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Article
Publication date: 13 September 2019

Juliana Ventura Amaral and Reinaldo Guerreiro

Empirical studies have found that cost-based pricing remains dominant in pricing practice and suggest that practice conflicts with marketing theory, which recommends…

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1614

Abstract

Purpose

Empirical studies have found that cost-based pricing remains dominant in pricing practice and suggest that practice conflicts with marketing theory, which recommends value-based prices. However, empirical studies have yet to examine whether cost-plus formulas represent the pricing approach or essence.

Design/methodology/approach

This study aims to address the factors that explain price setting whereby the cost-plus formula is not just the pricing approach but also the pricing essence. This examination is grounded in a survey conducted on 380 Brazilian industrial companies.

Findings

The results show that, for price-makers, the cost-based pricing essence is positively associated with four factors (two obstacles to deploying value-based pricing, company size and differentiation), but it is negatively related to one factor (premium pricing strategy). For price-takers, the cost-based pricing essence is positively associated with four factors (two obstacles to deploying value-based pricing, coercive isomorphism and use of full costs), but it is negatively related to five factors (one obstacle to deploying value-based pricing, company size, competitors’ ability to copy, normative isomorphism and experience).

Originality/value

The key contribution of this paper is demonstrating that cost-plus formulas do not go against the incorporation of competitors and value information. This study reveals that it is possible to set prices based on either value or competitors’ prices while simultaneously preserving the simplicity of the cost-plus formulas. Via the margin, firms may connect costs to information about competition and value. The authors also demonstrate the drawbacks of not segregating companies into price-makers and price-takers and an excessive focus on the pricing approach at the expense of pricing essence.

Details

Journal of Business & Industrial Marketing, vol. 34 no. 8
Type: Research Article
ISSN: 0885-8624

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Article
Publication date: 3 April 2018

Reinaldo Guerreiro and Juliana Ventura Amaral

While the gap between economic theory and companies’ practice, regarding to the pricing setting, has been extensively explored and explained, the new gap between the…

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2433

Abstract

Purpose

While the gap between economic theory and companies’ practice, regarding to the pricing setting, has been extensively explored and explained, the new gap between the marketing normative view and companies’ practice needs further clarification. In this way, the paper aims to investigate whether marketing researchers’ claim that the use of cost-based price approach prevails over the use of value-based price approach is pertinent.

Design/methodology/approach

The paper is guided by the following research question: “Does price-setting based on cost plus margin go against the value-based price approach?” The answer to this question is grounded in reflections on results of previous research studies and in a case study conducted in an industrial company. Because of the qualitative focus of the present study, hypotheses are not established, but rather the following proposition: certain companies use the mechanics of cost plus margin in the sale price-setting process, but it does not necessarily mean that these companies set prices based on cost.

Findings

The arguments, propositions and the case study findings provide the logical sequence and the support required to conclude that price-setting based on cost plus margin does not always conflict with the value-based price approach. As a result, it may be claimed that the general proposition established is theoretically valid, i.e. using a price formula that contains the elements cost and margin does not necessarily mean that the company sets prices based on cost.

Originality/value

The key contribution of this paper is demonstrating that in certain business environments, such as, B2B, using the price formation mechanics based on cost plus margin is the way found by companies to enable the approach adopted. The approach may be cost-based or value-based price. This is the first study that explicitly reveals how B2B companies may set prices based on value while simultaneously preserving the simplicity of cost plus margin formulas. Researchers have significant misconceptions about these formulas: in previous studies, they classified all price-making companies as those adopting the cost-based price approach simply because they used formulas containing the element cost.

Details

Journal of Business & Industrial Marketing, vol. 33 no. 3
Type: Research Article
ISSN: 0885-8624

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Article
Publication date: 1 April 2000

D. Govender

The purpose of this paper is to report on the incidence of the choice between full‐cost and variable‐cost pricing, and to examine the factors that could possibly influence…

Abstract

The purpose of this paper is to report on the incidence of the choice between full‐cost and variable‐cost pricing, and to examine the factors that could possibly influence this choice. The findings indicate that whereas 74,5% of the firms use full cost for pricing their products, only 25,5% use variable costs. The research provides evidence that supports the size of the company, product type, stage in product lifecycle, materiality of fixed overhead costs and the objectives of the company as significant variables influencing the choice of the cost base for product pricing.

