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The Strategy and Tactics of Pricing: A Guide to Profitable Decision Making

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The Strategy and Tactics of Pricing: A Guide to Profitable Decision Making by Thomas T. Nagel and Reed K. Holden. Reviewed by Una McMahon-BeattieJournal of Revenue & Pricing Management (2002) 1, 286-287; doi:10.1057/palgrave.rpm.5170032

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... Others will enjoy a subsidy since they would be willing to pay more for the higher value they perceive. A fixed-price strategy can be segmented to embrace discounts for large purchasers, government, and members of preferred buying organizations [53]. Flat pricing simplifies the vendor's pricing model since the price is set to return a dependable but fixed rate of return. ...
... Bundling increases volume and penetration while creating barriers to the competition [46] [53]. 2. Skim-Pricing Strategies. ...
... Complementary pricing. Complementary pricing is a product-line strategy that exploits the special transaction costs of products that are used jointly but sold separately [53] [66]. The base product (low reservation price/product-line pricing) is sold at a low price that minimizes resistance to purchase. ...
Conference Paper
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Software pricing has traditionally been focused on the vendor's internal business objectives of covering costs, achieving specified margins, and meeting the competition. Pricing methods such as flat price, tiered pricing, MIPS-based, usage-based, per user, per seat, and pay as you go, are often tactical in nature and easily matched by competitors, which can undermine profitability by accelerating the commoditization process. Conversely, a value-based approach charges a price based on the customer's perceived value of the benefits received. Value-based pricing methodologies can be used to estimate the market value of new software concepts at various stages of the development process in addition to pricing new products for launch. This paper describes a value-based approach to pricing that is dependent on the firm's commitment to invest in the development of its long-term "pricing capital." This investment in methodologies, infrastructure, and processes to create, measure, analyze, and capture customer value is the key to successful long-term pricing strategy.
... (13) Partitioned pricing a Dividing a product's price into two mandatory parts rather than charging a combined, all-inclusive price (Morwitz et al. 1998, p. 453) (14) Penetration pricing a Using low prices as a wedge to get into mass markets early (Monroe 2003, p. 382) (15) Pennies-a-day a The temporal reframing of the cost of a product from an aggregate one-time expense to a series of small ongoing expenses (Gourville 1998, p. 395) (16) Premium pricing A firm exploits consumer heterogeneity in demand for a product by offering a superior version of that product and charging a high (profitable price) for it (Tellis 1986, p. 155) (17) Price bundling a The sale of two or more separate products in a package at a discount, without any integration of the products. (Stremersch and Tellis 2002, p. 56) (18) Price discrimination When a company sells a product or service at two or more prices that do not reflect a proportional difference in costs (Kotler and Keller 2006, p. 453) (19) Price matching An offer to match the lowest price available in the market (Srivastava and Lurie 2001, p. 296) (20) Price signaling a A higher price set by a firm may signal better quality (Nagle and Holden 2002, p. 91) (21) Price skimming a The pricing method of attempting to first reach buyers who are willing to purchase at a high price before marketing to more price-sensitive customers (Monroe 2003, p. 642) (22) Prices charged by competitors The seller provides the comparison price charged by a competitor along with the seller's actual price (Berkowitz and Walton 1980, p. 350) (23) Prices previously charged The seller compares an advertised price with the seller's former (higher) price (Biswas and Blair 1991, p. 1) (24) Random discounting a Discounting price in a manner that should be undiscernible or " random " to uninformed consumers and infrequent so that these consumers do not get lucky too often (Tellis 1986, p. 150) (25) Seasonal pricing Price reductions for merchandise or services out of season (Kotler and Keller 2006, p. 452) (26) Tensile price claims a Promoting a line of merchandise at different sale prices and not specifying the exact level of reduction for any one particular product (Biswas and Burton 1993, p. 217) (27) Two-part pricing Involves two separate charges that consumers must pay to consume a service (Tellis 1986, p. 157). a Item included in final seventeen-item PTPK index. ...
... Selected responses from this " why " inquiry were edited and employed subsequently as false statements for our true–false items. Correct statements associated with the items were based upon descriptive definitions from the extant pricing literature, which describe the various tactics (e.g., Monroe 2003; Nagle and Holden 2002; Noble and Gruca 1999; Tellis 1986). An " I don't know " response option was included to inhibit forced-response guessing. ...
