A value proposition explains why a customer should care. Pricing power shows whether the business can convert that value into durable economics. The two are often discussed separately, and that separation is where otherwise sensible commercial strategies begin to leak margin.
Andy Demir | Qalbur Perspective | Growth | 14 minute read
Executive Summary
Business Model Generation gives leaders a useful architecture for connecting customer segments, value propositions, channels, revenue streams and cost structure. Pricing for Profit asks a harder commercial question: once value has been created, does the organisation have the evidence, offer design and discipline to capture enough of it? My argument is that pricing power is not a late-stage sales technique. It is the economic expression of a coherent commercial model. When the proposition, customer economics, revenue logic, sales incentives and discount governance do not reinforce one another, a gap opens between the value created and the value captured. I think of that as the Value-to-Pricing Gap.
In This Article
- A Value Proposition Is Not Yet Pricing Power
- The Value-to-Pricing Gap
- Pricing Power Is Built Before the Negotiation
- Cost, Price and Value Answer Different Questions
- Sales Behaviour Reveals the Commercial System
- When Higher Prices Are the Wrong Move
- A Commercial Architecture for Pricing Power
- What Senior Leaders Should Consider
- Questions for the Boardroom
- Price Tests the Business Model
A Value Proposition Is Not Yet Pricing Power
The language of value proposition has become so familiar that it is easy to stop asking what happens after the customer says, “Yes, that matters to me.” Osterwalder and Pigneur’s Business Model Generation is useful because it does not leave the proposition standing on its own. The Business Model Canvas places it alongside customer segments, channels, customer relationships, revenue streams, key resources, key activities, key partnerships and cost structure. In other words, the offer has to live inside an economic system.
This matters because customers can genuinely value an offer while the supplier still captures too little of that value. A company may have a technically strong product, loyal customers and respectable revenue growth, yet still carry weak margins because service is given away, payment terms are extended too easily, customisation is underpriced, discounts have become habitual, or the commercial team does not know which elements of the offer customers would actually pay more for.
I have come to think that this is one reason executives sometimes overestimate the strength of a value proposition. They look at customer interest, win rates or revenue and conclude that the proposition is working. Those indicators matter, but they answer only part of the commercial question. A value proposition is commercially complete only when the organisation understands how the value is translated into a revenue model, a price structure and acceptable realised margin.
Pricing power, in the sense I use it here, is the organisation’s ability to defend or improve the economic return from an offer because customers understand the value, alternatives are meaningfully different, and the commercial system supports that position. It is not the ability to raise prices whenever management wants. A supplier can have market power for a period and still damage the relationship by misusing it.
The Value-to-Pricing Gap
The two books in this essay approach the same commercial problem from opposite directions. Business Model Generation asks how a company creates, delivers and captures value through an integrated model. Peter Hill’s Pricing for Profit focuses much more directly on the point of capture: managers often devote enormous attention to sales growth and cost reduction while treating pricing with surprising caution.
Hill is intentionally provocative about price increases, discounting and the fear of losing customers. Some of his examples are now more than a decade old, and I would not treat the book's stronger claims as universal rules. What remains useful is the managerial challenge underneath them. If a company believes it creates differentiated value but repeatedly needs price concessions to close business, management should ask whether the problem sits in pricing, in the proposition, in segmentation, in sales capability, or somewhere further upstream.
I think of the distance between value created and value captured as the Value-to-Pricing Gap. It appears when the business can explain what the product or service does, but cannot translate that explanation into customer-specific economic value and then into a price the commercial team can defend. The gap can also appear when the value is real, but the revenue model is poorly chosen, or when the pricing logic is sound, but the organisation’s incentives encourage people to give it away.
This distinction matters because it changes the diagnosis. A discount problem may actually be a segmentation problem. A weak renewal price may be an evidence problem. A procurement objection may be the late appearance of a value discussion that should have happened months earlier. Once pricing is seen as part of commercial architecture rather than as the final number on a quotation, the organisation has more places to intervene.
Pricing Power Is Built Before the Negotiation
Pricing power is often discussed as though it belongs to the last stage of a deal, when sales has made the offer, procurement pushes back, and someone has to decide whether to hold the line. By that point, much of the outcome has already been decided. If the customer cannot distinguish the offer from alternatives, if the economic value has not been made visible, if services are bundled without logic, or if the salesperson has little confidence in the evidence behind the price, the negotiation room merely reveals those earlier weaknesses.
Recent B2B pricing research illustrates why executives pay attention to this. McKinsey reported in 2025, using its B2B Pricing Solutions data, that a 1 per cent price increase typically produced a 6 to 14 per cent uplift in operating profit, while a 5 per cent price reduction required an average 21 per cent increase in volume to break even. Those figures should not be treated as a law for every company; margin structures and demand elasticity vary widely. They do, however, show why small pricing decisions can have economic consequences far beyond their appearance on a quotation.
