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Article
Publication date: 1 February 1997

Wei Tung, Louis M. Capella and Peter K. Tat

Examines the advantages and disadvantages of six service pricing approaches in the service literature including: traditional cost‐oriented approach; traditional…

Abstract

Examines the advantages and disadvantages of six service pricing approaches in the service literature including: traditional cost‐oriented approach; traditional competitive‐oriented approach; extended cost‐oriented approach; differentiation premium approach; client‐driven approach; and bundle pricing approach. Proposes a multi‐step synthetic pricing approach and a framework to deal with the complexity of service pricing. Compared with other pricing approaches, the multi‐step synthetic service pricing approach has the advantages of considering simultaneously the crucial aspects of service pricing: market competitiveness; internal cost‐profit structure; bundling and unbundling service pricing; service characteristics premium; price standard limits; client‐oriented price/demand sensitivity; and client‐oriented profit maximization. Provides an example to demonstrate the managerial application of the proposed approach.

Details

Journal of Services Marketing, vol. 11 no. 1
Type: Research Article
ISSN: 0887-6045

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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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Article
Publication date: 7 October 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…

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: 28 October 2014

Armando Calabrese and Federico De Francesco

Demand-based pricing fixes price according to customers’ perceptions of service value and to their resulting willingness to pay. This pricing approach enables service…

Abstract

Purpose

Demand-based pricing fixes price according to customers’ perceptions of service value and to their resulting willingness to pay. This pricing approach enables service companies to align their prices to customers’ preferences and to their expenditure propensity. Accordingly, it can generate higher margins than other pricing approaches. Nevertheless, this approach is difficult to implement operationally. Consequently, in order to overcome these implementation difficulties, the purpose of this paper is to provide a demand-based pricing approach based on the user-friendly technique of service blueprint (SB).

Design/methodology/approach

The methodology relies on the design science leads. Design science deals with creating artefacts or models for supporting human or organizational purposes; such artefacts have to be assessed against criteria of utility or value for users. Accordingly, an experimental action research is performed for both implementing and testing the proposed pricing approach.

Findings

Starting from the main difficulties hindering implementation of demand-based pricing, SB is proved to enable companies to overcome such difficulties and to support its implementation. Moreover, by employing SB, an innovative approach for fixing service prices is provided.

Practical implications

The proposed approach enables managers of service companies to overcome difficulties of demand-based pricing and to employ pricing strategies according to demand-based drivers.

Originality/value

In line with a recent call for research on service pricing, this paper develops a new pricing approach, which is able to promote demand-based pricing.

Details

Business Process Management Journal, vol. 20 no. 6
Type: Research Article
ISSN: 1463-7154

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Article
Publication date: 1 October 2005

Thanos Skouras, George J. Avlonitis and Kostis A. Indounas

The purpose of this general review paper is to provide a comparison and evaluation of the treatment of pricing by the disciplines of economics and marketing.

Abstract

Purpose

The purpose of this general review paper is to provide a comparison and evaluation of the treatment of pricing by the disciplines of economics and marketing.

Design/methodology/approach

It is from three perspectives that the marketing and economics approaches to pricing are reviewed, namely, buyers' response to price, firm's determination of price, and industry‐ or economy‐wide role of price.

Findings

A comparative review of the relevant marketing and economics literature shows that there are important differences between the two disciplines in their treatment of pricing. Marketing demonstrates a richer and more empirically based treatment of the pricing issue from the buyer's perspective, while economics is unchallenged from the economy‐wide perspective. The differences found between the marketing and economics approaches to pricing are mostly due to their different historical origins, primary concerns and doctrinal evolution. In contrast, interdisciplinary loans especially from behavioral science have made possible considerable advances in marketing, particularly in the understanding of the buyer's perspective.

Originality/value

Previous reviews of the pricing literature do not attempt to provide a direct comparison and evaluation and offer no explanation for the observed differences among the economics and the marketing disciplines regarding their treatment of the pricing issue. The value and originality of the current paper lies in the fact that it represents the first attempt to provide such a comparison and evaluation.

Details

Journal of Product & Brand Management, vol. 14 no. 6
Type: Research Article
ISSN: 1061-0421

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Article
Publication date: 4 July 2016

Marco Formentini and Pietro Romano

Research on business-to-business (B2B) pricing has been mainly focussed on the supplier’s pricing process, thus adopting traditionally an internal perspective and…

Abstract

Purpose

Research on business-to-business (B2B) pricing has been mainly focussed on the supplier’s pricing process, thus adopting traditionally an internal perspective and perceiving pricing as a profit distribution parameter rather than an opportunity for collaboration with customers. Recently, the opportunity to develop win-win, collaborative relationships in the B2B pricing process by embracing a supply chain perspective has started to attract the attention of scholars across several research streams, who have highlighted the emergence of this topic using different definitions, perspectives and methodologies. The purpose of this paper is to address the need for integrating the fragmented body of knowledge on B2B pricing toward supply chain collaboration.

