way to be involved with all facets of the corporation.

Being a business leader is not an easy job, and you must have thick skin, be able to make decisions, adjust strategies when presented with better data and information, and be prepared to defend your processes in situations where everyone thinks that they could do your job better than you do.  This kind of sounds like a pricing professional to me.  We are the next CEOs in waiting and we don’t even know it yet.

The pricing function also will have to be involved much earlier in new product planning and research and development.  How we price and segment our markets need to be primary questions for our new offers.  Currently, these functions often have a very “inside-out” approach to our marketplaces.  Companies get excited about new offerings that do not mesh well with customer needs.  We love to talk about features but not benefits.  We discuss our plans for the marketplace instead of ways that we will offer unparalleled value to our customers.

Pricing people are in the unique position of focusing on the things that our marketplace desires, while also having data analytics, communication skills, business sense, and big picture thinking amongst our skillsets.  Far too many products have failed because there was not a pricing and value-centered consideration and businesses realized that there was a huge misalignment between characteristics that they internally considered to be important versus the truth out on the street.  Let’s stop being the business school cases where it’s easy to see in retrospect that an outside-in approach was not top of mind.

Market changes will greatly impact the pricing function as well.  Since both sides of the transaction, buyers and sellers, have access to far more data than ever before, the negative impact of poor pricing decisions will be multiplied.  B2B and B2C customers will start to resemble each other even more.  Consumers will be able to do research and compare you versus your competition, and businesses will desire more of a multichannel approach, where they are not dependent on a salesperson to visit them with a catalog.

Artificial Intelligence (AI) will also change the pricing function in unique ways.  Pricing leaders will have to know everything about AI tools:  their strengths, their weaknesses, and their limitations.

Using AI tools in pricing will reduce lead times and help business provide the instant answers to pricing questions that customers want.  It will also free pricing departments of low impact decision-making and foster heavier emphasis on more strategic opportunities; it will allow us to focus on the really tough questions that determine the organization’s success by getting us “out of the weeds” in dealing with less important issues.  Consumers will begin to show  even more preference for automatic price quotations.

However, since AI is based on past data, and may even “hallucinate” about future outcomes, human intuition and brainpower will still reign supreme for make-or-break decisions.  Our own well-developed internal computers above our shoulders can account for the latest macroeconomic news, our customer needs, our company’s strategies, our goals, and longer-term thinking.  Business leaders who rely on AI without these and other considerations will not perform as well as those leaders who use AI as a tool, instead of a crutch.

Every dollar, euro, rupee, pound, yen, and yuan that comes into your company has a pricing decision attached to it, whether you think it is made by your marketplace, your competitors, your customers, or yourselves.  Pricing is therefore a determinant of your organization’s salaries paid, investments in your local communities, research and development, and overall profitability.

Since there will be more emphasis on the pricing department, it will be more critical than ever to use the best tools, but it will also be necessary to know when it is best to rely on your training, your experience, and your foresight as your primary decision makers.

Pricing jobs will offer great opportunities for the artists and scientists, the communicators and leaders, the thick-skinned and the empathetic future leaders of the business world.  Tomorrow’s challenges will mean that pricing decisions will be under more and more powerful proverbial microscopes.  It will be your job to understand all facets of the business world, use all of the training that you can get, rely on your networks of colleagues, and take advantage of all of the tools at hand to perform as best as you can for your teams, your organizations, and yourselves.

We have come a long way since our Eshnunnan colleague wrote down how much a milk cow or a bushel of grain costs, but there is certainly a long way to go.