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The current research investigates consumer knowledge of the pricing tactics that marketers frequently employ and the effects of that knowledge on responses to various price offers. In the research, a series of studies were conducted to develop and validate a knowledge measure designed to assess pricing tactic persuasion knowledge (PTPK). Consistent with the persuasion knowledge model, individuals with higher levels of PTPK were shown to have more knowledge-related thoughts regarding pricing tactic information than those with low levels of PTPK. Additionally, pricing tactic persuasion knowledge was shown to be more predictive of consumer choices regarding quantity surcharge offers and purchase interest evaluations following exposure to tensile claim offers (e.g., “Save up to 50 percent Off”) than several competing constructs.
... Of three main approaches to pricing in industrial markets ─ cost-based, competition-based and value-based ─ the latter is considered superior by most marketing scholars (Anderson & Narus, 1998; Cressman, Jr., 1999; Nagle & Holden, 2002; Ingenbleek, Debruyne, Frambach, & Verhallen, 2003; Hinterhuber, 2004) and pricing practitioners, (Forbis & Mehta, 1981; Dolan & Simon, 1996; Nagle & Holden, 2002). Paradoxically, few industrial firms have adopted it. ...
... Of three main approaches to pricing in industrial markets ─ cost-based, competition-based and value-based ─ the latter is considered superior by most marketing scholars (Anderson & Narus, 1998; Cressman, Jr., 1999; Nagle & Holden, 2002; Ingenbleek, Debruyne, Frambach, & Verhallen, 2003; Hinterhuber, 2004) and pricing practitioners, (Forbis & Mehta, 1981; Dolan & Simon, 1996; Nagle & Holden, 2002). Paradoxically, few industrial firms have adopted it. ...
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Of three main orientations to pricing in industrial markets − cost-based, competition-based and customer value-based − most marketing and pricing scholars consider the latter superior – but few firms use it. The literature is silent about how organizational and behavioral characteristics of industrial firms may affect pricing orientation and, more specifically, value-based pricing. Semi-structured interviews with 44 managers of small to medium size U.S. industrial firms yielded insights into firm pricing orientations, processes and decision making patterns. We identified five organizational characteristics common to firms implementing value-based pricing: ability to effect deep transformational change, presence of a champion, skill in diffusing organizational capabilities, organizational confidence, and center-led pricing process specialization. Our data demonstrates that value-based pricing is not simply adopted but internalized through a long, tenuous and deep transformation process supported by an experiential and transformative learning environment.
... D. Price Nagle and Holden (2002) ...
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The term 'Smartphone' has commonly discussed among young adult especially students from higher learning institutional. Cell phone has becoming a part of their life-tool eventually. Young adult eventually used their phone to communicate with people, alarming themselves from few reminders, direct ways, downloading songs and games, texting messages and more. According to Rice and Katz (2008), the cell phone can be said as a social medium that developing into a multimedia digital platform which has the ability to provides, obtains, and shares personal and social information. However, the market eventually has a higher technology which is called Smartphone. Several industries have hurriedly espoused mobile devices, such as personal digital assistants (PDAs) which have the capabilities of integrating wireless connections and mobile devices that auxiliary pushed the demand effectively in every industry by having a new buzzword, "Smartphone," illustrates this popular PDA-phone amalgamation with numerous capabilities (Park and Chen, 2007). The factors affecting consumer demand towards Smartphone are complex in nature and usually there is no single factor or simple reason can be determined. Nowadays, consumers tend to shift their preferences from a basic cell phone to a Smartphone. It is obviously the major lead for mobile phone manufacturers to switch the production towards Smartphone due to high demand. The four independent variables under investigation in this study include product features, brand name, price and social influences. The dependent variable is the demand of Smartphone among young adult. Young adults may include fresh graduates with no working experience, industrial trainee from higher learning institutional or students that study in higher learning institutional. In other words, the target respondents are those youngsters whose age falls between 17 to 25. The main objective of this study is to develop a literature review of factors affecting the demand of Smartphone among young adult. This conceptual paper showed a strong relationship between the variables. A pilot test will be carried out to test the reliability of the variables.
... Notably, price alone can rarely build or sustain marketing strategy. Unless committed to this strategy, through cost models and sourcing strategies, this model is potentially highly unstable (Nagle and Holden, 2002; Porter, 1998a). Ultimately, a firm must shift in direction of value to take pressure off maintaining a price advantage. ...