Details

Meditari Accountancy Research, vol. 8 no. 1
Type: Research Article
ISSN: 1022-2529

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Article
Publication date: 11 August 2021

Jumpei Hamamura

This study aims to analytically explore the economic role of transfer pricing in a vertically integrated supply chain with a direct channel, specifically when it uses…

Abstract

Purpose

This study aims to analytically explore the economic role of transfer pricing in a vertically integrated supply chain with a direct channel, specifically when it uses cost-based transfer prices, as is frequently observed in management practices. We compare two representative transfer pricing methods: full-cost and variable-cost pricing. Although many firms open a direct channel, which affects the optimal decision on transfer prices, prior literature has not considered this case.

Design/methodology/approach

We demonstrate the results using a non-cooperative game theoretical approach.

Findings

The results show that full-cost pricing is more profitable than variable-cost pricing when the fixed cost allocation to the marketing division is low, contrary to the established position in prior studies, from which I select their benchmark case. Moreover, we obtain a counterintuitive result, whereby, the firm-wide profit of a vertically integrated supply chain increases with fixed cost allocation.

Originality/value

This study considers the direct channel and internal transfer pricing in a vertically integrated supply chain, while prior research only considers one or the other. This model suggests an optimal choice of cost-based transfer pricing in managerial decisions. In addition, the authors demonstrate the positive effect of increasing fixed cost allocation, which prior management studies do not show. The findings of this study have implications for managerial practice by providing insights into supply chain design and showing that firms should consider the competition between channels when making decisions about transfer pricing methods.

Details

Journal of Modelling in Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-5664

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Book part
Publication date: 1 November 2008

Andreas Hinterhuber

After pioneering, but insular, work on the conceptualization and measurement of customer value in business markets undertaken in the 80s and 90s, interest in this topic is…

Abstract

After pioneering, but insular, work on the conceptualization and measurement of customer value in business markets undertaken in the 80s and 90s, interest in this topic is substantial since the beginning of this decade. Despite this recent interest, marketing scholars concur that value in business markets is still an under-researched subject. This contribution to the debate is threefold. The paper first proposes an own model of customer value conceptualization in business markets; based on several rounds of testing this theoretically grounded model in managerial practice indications exist to conclude that this model may offer benefits over current models.

Secondly, the paper provides a comprehensive survey of pricing approaches in industrial markets. The paper integrates this literature overview with own empirical findings. Concurrently the paper summarizes extant research on the link between pricing approach and profitability in industrial markets. The paper thirdly proposes a framework for value delivery and value-based pricing strategies in industrial markets. Proposing such a framework is both useful as well as necessary. Useful, since this framework guides new product development and pricing decisions and assists in the implementation of price-repositioning strategies for existing products; necessary, since the theoretical and practical adoption of value-based delivery and pricing strategies may have suffered from the lack of a unifying conceptual framework. Two case studies, one involving the pricing decision for a major product launch at a global chemical company, the other involving value delivery at an industrial equipment manufacturer, illustrate the practical applicability of the proposed framework.

Details

Creating and managing superior customer value
Type: Book
ISBN: 978-1-84855-173-2

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Book part
Publication date: 24 October 2015

Katharina Maria Hofer, Lisa Maria Niehoff and Gerhard A. Wuehrer

In this paper, we examine the elements of pricing approaches in export businesses and their performance in an international environment. The elements of pricing approaches…

Abstract

Purpose

In this paper, we examine the elements of pricing approaches in export businesses and their performance in an international environment. The elements of pricing approaches consist of cost-based, competitor-based, and value-based decisions made by different levels of management. By providing an integrated, holistic view, we investigate how different types of export-pricing strategies influence export performance, and which elements strengthen or attenuate the outcomes of strategic actions.

Methodology/approach

Using data from a survey of 172 export managers, we test our hypotheses in a two-step approach. First, we use an unsupervised approach to group the export companies and to validate the cluster solution internally and externally. Second, we test our hypotheses regarding export performance.

Findings

The results show that the types of export-pricing strategies are unequally distributed, and the elements of the strategies have different complexities. Export performance varies significantly by type of pricing orientation used.

Details

International Marketing in the Fast Changing World
Type: Book
ISBN: 978-1-78560-233-7

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Article
Publication date: 1 August 2006

George J. Avlonitis and Kostis A. Indounas

The purpose of this paper is to explore the pricing policies that service companies adopt along with the pricing information that they gather to set their prices. Despite…

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7953

Abstract

Purpose

The purpose of this paper is to explore the pricing policies that service companies adopt along with the pricing information that they gather to set their prices. Despite previous authors' suggestions regarding the need for a coherent process when setting prices, there seems to be a lack of empirically‐based theory on how pricing policies and pricing information might be interrelated.

