Andreas Hinterhuber

Customer value‐based pricing strategies: why companies resist

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 clus...

Pricing orientation, pricing capabilities, and firm performance

Purpose – How do pricing methods affect firm performance? From both an academic as well as a managerial perspective this question is important. The literature is silent on the relationship between pricing approach and company performance. The aim of this paper is to address this research gap.Design/methodology/approach – To address this practical and theoretical deficit, the authors surveyed 1,812 professionals involved in pricing to measure the influence of pricing approach on firm performance.Findings – The authors find a positive relationship between value‐based pricing (but not competition‐based pricing) and firm performance. Furthermore, the authors find that the three pricing orientations differently influence firm pricing capabilities, which in turn are positively related to firm performance. This paper is thus the first paper documenting a positive relationship between value‐based pricing and firm performance through a quantitative research design.Originality/value – These findings have important ...

Can competitive advantage be predicted

Purpose – The fundamental problem of the resource‐based view (RBV) of the firm is its lack of predictive ability and its inability to identify, ex ante, those resources and capabilities leading to competitive advantage and superior profitability. This paper aims to propose an extension of the RBV model that incorporates the demand‐based variables of customer needs and size of addressable market segment in the definition of the resources and capabilities that enable competitive advantage and superior profitability.Design/methodology/approach – The papers approach is to use a literature review and two case studies.Findings – In this model a company has a competitive advantage if its resources and capabilities are valuable, rare, non‐imitable, organized, and if these resources and capabilities address unmet customer needs in market segments large enough to cover organizational fixed costs.Research limitations/implications – The proposed extension of the RBV is based on current literature and two qualitative...

Mindful pricing: transforming organizations through value-based pricing

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 firms 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.

Industrial product pricing: a value‐based approach

Purpose – This paper seeks to examine the influence of pricing orientation on the price‐setting process in industrial firms.Design/methodology/approach – The authors designed a qualitative inquiry based on the principles of grounded theory with 44 managers in 15 industrial firms located across ten US states. These managers included CEOs, pricing and marketing professionals, and financial professionals working in three industries (automotive, building products and chemicals).Findings – The studys results reflect similarities and differences in the experiences of managers in industrial firms using all three pricing orientations. It reveals stark contrasts by pricing orientation with respect to how firms organize for pricing, manage the pricing process, make product pricing decisions, manage the transition to more advanced pricing orientations, and develop internal capabilities to face uncertain and ambiguous decisions. The findings also uncover contrasting price‐setting processes by pricing orientation and...

Pricing capabilities: the design, development, and validation of a scale

Purpose – The literature has paid increased attention to pricing capabilities as a set of distinctive, complex activities, routines, and processes that drive company performance. Despite this emphasis, little research has addressed the pricing-capabilities construct itself, and no accepted measure of pricing capabilities exists. The purpose of this paper, therefore, is to document the design, development, and validation of a dedicated pricing-capabilities scale, PRICECAP. Design/methodology/approach – Qualitative plus three quantitative surveys. Findings – The present research describes the development of a ten-item measure, PRICECAP, that can be used to assess organizational capabilities related to pricing. Research limitations/implications – The reliability and validity of the scales were assessed through three separate quantitative studies using exploratory and confirmatory analysis. The PRICECAP scale has a variety of potential applications and can serve as a framework for future empirical research in...

Industrial Pricing Orientation: The Organizational Transformation to Value-Based Pricing

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.

Profiting When Customers Choose Value Over Price

Increasingly recognised by academics and practitioners as the most effective approach to pricing for companies that wish to achieve increased profitability and sustained success, value-based pricing faces numerous obstacles. But Andreas Hinterhuber and Marco Bertini say the advantages of this approach to pricing far outweigh any difficulties.

Organizational design and pricing capabilities for superior firm performance

Purpose – The purpose of this paper is to test the relationship between organizational antecedents, pricing capabilities, and firm performance. Design/methodology/approach – Quantitative survey of 748 managers from mostly large companies globally. Findings – It was found that the following five key organizational resources (the 5 Cs) – center-led price management, organizational confidence, championing behaviors, organizational change capacity, and pricing capabilities – positively influence firm performance. Furthermore, it was found that center-led price management, organizational change capacity, and championing behaviors act as important antecedents to pricing capabilities and, except for the former, to organizational confidence. The authors also examine interaction and mediation effects. Originality/value – The results thus suggest that generic organizational factors – namely center-led price management – as well as highly idiosyncratic firm, specific capabilities – namely organizational confidence, ...

The confidence factor in pricing: driving firm performance

Purpose – The purpose of this paper is to identify a set of specific activities and a set of competencies associated with above‐average firm performance.Design/methodology/approach – Quantitative survey of 748 respondents.Findings – It was found that four key competencies differentiate high performing from low performing companies: organizational confidence; pricing capabilities; organizational change capacity; and championing behaviors by top management. The research also identifies a set of specific activities that are linked with superior firm performance: activities directed at the improvement of pricing effectiveness (e.g. trainings, pricing tools; pricing performance reviews); improvements in product differentiation and product quality (e.g. through innovation and research aimed at identifying and creating customer value); increased sense of organizational confidence (e.g. optimism, resilience, “can do”‐attitude); improved support of top management; improved ability to stick to list prices and minim...