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Purpose – The aim of this paper is to investigate competitive pricing strategies of apparel brands and retailers. Design/methodology/approach – The paper begins with a broad discussion of competition by examining Porter's five forces model, and narrows by examining price competition within price tiers in the retail apparel industry according to store format and brands. Included are case studies of apparel retailers and brands incorporating concepts of pricing strategies, brand positioning, and price competition, with a focus on retail channel relationships. The paper analyzes the impact of price competition on apparel retailers and brands, and further examines price tiers as a competitive strategy. Findings – The study reveals that the concept of price tiers is applicable to apparel retailers and brands. Price tiering is a vehicle for market positioning for the retail apparel industry. Retailers are enacting a price tier strategy by branding their retail store formats or engaging store brands as a vehicle of differentiation for a tier. Retailers and brands can be successful with a price tier strategy, unless they fail to differentiate between tiers on factors other than on price alone. Research limitations/implications – The lack of relevant price competition literature, relating to the retailer apparel industry, forced the exploration of price competition literature from grocery and automotive sectors. Originality/value – The paper provides useful information on the impact of price competition on apparel retailers and brands, and also price tiers as a competitive strategy.
... Service delivery is assumed to be a variable cost. The inability to successfully model the circular nature of the impact of price on volume and of volume on price can lead to overpricing in weak markets and under pricing in strong markets [52]. It may be particularly inappropriate for services where it is difficult to assign costs to intangibles. ...
Conference Paper
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While commoditization is creating opportunities for customers of information technology services, it is creating new challenges for the service providers. Pricing strategies are one of the most important challenges and decisions for today's IT service providers. Pricing strategies for IT services have traditionally focused on covering costs, achieving desired margins and meeting the competition. These pricing schemes range from simple approaches, easily copied by competitors, to complex models with high management costs. In order to be successful in today's competitive business world, the service providers need to define their pricing strategies by considering the customer's perceived value from the service they receive rather than using traditional cost-based pricing strategies. This paper surveys literature on IT services pricing and presents a value-based approach to effectively price IT services.
... The approach is somewhat limited as price is not always a conscious variable, competitive price awareness isn't always high, and pricing often varies across distributors. In spite of these limitations, GG and VW techniques are popular due to the nature of their convenient descriptive data analysis and visualization especially when compared to numerous other more theoretically based price and cost models (see, for instance, [25] [26] [27] [28] [29] [30]). These models serve as " workhorse " instruments in marketing research for empirical pricing of concepts and products (for instance, [31] [32] [33] [34] [35]). ...
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Pricing a product is one of the most important decisions an organization can make. Marketing research has developed several different approaches to price optimization. They include direct methods such as estimation of willingness to pay, indirect methods such as Gabor-Granger and van Westendorp techniques, and prod-uct/price mix methods such as various discrete choice models. All of them are widely used in practical marketing research for evaluation of optimal prices for different products and product innovations. This work describes and compares several main of these approaches.
... The decrease of sales is larger when the price changes from € 4.95 to € 5.00 than when the price changes from € 5.00 to € 5.05 (Gabor and Granger, 1961, 1966). Psychological prices are perceived as being really lower than the rounded price, although the difference is negligible (Dodds and Monroe, 1985; Nagle, 1987). With a price increase from € 4.95 to € 5.00, the price comes in a higher euro unit, the category of € 5 prices. ...
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With the introduction of the euro consumers have to develop a sense of value for euro prices. Consumers may be the victim of a money illusion effect, in which they evaluate euro prices as cheaper than they actually are. For retailers, psychological or odd pricing may be less effective for euro prices than for guilder prices. In this study, we find some support for the money illusion effect. We also find support for less psychological pricing for euros than for guilders.
... Price can be defined as a monetary value when the consumers want to exchange it with any products or services which provided by the seller (Nagle and Holden, 2002). Then, price represents an extrinsic cue and provides one of the most important forms of information available to consumers when making a purchasing decision (Jin and Sternquist, 2002). ...
Conference Paper
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This study literally develop a conceptual framework by using perceived benefits, price, social influence and economics condition factors as the independent variables that influence consumer buying attitude towards private label brand. It consists on well defined definitions of both dependent and independent variables as well as supportive literature review from several researchers. Consistently, based on the literature review, all four variables mentioned had significant influence consumer buying attitude towards private label brand. A conceptual framework was developed based on past research studies.
... Evidently, the top management should establish pricing goals, objectives, and strategies that will be consistent with marketing and corporate goals, objectives, and strategies [7]. Undeniably, pricing decisions have vital infl uence on reaching organizational success, especially when they are tactical and short-term based. ...