Design/methodology/approach

Following 26 in‐depth exploratory interviews, additional personal interview data were collected from 170 companies operating in six different services sectors in Greece.

Findings

The paper finds that “list pricing” is the only policy that is adopted by the majority of the surveyed companies. Further, they tend to collect more than one type of information giving particular emphasis on market‐based information. The “customer‐based” information was found to be associated positively with the policy of “cash discounts”, while the “competition‐based” information with the policies of “trade discounts” and “differentiated pricing”. Moreover, the “cost‐based information” is associated positively with the “cash discounts” and “efficiency pricing” policies and negatively with the “loss leader pricing” policy.

Research limitations/implications

The findings refer to the need for a “balanced” market‐oriented and “situation‐specific” approach when setting prices The significance of these findings notwithstanding, the context of the study (Greece) is the most important caveat since it limits the ability to generalize the results in other countries.

Originality/value

The paper represents the first attempt to examine empirically the potential relationship between pricing policies and pricing information.

Details

Journal of Services Marketing, vol. 20 no. 5
Type: Research Article
ISSN: 0887-6045

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Article
Publication date: 1 February 2002

Matthew B. Myers, S. Tamer Cavusgil and Adamantios Diamantopoulos

The export‐pricing literature is characterized by a distinct lack of sound theoretical and empirical works. Of the marketing decision variables, pricing has received the…

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5259

Abstract

The export‐pricing literature is characterized by a distinct lack of sound theoretical and empirical works. Of the marketing decision variables, pricing has received the least attention in research despite the continued identification of this issue as an important problem area for firms engaged in export marketing. Businesses competing internationally must develop an effective pricing strategy, as this is a critical factor in their operation. Globalization also requires that management coordinate prices across multiple export markets. Research is thus needed on the empirical relationship between an export‐pricing strategy (EPS) and the factors that influence this strategy, as well as the relationship between EPS and the performance of the export venture. A multidimensional conceptualization of export‐pricing strategy is proposed in order to integrate the various components of an EPS and link it with its antecedents. Theoretical insights and empirical findings from the general pricing literature, as well as executive insights from qualitative interviews, are connected with the conventional export‐pricing and strategy literature into an integrated model, and specific research propositions are offered for future cross‐industry empirical studies.

Details

European Journal of Marketing, vol. 36 no. 1/2
Type: Research Article
ISSN: 0309-0566

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Article
Publication date: 6 November 2007

Paul Ingenbleek

In the face of increased pricing pressure, managerial attention for value‐informed pricing (in which a price is based on the customer's value perception) is on the rise…

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3828

Abstract

Purpose

In the face of increased pricing pressure, managerial attention for value‐informed pricing (in which a price is based on the customer's value perception) is on the rise. Although value‐informed pricing in its organizational context received a great deal of attention, the body of literature is fragmented and insights are often not cumulative. It is the aim of this article to review and integrate the empirical literature on pricing practices in order to pave the road for future research.

Design/methodology/approach

Empirical studies on pricing practices are collected and reviewed. Building on the resource‐based view of the firm, the findings from these studies are summarized in an integrative framework that includes testable research propositions.

Findings

Value‐informed pricing is the result of the deployment of informational resources such as market research, relationships and internal knowledge on customers. Firms should not only develop these information sources, but also secure the process by which they are deployed. The latter is among others influenced by the competitive context and organizational information processing that may evolve into a routine.

Originality/value

The article integrates the insights from a stream of research that thus far has been highly fragmented. It generates insights that may help firms to establish a value‐informed pricing process and it may help to develop a more mature body of research on value‐informed pricing.

Details

Journal of Product & Brand Management, vol. 16 no. 7
Type: Research Article
ISSN: 1061-0421

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Article
Publication date: 1 March 1993

Michael Morris and Corine van Erkom Schurink

Assesses the extent to which environmental turbulence is affectingthe pricing behavior of industrial marketers. Introduces a conceptualmodel, based on a review of the…

Abstract

Assesses the extent to which environmental turbulence is affecting the pricing behavior of industrial marketers. Introduces a conceptual model, based on a review of the available literature, in which pricing behavior is the result of changing dynamics in the external environment of firms. Assumes that price itself includes multiple dimensions which combine to form an overall strategy. Describes the results of a survey of a cross‐section of firms in South Africa. Draws a number of implications for theory and practice.

Details

Journal of Business & Industrial Marketing, vol. 8 no. 3
Type: Research Article
ISSN: 0885-8624

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