Cost Game
Success in the Cost Game depends on how well a company can manage costs and create efficiencies, because their leeway to price based on value is limited. They use cost‐plus pricing to set prices because their offerings are standardized or commoditized, competition is intense, and buyers hold considerable leverage.
But Cost Game players can still grow their business, gain market share, and boost profitability. Your path to growth in the Cost Game depends on:
- Understanding costs in great detail: Use experience, scale, and complexity curves to understand your current and expected fixed and variable costs.
- Optimizing how you set the “plus”: Your pricing basis should align with your cost drivers and create a range of margins based on customer and market characteristics.
- Influencing customer behavior to save costs: Fees and functional discounts help nudge customers to minimize costs, creating savings you can share with them.
Cost-plus pricing is less useful as a pricing approach when the conditions of the Cost Game do not apply.
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More Cost Game insights
How to Cut Prices Without Cutting Prices
Winning the Cost Game
Cost Game Short Takes
Restaurant’s Has Increased Prices By Nearly 100% Over 5 Years — March 29, 2025
Casual dining restaurant chains in the US are facing some moments of truth in 2025.
After five years of raising their prices at a faster pace than inflation, they may need to get more creative at a time when the combination of rising costs and sharply declining consumer confidence threaten their margins. For many, this means rethinking their inflation pricing strategy to balance profitability with customer retention.
Data reported last week showed that leading US chain restaurants raised their prices by 42% on average between 2020 and 2025, compared to 22% for overall US inflation and 30% for “food away from home” sub-category.
Some chains have responded to the recent pressures by playing the Choice Game well and modifying their menu. One principle of the Choice Game is that the relative relationship of menu prices is more important than the individual prices.
According to the report, Chili’s has raised prices by 39% over the last five years, but the chain has succeeded in directing consumer attention instead to its highly successful” 3 for Me” promotion. Denny’s, which has raised prices by 42% over the same period, reintroduced its “$2 $4 $6 $8 Value Menu” last year to keep lower prices at the consumer’s eye level.
Waffle House has reportedly raised prices by almost 100% over the last five years. It responded to the recent spike in egg prices by instituting a 50-cent surcharge per egg rather than changing menu prices outright.
What promotions or creative menu changes have you seen recently?
Fast-Casual Restaurants Are Getting More Expensive, and These Are the Worst Offenders
Original article can be found here.
Video on the Cost Game — April 15, 2024
G’s Ricard Vila shares his insights on the Cost Game in the latest installment of the Game Changer Expert Interview Series. In this video, Ricard explains why implementing rigorous cost accounting, optimizing supply chains, and effectively managing quality risks are essential for companies playing this game. To learn more about strategic pricing and the newest book from BCG’s Pricing Practice.
In the latest edition of the Game Changer Expert Interview Series, my colleague Ricard Vila discusses how companies can win by playing the Cost Game. To learn more about all of the Seven Pricing Games and the new book from BCG’s Pricing Practice.
What is a Fair Price for Lithium — April 2, 2024
What is a fair price for lithium? Perhaps a better question is: what is the best way to find a fair price for lithium? Albemarle, the world’s leading producer, has begun to switch its pricing mechanism from fixed-price contracts to auctions. The goal is to achieve “fair product valuation — for both buyers and sellers — and drive towards a more robust, sustainable market.” Albemarle held one auction in late March and has planned another for today. The Australian company Pilbara, meanwhile, has switched from auctions back to negotiated contracts.
The price of the lithium source material spodumene has declined sharply from a peak of over $6,000 per ton in late 2022 to less than $1,000 per ton in March 2024. An imbalance between the supply side and the demand side, as the market for EVs remains unclear, makes it difficult at the moment to gauge the material’s value.
Albemarle Plans to Auction Lithium With Aim of ‘Fair’ Valuation