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Introduction. Many businesses nowadays struggle to develop an effective pricing strategy that would boost their sales volume and improve profitability. Some of them may overcharge for their products and services, and usually chase customers away with their profit-hungry image. Others may undercharge as they either do not recognize the value they provide to a customer or simply deliver a below-the-standard project/service. Nevertheless, traditional pricing based mainly on the cost of production is a thing of the past as customers’ needs and demands constantly change and what they would like may no longer be expensive to produce. As such, it is important to focus on psychological factors to understand the value customers are looking for and then amplify on those values when determining the right pricing strategy. Theoretical analysis. The theoretical management principles were determined as the patterns of subjects’ behavior for the strategic management planning, value chain management, manufacturing and sale of products and services. The theory of managing a pricing strategy has proposed a number of tools to optimize the integrative framework for profit driven B2B pricing model, which allows developing a value chain management strategy for digital marketing agencies. Methodology. The basic statement of the problem determining strategic pricing methods for digital marketing agencies, depending of various factors is given. Results. During the research the authors explore several pricing strategies for digital marketing agencies and different online services they provide. The purpose of this article is to shift from traditional to strategic pricing methods for digital marketing services, which nowadays require flexibility, critical thinking, agency’s role in the process understanding, the value they provide, and a total scope of work, including time and resources invested in the completion of a project.
... In the State Oil Company v. Khan case of 1997, the Supreme Court ruled that maximum resale price restraints are permitted (Blair and Lafontaine 1999). Resale price maintenance is acceptable if it is unilaterally applied to all downstream partners and if it is not anti-competitive (Coughlan et al. 2006; Nagle and Holden 2002) ...
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The existing literature on channel coordination typically models markets where used goods are not sold, or are sold outside the standard channel. However, retailers routinely sell used goods for a profit in markets like textbooks. Further, such markets are characterized by a renewable consumer population over time, rather than the static consumer population often assumed in prior literature. We show that accounting for these market characteristics alters the optimal contract form as compared to the contracts derived in prior research. In particular, when new goods are sold in both the first and second periods of our model, the optimal contract differs from those in prior literature in that it can exhibit a negative fixed fee in the second period and requires contracting over the resale price in the second period. The model shows that the manufacturer makes higher profits from allowing used-good sales alongside new-good sales than from shutting down the retailer-profitable secondary market, and that unit sales expand with a profitable secondary market over those achievable without a secondary market. Furthermore, in contrast to previous investigations of durable goods markets that ignore the possibility of a retailer-profitable secondary market, we show conditions under which the manufacturer would optimally choose to sell no new goods in the second period, ceding the market entirely to the used-goods retailer. This research thus expands our knowledge of how durable goods markets work by incorporating the profitable operation of a retailer-run resale market. Copyright Springer Science+Business Media, LLC 2007
... Hinterhuber and Liozu (2012) emphasize that price setting requires discipline and should be congruent with other aspects of a firm's marketing strategy. Commoditization of offerings in mature markets and pronounced buyer power might drive price setters toward competition-based pricing or cost-based pricing (Farjoun, 2002; Ingenbleek, Debruyne, Frambach, & Verhallen, 2003), and lead to below-target profitability (Nagle & Holden, 2002). Hence, many industrial firms strive to renew their business models by increasing the number of value-adding activities in their offering portfolios. ...
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... 5 Put differently, the aggravation associated with the outright loss of a sum of money ought to be greater than that associated with the opportunity loss of not being able to gain the same amount. That is, a movement away from the origin in the domain of losses yields a relatively large change in value perceptions, while an equivalent movement towards the origin in the domain of gains yields a relatively small change in value perceptions (Nagle & Holden, 2002; Thaler, 1980). This view of opportunity costs is consistent with the perspective that ''. . . ...