The more useful managerial point is that pricing performance depends on much more than the headline price. A business can lose economics through free freight, extended payment terms, engineering changes, low-volume variants, service obligations, expedited delivery, rebates, channel incentives and repeated exceptions. A list price may therefore look disciplined while the realised economics are not.
This is why I would place pricing much earlier in the commercial design process. The organisation should be asking, before the negotiation begins, which customer problem is expensive enough to solve, which benefits can be evidenced, how different customer segments value those benefits, what should be bundled or separated, what the customer is actually paying for, and what the business needs in return when it makes a concession.
Cost, Price and Value Answer Different Questions
Cost-plus pricing has survived for good reasons. A company must know what it costs to serve a customer, what minimum margin is required, and where apparently attractive revenue becomes economically destructive. In sectors exposed to volatile energy, raw materials, freight or currency movements, cost pass-through mechanisms may be essential. In commodity markets, index-linked pricing can be more rational than pretending that every offer is highly differentiated.
The limitation begins when cost becomes the main explanation for what the customer should pay. Cost tells management what the supplier needs. It does not tell management what the customer values. A cheaper production process can increase margin without reducing price. A more expensive service can support a higher price if it removes risk, improves availability or lowers the customer’s own cost of failure.
Price, cost and value therefore answer three different questions. Cost asks whether the supplier can deliver profitably. Value asks what economic or strategic effect the customer receives. Price determines how benefits and costs are shared between the two sides. Commercial judgement sits in the relationship among all three.
This is also where competitor-based pricing becomes dangerous. A competitor may have a different cost base, service model, channel structure, customer mix, balance-sheet objective or appetite for share. Copying its price may mean copying the visible number while understanding none of the business model underneath it.
Sales Behaviour Reveals the Commercial System
Pricing is usually presented as a finance, strategy or revenue-management problem. In practice, much of it is behavioural. An organisation can spend months building a pricing model and lose the economics in a few minutes if salespeople believe that a discount is the safest route to closing the deal. That behaviour may be entirely rational if compensation rewards revenue, if managers praise bookings rather than contribution, or if every difficult negotiation ends with senior management authorising an exception.
This is where I think Hill’s emphasis on commercial confidence remains valuable. A sales team asked to defend price needs more than instructions to “sell value”. It needs evidence that the customer recognises, clear boundaries around what can be traded away, a view of the customer’s alternatives, authority to reshape the offer and a credible walk-away point. Otherwise, value selling becomes another management phrase imposed on people who still have to close the quarter.
A discount can make commercial sense when it buys something useful in return: committed volume, a longer contract, faster payment, reduced service scope, lower cost to serve, a reference position, or access to a strategically important account. The problem is not that concessions exist. The problem is when the organisation cannot explain what it received in exchange.
Repeated discounting is therefore information. It may indicate that list prices are too high, but it may also reveal that the offer is badly segmented, the proof of value is weak, sales incentives are wrong, or customisation has become a substitute for strategic choice. Pricing behaviour becomes a diagnostic window into the commercial system.
When Higher Prices Are the Wrong Move
There is a danger in turning pricing power into a doctrine. Some companies should raise prices. Others should redesign the offer first. Some should reduce price in a particular segment, accept lower margins to build scale, or trade margin for adoption because the strategic economics lie further ahead. A business that treats every pricing opportunity as a chance to extract more can damage the very customer relationship that created its pricing power.
The strongest counterargument to value-based pricing is that willingness to pay is neither permanent nor perfectly knowable. Competitors react. Technologies become standard. Procurement teams learn. A premium that is defensible while an offer is scarce or differentiated may attract substitutes until that advantage disappears. What looked like pricing power can therefore be temporary market structure rather than enduring commercial capability.
There is also an issue of fairness and trust. In long relationships, customers remember whether a supplier behaved as a partner when the supplier had the stronger hand. That does not mean leaving price untouched. It means understanding that commercial value is created over time, and that the maximum price available today may not be the economically best price over the life of the relationship.
The executive trade-off is therefore between value capture and continuity. A company needs to capture enough value to fund capability, investment and risk, while maintaining an exchange the customer still regards as worthwhile. The correct balance will differ between a software subscription, a scarce industrial component, a professional service, a commodity contract and a strategic account. The discipline lies in knowing which situation you are actually in.
A Commercial Architecture for Pricing Power
The distinction I find most useful is to see pricing power as a chain rather than a number. I would describe that chain as customer economics → value evidence → offer architecture → revenue logic → pricing governance → sales behaviour → realised margin → learning. It is not a universal framework from the literature; it is my synthesis of the business-model and pricing disciplines discussed here.