Design/methodology/approach

This critical literature review adopts an interdisciplinary approach, focussing on industrial marketing and operations and supply chain management areas.

Findings

The authors provide a critical synthesis and discussion structured in four streams clustered around two dimensions, i.e. the “extension” of the collaboration in the pricing process along the supply chain and the “direction” of collaboration.

Research limitations/implications

Drawing on the literature gaps, the paper concludes by proposing an agenda for future research for a relevant topic both for academics and practitioners.

Originality/value

This paper offers a novel comprehensive view of the supply chain collaboration in the B2B pricing process and provides opportunities for intensifying dialogue across different research areas.

Details

International Journal of Operations & Production Management, vol. 36 no. 7
Type: Research Article
ISSN: 0144-3577

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Article
Publication date: 20 August 2020

Domenico Raucci, Dominique Lepore and Rossella Sabatiello

This paper aims to present an extension of price sensitive measurement (PSM) combined with activity-based costing (ABC) for supporting activity-based pricing approaches in…

Abstract

Purpose

This paper aims to present an extension of price sensitive measurement (PSM) combined with activity-based costing (ABC) for supporting activity-based pricing approaches in the small and medium-sized restaurants.

Design/methodology/approach

The joint model of PSM and ABC is applied to the fixed menu pricing analysis of a typical medium-small Italian restaurant.

Findings

The outcomes confirm the potential of the activity-based pricing approach for supporting pricing decision-making in the small and medium-sized restaurants. However, the complexity of the model for these contexts suggests testing simplified versions of ABC, proposed for other sectors, to exploit integration with PSM. Further, the authors find evidence of the need to further investigate the role of informal conditions, characterizing small-medium enterprises, which may play for the successful implementation of the approach proposed.

Originality/value

There is no analysis using the suggested approach for supporting menu pricing in medium-small restaurants. This case study contributes to the literature on activity-based pricing for small and medium-sized restaurants, based on the ABC approaches.

Details

International Journal of Culture, Tourism and Hospitality Research, vol. 14 no. 4
Type: Research Article
ISSN: 1750-6182

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Article
Publication date: 4 July 2008

Andreas Hinterhuber

Customer value‐based pricing is increasingly recognised by academics and practitioners as the most effective approach to pricing for companies wishing to achieve increased

Abstract

Purpose

Customer value‐based pricing is increasingly recognised by academics and practitioners as the most effective approach to pricing for companies wishing to achieve increased profitability and sustained success. However, despite this apparent support for the implementation of value‐based pricing, the practical reality is that more than 80 percent of companies continue to price their products and services primarily on the basis of costs and/or competitive price levels. The present study investigates this phenomenon and identifies the main reasons for this gap between aspiration and reality.

Design/methodology/approach

A two‐stage empirical approach is employed: first, in a qualitative research, the phenomenon of implementation of value‐based strategies with groups of business executives participating in pricing workshops is explored. The result of this qualitative stage was then used to develop a questionnaire which was tested upon a significantly larger and more stratified population. Finally cluster analysis to summarize the results of this quantitative research stage was employed.

Findings

Based on a survey of 81 executives representing a wide range of B2B and B2C industries in Germany, Austria, China, and the USA, five main obstacles to the implementation of value‐based pricing strategies have been identified: deficits in value assessment; deficits in value communication; lack of effective market segmentation; deficits in sales force management; and lack of support from senior management. The paper also provides a range of remedies to overcome these obstacles.

Originality/value

In extant literature there exists a gap between: the widespread understanding of the superiority of customer value‐based pricing strategies; and the circumstance that customer value‐based pricing strategies are currently the least widely diffused major pricing approach. We cover thus gap by highlighting which obstacles exist to the implementation of value‐based pricing strategies and provide a series of remedies to overcome these obstacles.

Details

Journal of Business Strategy, vol. 29 no. 4
Type: Research Article
ISSN: 0275-6668

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Article
Publication date: 1 February 1990

Gordon Wills, Sherril H. Kennedy, John Cheese and Angela Rushton

To achieve a full understanding of the role ofmarketing from plan to profit requires a knowledgeof the basic building blocks. This textbookintroduces the key concepts in…

Abstract

To achieve a full understanding of the role of marketing from plan to profit requires a knowledge of the basic building blocks. This textbook introduces the key concepts in the art or science of marketing to practising managers. Understanding your customers and consumers, the 4 Ps (Product, Place, Price and Promotion) provides the basic tools for effective marketing. Deploying your resources and informing your managerial decision making is dealt with in Unit VII introducing marketing intelligence, competition, budgeting and organisational issues. The logical conclusion of this effort is achieving sales and the particular techniques involved are explored in the final section.

Details

Management Decision, vol. 28 no. 2
Type: Research Article
ISSN: 0025-1747

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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…

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

Keywords

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