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The controversial debate on the appropriate standard for the assessment of bundled discounts echoes the difficulties encountered by courts, antitrust authorities and scholars in their ongoing attempt to develop a coherent theoretical framework to distinguish exclusionary conduct from legitimate competition. Currently, there is no general consensus on the treatment of the practice. Even the recent DOJ report on single-firm conduct – withdrawn by the new US administration – and the Commission guidance on Article 82 EC have not definitely clarified the proper approach to bundled discounting. The application of general principles on foreclosure could prevent the use of an effective competitive tool and may result in reduced price competition and protection of inefficient competitors. On the other hand, a total bundle predation-style safe harbor would not detect above-cost bundled discounts that are capable of excluding or limiting the competitive capacity of equally efficient rivals. The US discount allocation test aims at tempering the excesses of the two above-mentioned approaches, but it is too simplistic, does not fit most actual cases and may be both over-deterrent and under-deterrent. The test proposed by the Commission guidance may give rise to similar inconveniences, although it is more likely to be over-deterrent. This paper proposes a refined cost-based test, aimed at establishing whether an equally efficient rival could reasonably compete for the (contestable portion of demand for the) product(s) reasonably open to competition. This test is based on the idea that a practice should be considered a legitimate form of competition on the merits if, notwithstanding the possible existence of one or more competitive advantages that cannot be reasonably replicated or overcome by rivals in an acceptable time frame, a hypothetical competitor that is equally efficient under all remaining aspects could react to the dominant firm’s behavior through a conduct that would benefit consumers. However, in case of complex pricing policies, cost-based tests are imperfect and approximate tools, which may provide useful evidence and indications as to the risk of exclusion of equally efficient rivals, but cannot usually function as a safe harbor for dominant firms. A cost-based test can only be part of a comprehensive assessment of the likely effects of the practice. When the application of an appropriate cost-based test turns out to be too complex and uncertain or, in any case, the test does not provide sufficiently complete and reliable indications, a proper allocation of the burden of proof could reduce the risk of type I and type II errors.
Article
Purpose – Supplementary fees such as restocking fees, nonrefundable shipping and handling fees, and cancellation fees have become prevalent in the USA, and customers as well as the popular media have raised serious concerns about them. This paper aims to test whether such fees could benefit consumers because they lead to lower prices. Design/methodology/approach – Transaction data that include prices and fees were collected from different service providers, including hotels, airlines, online retailers, and restaurants. The data were collected from different countries at different points in time. Cross‐sectional and panel data sets were used to test the relationship between fees and prices. Findings – The empirical results indicate that on average higher fees lead to lower prices for the majority of customers who do not abuse customer‐friendly service policies. These findings are valid for different service industries in different countries even after controlling for unobserved heterogeneity using panel econometric models. Originality/value – The results are consistent with the hypothesis that special fees are used to limit the abuse of customer‐friendly service policies, thus helping service providers to offer lower prices to the majority of customers who do not abuse these policies.
Article
In this paper, the supplier of a key component to a global manufacturer offers a one-time price discount; we study the firm's optimal response to the discount under two different strategies. In the first strategy, the firm does not pass along the discount to its customers (sales subsidiaries); the firm simply coordinates purchasing and production among the different factories to take advantage of this one-time price discount. In the second strategy, the firm offers price discounts for its most profitable products in different sales subsidiaries to increase their demand. We carried out experiments for the two strategies based on a mathematical programming model, built around Toshiba's global notebook supply chain. Model constraints include, among others, material constraints, bill-of-materials, capacity and transportation constraints, minimum lot size constraints, and a constraint on minimum fill rate (service level constraint). Unlike most models of this type in the literature, which define variables in terms of single arc flows, we employ path variables, which allow for direct identification and manipulation of profitable and non-profitable products.
Article
E-Commerce has developed into a major business arena during the past decade, and many of the sales activities are handled by computers. Intelligent algorithms are being developed to further automate the sales process, which reduces labor costs as well as business operational expenses. This paper describes an automatic sales-price determination algorithm for online markets in a competitive environment. It tries to dynamically adjust the sales price to maximize the profit and minimize the sales time. This algorithm gathers sales prices of competing online stores, and optimally adjusts the advertising price. It is particularly useful when a store carries numerous items so manual price adjustments are laborious and costly. The algorithm has been applied to DVD movie sales in the online market, and shown to shorten the sales time and increase the profit.
Chapter
Process innovation is a chain of activities designed to reduce the cost and time of manufacturing a product or delivering a service with the desired quality and competitive advantage. The most challenging issue in process innovation and improvement is identifying the redundancies in the manufacturing or services delivery process and eliminating them to reduce the cost and time involved in the process of generating the final output. Therefore, it is essential for managers to understand the process at work and find a critical path to optimize the time and cost of carrying out an innovation. The relevant executives can design an efficient process to improve workable ideas that will make a real difference to the organization as they move the innovation into the marketplace. This chapter discusses the capabilities and competencies of companies in carrying out process innovation and value chain management, and analyzes the process outcome and focus. The chapter also addresses various issues referring to managing process improvements, and developing an innovation value chain.
