Edited by Gary L. Lilien and Rajdeep Grewal
Chapter 14: Value-based Pricing: A State-of-the-Art Review
George E. Cressman Jr Pricing in business markets is a neglected discipline. Hinterhuber (2004) notes that: 1. 2. 3. Pricing has been largely neglected by managers. McKinsey & Co. indicates that fewer than 15 per cent of companies do any systematic research on pricing. Relatively little academic research focuses on pricing practices. Other areas of marketing effort receive far more attention. Pricing changes have substantial impacts on profitability, usually far more than any other element of the marketing mix. Hinterhuber further suggests that neglect of pricing strategy is a result of two factors. First, managers see business pricing as a zero sum game; what a seller gains the customer loses. This attitude leads to significant conflict in customer relationships. Second, managers seem to believe they cannot affect pricing in their industry; price points and competitive behavior are driven by the ‘market’. Unlike pricing in consumer markets, pricing in business markets is underresearched. This chapter therefore reviews business market pricing literature, proposes a model for the strategic management of the pricing function and poses fundamental research questions. Because much of the development of pricing work is currently being done by practicing managers and consultants, this chapter takes a practice perspective. Furthermore my review focuses on the development and implementation of a value-based pricing strategy. In this chapter I define pricing strategy and value pricing; I also provide an overview of the elements of a pricing strategy using the perspective of value-based pricing practices. PRICING STRATEGY AND VALUE PRICING DEFINED In their overview...
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