Customer economics asks what problem is costly, risky or strategically important enough that the customer will pay to change it. Value evidence makes that effect credible through proof the customer recognises: reduced downtime, lower inventory, faster qualification, fewer failures, improved yield, lower working capital, lower management burden or more dependable delivery. The relevant evidence will differ by market, and some value will remain difficult to reduce to a spreadsheet, but the business still needs language the customer recognises as its own problem.
Offer architecture then makes differences visible. If one customer values speed and another values technical support, forcing both into the same bundle may hide value rather than create it. Revenue logic asks whether the way the business charges matches the way value is created. Osterwalder and Pigneur’s treatment of revenue streams is useful here because it keeps attention on the mechanism of capture, not merely on a list price.
Pricing governance determines who can discount, which concessions require something in return, where bespoke terms are allowed and how exceptions are reviewed. Sales behaviour reveals whether those rules survive contact with the market. Realised margin then shows the actual economics after terms, service and cost to serve. Finally, learning closes the loop: win rates, losses, discount patterns, renewal behaviour, service usage and margin by segment tell management whether the proposition is being understood and paid for.
When one link is weak, companies often compensate somewhere else. Weak value evidence creates discount pressure. Poor segmentation creates excessive customisation. Confused offer design creates negotiation around individual line items. Bad incentives produce margin leakage. Weak governance turns every important customer into an exception. The Value-to-Pricing Gap is rarely caused by price alone.
What Senior Leaders Should Consider
Senior leaders should first move pricing upstream. It should be discussed when customer segments, offers and revenue models are designed, rather than appearing only during annual increases or margin-recovery programmes. That does not require turning every executive into a pricing specialist. It requires treating price as one output of strategy rather than as a commercial afterthought.
Second, separate cost knowledge from customer-value knowledge without allowing either to dominate. Finance should understand the economics of delivery. Commercial teams should understand customer economics, alternatives and willingness to trade. Product and operations should know which service promises create real cost. Pricing decisions improve when those views meet before the quotation is issued.
Third, examine realised economics rather than list prices. Leaders should know where margin disappears through terms, customisation, service, logistics and exception handling. A business may have strong headline pricing and weak commercial discipline underneath it.
Finally, use pricing behaviour as strategic feedback. If a particular segment repeatedly refuses a premium, the answer may be to lower the price. It may equally be to change the offer, improve the evidence, alter the channel, reduce service scope or stop pursuing that segment. A pricing discussion becomes much more useful when it is allowed to challenge the business model itself.
Questions for the Boardroom
- Which parts of our offer do customers demonstrably pay for, and which parts do we merely believe they value?
- Where does the difference between list price and realised margin actually disappear: discounts, payment terms, service, customisation, logistics or cost to serve?
- When sales asks for a concession, what does the business normally receive in return?
- Are repeated pricing objections telling us that the price is wrong, or that the proposition, segmentation or evidence is weak?
- If a competitor copied our product tomorrow, what would still make our price defensible?
Price Tests the Business Model
A value proposition becomes economically meaningful when the customer is willing to exchange money for it under terms that also make sense for the supplier. That sounds obvious, but organisations often devote more intellectual energy to describing value than to designing how it will be captured.
Osterwalder and Pigneur help leaders see the business as a connected model. Hill pushes attention towards the commercial courage required at the point of capture. I find the combination useful because each corrects the other's weakness. Pricing discipline cannot rescue a weak proposition, while an elegant proposition can still produce poor economics when value is given away deal by deal.
The more durable interpretation is that pricing power accumulates across the commercial system. It comes from customer understanding, differentiation, evidence, offer structure, revenue logic, incentives and governance. By the time a salesperson sits opposite procurement, the organisation has already made many of the decisions that determine how much pricing power exists.
For that reason, I would treat price as more than a commercial output. It is one of the clearest tests of whether the business model is creating value that customers recognise, and whether the organisation has learned how to capture a fair share of it without damaging the conditions that made the relationship valuable in the first place.
References
- Alexander Osterwalder and Yves Pigneur, Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, Wiley, 2010.
- Peter Hill, Pricing for Profit: How to Develop a Powerful Pricing Strategy for Your Business, Kogan Page, 2013.
- McKinsey & Company, Growth amid uncertainty: Jump-starting B2B sales performance, 2025.
- McKinsey & Company, How to navigate pricing during disinflationary times, 2024.
About the Author
Andy Demir is an international commercial and business leader with more than two decades of experience across complex B2B and industrial markets. Andy writes about executive leadership, strategy, organisational transformation, commercial performance, international business and the changing world of work, combining research with lessons drawn from operating across industries, markets and cultures.