Article
Despite strong evidence of substantial impact on the bottom line, most companies counter-intuitively neglect the pricing function — as do most scholars. Although pricing is gaining in popularity, only a few articles published in major marketing journals focus on it, and scholars have long asked how organizational and behavioral characteristics of firms affect the link between pricing practices and firm performance. To address these practical and theoretical deficits, we surveyed 507 professionals involved in account and sales management at business-to-business (B2B) firms from around the world to measure the influence of five organizational factors on sales collective confidence associated with pricing and relative firm performance. Results demonstrate that four of the five factors (pricing capabilities, delegation of pricing authority, incentive and goal systems, and knowledge before negotiation) positively and significantly influence sales collective confidence associated with pricing. In turn, we find collective confidence in the sales force to be significantly and positively related to relative firm performance, suggesting that firms that are able to design organizations and allocate resources in a way that maximizes pricing confidence can achieve superior financial outcomes. In aggregate, these organizational factors promote competitive advantage and comparative firm performance.
Article
Now days, the marketing environment is rapidly changed. Therefore, a lot of companies try to reduce production cost. Especially, Design is a important activities in new product development. While the concepts of design for manufacturable and concurrent engineering have made significant advances in integrating the design function with other areas in the firm. There are still major gaps in timely and accurate costing information available to designers. Inappropriate design could result in high redesign cost and delay in product relation. The generation of design and improvement is a time-consuming and mentally exhaustion process. It involves combining design features to generate as many potential design as possible. As not all features combinations are feasible, decision-makers have to narrow down the potential solutions and subsequently select appropriate design for further development. This new study is composed of 3 steps aiming at the Low Cost Design of the product. The three steps are consisted that setting up the target Cost, estimating the current functional cost, the design of a unit's reviewing according to the priority of the difference between the target cost and the functional cost.
Article
Purpose - This paper aims to explore the strategic dimensions and drivers of sustainable IT and roadmaps its likely development as a disruptive innovative force over the next decade as it moves beyond the datacenter and throughout the IT organization, the firm, markets, and society at large. Its purpose is to provide a comprehensive view of the emerging industry to inform sustainable IT strategy development and stimulate future research. Design/methodology/approach – This paper uses a qualitative three-phase process to develop the technology roadmap for the sustainable IT industry. The phases are domain analysis, which features a comprehensive literature review and expert panel depth interviews; roadmap development, which involved two technology roadmapping brainstorming sessions; and follow-up activity, to confirm roadmap session results with the expert panel. Findings – The paper defines the emerging field of sustainable IT and its green IT and sustainable IT services dimensions. It identifies market segments, products and services, technologies, compliance and reporting requirements, organizational changes, and value migration and roadmaps a likely future landscape for the development of sustainable IT strategy. Practical implications – Developing a sustainable IT strategy is a major issue for most organizations. Managers and researchers can use the results of this study to better understand the dimensions of sustainable IT and its likely future growth paths. Researchers will find the comprehensive approach to the topic useful for planning future technological innovations and determining their disruptive potential. Managers can use the results to benchmark their current situation and develop strategies for the next generation of sustainable IT service solutions. Originality/value – This paper is the first to apply technology roadmapping to the emerging sustainable IT industry. It provides a strategic planning perspective of the future of the industry as it migrates from green-IT strategies for reducing the costs and energy use of computing to sustainable IT services that hold the potential for transforming complex environmental and social responsibility problems into business opportunities.
Article
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We address the following paradox: most scholars consider value-based pricing as superior to cost- and competition-based approaches in industrial markets – yet, few firms use it. Semi-structured interviews with 44 managers of small to medium size US industrial firms revealed key characteristics that are common to the firms who successfully implement value-based pricing: the ability to face deep transformational change, the role of champions as transformational leaders, the creation and diffusion of organizational mindfulness, the building of organizational confidence to fuel the transformation, and the design of center-led and specialized teams of experts supporting the firm's pricing process. Our data demonstrate that value-based pricing is not simply adopted but internalized through a long and purposeful process supported by a mindful, experiential, and transformative learning environment.
Article
This paper investigates how an insurer's pricing strategy can be adapted to respond to market conditions, and in particular the insurance cycle. For this purpose, we explore the use of dynamic pricing strategies, such as the revenue management techniques used by other industries (e.g., airlines, car rentals, internet service providers) in an insurance context. We then compare these dynamic pricing techniques with the static ones currently used in the market, and demonstrate that they can prove very valuable to insurers looking to enhance their competitive strategy.
