What chess and pricing have in common

Chess has new world champion after Ding Liren defeated Ian Nepomniachtchi in a tense and adventurous best-of-four playoff round yesterday. The first such playoff in 20 years settled the 2023 championship after the two grandmasters evenly split their initial round of 14 games last month in Kazakhstan.

The nature of the finals between Ding and Nepomniachtchi is a microcosm of the constant challenges that business leaders face with pricing: a series of games in which one questionable move could not only undermine your own advantage – and lots of meticulous preparation – but also turn apparent victories into losses or draws. That happened frequently throughout the finals, especially to Ding. The only time he ever held the lead in the entire 2023 championship finals was on Sunday afternoon, when Nepomniachtchi shook his hand to concede the fourth match of their rapid-fire playoff.

Many have drawn parallels between chess and strategy, but now I’d like to deepen and tighten those links by offering a description that each share. In pricing, as in chess, each competitor looks at the game or "market" characteristics and makes moves to reshape the board to their advantage by creating or correcting imbalances. Strategy is paramount in chess, but tactical mistakes can undermine the most sophisticated positional chess strategy. We saw that happen in game 12 of the championship, when Ian made a fatal pawn move that allowed Ding to come back. Likewise the fundamentals of pricing strategy need a consistent tactical implementation.

The seven games of pricing

Over the last 10 years my colleagues and I have viewed pricing as several games within the broader game of strategy. As the hexagonal figure above shows, there are seven – and only seven – pricing games, each with its own rules and tools that determine success. One key insight from the games in the Pricing Strategy Hexagon, as we call it, is that the strategies in one game are not readily transferable to another.

The standard move that most pricing consultants recommend is for companies to find a way to move from the Cost Game to the Value Game. But as the examples below show, that recommendation oversimplifies pricing strategy and applies only to certain situations. The opportunities, situations, degrees of freedom, risks, and unforeseen consequences are much more diverse.

·????????From Value to Uniform: Think of the fate of the retailer J.C. Penney ?in the Ron Johnson era, when he took over as CEO after a long and successful tenure as head of Apple’s retail business. Johnson had mastered the Value Game, but found that the same success formula was a mismatch for a retailer steeped in and still profitable in the Uniform Game.

·????????From Custom to Choice: The reorientation of General Motors and its Saturn division marked an experimental shift from the negotiated, individualized prices Custom Game to the Uniform Game. But was that the right choice? The conclusion we draw from the article linked above is that the right move for GM would have been to the Choice Game – with an integrated portfolio of vehicles – rather than the Uniform Game.

·????????From Choice to Dynamic: Fast forward to today’s automotive market, and we see Tesla making the first moves in 2023 to take the industry from the Custom Game or the Choice Game (where Tesla itself currently plays) to the Dynamic Game. Ford CEO Jim Farley recently noted the significance of Tesla’s “pioneering” move of frequent price changes and suggested the industry may need to follow Tesla’s example.

Applying the wrong tool, or misidentifying shifts in market characteristics pricing game, can lead to imbalances which can reshape markets to your detriment. The converse is also true, as Ding and Nepomniachtchi also demonstrated with their own decision-making in the 2023 chess championships. Yesterday alone, Ding made a game-changing move described as a “chess coach’s nightmare,” but it created his final path to victory.

Over the coming months, my colleagues and I will introduce more examples of companies playing or changing the seven games in the Pricing Strategy Hexagon.