Article
Purpose – Price sensitivity is one of the key factors affecting to companies pricing choices. Yet in mobile services sector business practitioners are facing problems in pricing decisions as they are short of knowledge on their customers’ price sensitivity levels and dynamics. Therefore this study aims to focus on this unexplored field in order to provide more accurate tools for mobile service providers to price their services more effectively. Design/methodology/approach – This study is conducted on Finnish mobile services markets. The focus is on examining how customers’ price sensitivity differs between different customer segments and which factors affect to the price sensitivity levels. The sample data is collected through a quantitative postal survey in which 3,000 questionnaires was sent to mobile service customers of a Finnish teleoperator. In analyzing the empirical data the explanatory factor analysis and multiple regression analysis was applied. Findings – It was discovered that mobile service customers differ significantly in their price sensitivity levels; customers with moderate usage of mobile services are least price sensitive, while intensive and low-end users are most sensitive to price changes. Important was also the notion that customers’ price perceptions and innovativeness levels were accurate indicators of their price sensitivity. Research limitations/implications – This paper has concentrated only on Finnish mobile services markets. In order to construct a robust set of indicators for international use, cross-cultural study on testing the factors of this study should be conducted. Practical implications – For business practitioners, the most distinctive finding of this paper are a new set of factors through which segmenting of their customers can be made more accurately. Originality/value – With the findings of this paper a mobile service provider is able to increase efficiency of pricing of mobile services.
Article
The aim of this study was to document and compare price levels for restaurant services and discuss the possible implications for the tourist industry in Norway. The sample consisted of a total of 47 restaurants in Oslo, Stockholm, Copenhagen, Berlin and Paris. It was an exploratory research using a combination of qualitative methods (categorization and choice of menu items) and quantitative analyses. The result of the study indicated that price levels of restaurants in Oslo and Stockholm were clearly higher than price levels in Copenhagen, Paris and Berlin. The differences were distinct for alcoholic beverages, non‐alcoholic beverages and food. It was argued that high price levels gave strong effects for individual family tourists, travelling by car or other “free” transportation. If the tourists had low income or low budget, or if they originated from a country with a relatively low price level, the negative effects would be strengthened. The effects are probably not so strong for business travellers and package tourists. The author also argues that the restaurant industry might weaken the negative effects by calculating lower prices on menu items where tourists have a clear reference price, and by giving the tourists information about the reasons for high price levels.
Article
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Purpose – The purpose of this paper is to provide a framework to help marketers of services price their products by looking beyond costs and competitive forces. By analysing the value of information; consumers' price sensitivity; and transaction costs other than search costs, against the characteristics of their service they could make more profitable pricing decisions. Design/methodology/approach – A critical review of the academic and professional literature reveals a rich array of possibilities for pricing services. A simple framework is developed in the form of a matrix crossing the three dimensions of heterogeneity of consumer demand with the four characteristics of services. Each cell represents a set of pricing options. Findings – Services should be priced in a way to reflect the customers' price sensitivity, the nature of the transaction and its cost, and the value of information. The pricing should also reflect the four characteristics of services: intangibility, perishability, lack of standardization, and inseparability of production and consumption. Originality/value – This paper fills a conceptual and practical gap for a structured review of the current state of knowledge about the pricing of services. It offers practical and solid advice and examples demonstrating the application of the different types of pricing strategies for service providers.
Article
Full-text available
This paper includes an examination of two key issues on price decisions: (1) how should price decisions be made (the strategic and normative issue) within market contexts, and (2) how are price decisions actually made (the execution and implementation of price decisions). The paper closes with some observations useful for applied research and strategies for making effective pricing decisions. The propositions and literature review show that one pricing strategy does not fit a brand in all market contexts that brand executives experience annually in managing brands. Setting specific price points requires continuing deliberate management responses to dynamic market contexts. This paper provides useful sense-making conjunctive steps to accomplish such deliberate thinking effectively relevant for different market contexts.
Article
Full-text available
Can pairing items from different price tiers decrease consumers’ perceptions of monetary value? Prior research suggests that adding an item with positive utility to an offering can only increase the offering’s overall value. In contrast, we show that combining expensive and inexpensive items can lead to subtractive rather than additive judgments, such that consumers are willing to pay less for the combination than for the expensive item alone. We attribute this subtraction effect to the categorical nature of consumers’ processing of numeric information when evaluating combinations of items classified into opposing categories. Five empirical studies lend converging support to the proposition that categorical reasoning can lead to subtractive judgments.
Article
In developing pricing strategies, managers typically take into account a wide array of factors, including those that are internal to the firm as well as those that are external to its operations. However, little attention has been paid to how managers consider these factors in combination and how such judgments affect their ultimate choice of pricing strategy. These questions are the focus of this study, particularly as they pertain to international pricing decisions. Drawing on key dimensions thought to influence the relative weights that pricing managers place on both internal and external factors, the study details how those relative weightings influence the ultimate strategies managers employ. Findings indicate that international experience, product technology, degree of internationalization, market share, and certain external factors influence weightings managers give to internal and external factors in the process of making international pricing decisions. Furthermore, these decision-making factors combine to affect the specific strategies pricing managers employ in determining international prices.
Article
Purpose – The purpose of this paper is to investigate customers' intentions to purchase mobile communications services and how these intentions are affected by the customers' price perceptions in two customer segments – a mobile segment and a combined segment. A further aim was to gain insight into the formation of price perceptions, and customer characteristics that underlie the differences between purchase intentions and price perceptions. Design/methodology/approach – The study was conducted in the Finnish mobile services market. The sample data were collected through a postal survey (n=3,000) sent to customers of a Finnish teleoperator. In analyzing empirical data the explanatory factor analyses, linear regression analyses, and analysis of variance were applied. Findings – The results indicated that a significant and positive relationship exists between customers' price perceptions and their purchase intentions, and that the formation of price perceptions is significantly influenced by satisfaction with pricing and services. Price transparency was found to be negatively associated with customers' price perceptions. Gender, age, and experience of service use were found to explain the differences in customers' perceptions. Practical implications – By segmenting customers according to the research results and targeting pricing schemes specific to these segments would potentially improve customers' price perceptions and their intentions to purchase mobile services. The study also supported the use of multi-dimensional pricing schemes as it was found to positively influence customers' price perceptions. Originality/value – This paper provides new practical and theoretical insights into the relationship between purchase intentions and price perception, and into the formation of the price perceptions of mobile services customers.
Article
This chapter delineates the antecedents of tourists’ perceptions of the extent to which they perceive the prices they pay as being fair. The study also tests the relative importance of overall price fairness perception, which is measured as the relative gap between the expected price and the perceived price. A model and hypothesis was developed and tested, with reference to existing theories. Data was collected from nine nature- and activity-based firms in Northern Norway. A regression analysis was performed, in order to test the relative effects and strengths of the antecedents of tourist perception of price fairness. The results revealed that both information and monetary antecedents affect perceptions of price fairness. In particular, monetary-related antecedents such as household income, payment in advance, and value for money affected perception of whether prices were fair. Interestingly, information-related antecedents such as previous experience affected negative perceptions of price fairness. The results are discussed in terms of their implications for the tourist industry.
Purpose This study aims to examine the effect of hotels’ star ratings and customer ratings on online hotel prices from both supply- and demand-side perspectives. Design/methodology/approach To compile the supply-side data, a Web crawler was designed and implemented to read online prices and characteristics of available hotels from Trivago. Demand-side data were compiled from surveys conducted using the Amazon Mechanical Turk portal. Data were analyzed with an array of advanced machine learning regression models. Findings The results show that while a star rating is the most important predictor of price from both supply- and demand-side perspectives, customer rating influences the price much more significantly on the demand-side. Customers showed a tendency to overestimate the room price of three- and four-star hotels and underestimate the price of five-star hotels. Customers placed a heavier weight on customer ratings when estimating prices particularly when the average rating was above 7.5 (out of 10). The study also confirms the strong effect of price adjustment for customers when they were exposed to the prices of other similar hotels. Finally, the study examines the impact of demographics on the perceived hotel value. Age, ethnicity, education and income are shown to be the most significant demographic characteristics. Originality/value The results are valuable from a research perspective because they demonstrate how to price rooms more effectively based on their perceived value from consumers’ perspectives. From a practical standpoint, the findings provide useful managerial tools for pricing in competitive environments.
Conference Paper
The extending interorganizational electronic business (business-to-business) means system to system communication between business partners without any manual interaction. This has led to the development of new standards for the exchange of electronic product catalogs (e-catalogs), which are the starting point for business-to-business trading. E-catalogs contain various information about products, essential are price information. Prices are used for buying decisions and following order transactions. While simple price models are often sufficient for the description of indirect goods (e.g. office supplies), other goods and lines of business make higher demands. In this paper we examine what price information is contained in commercial XML standards for the exchange of product catalog data. For that purpose we bring the different implicit price models of the examined catalog standards together and provide a generalized model.
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