Skip to main content

The conceptualization of value-based pricing in industrial firms

Abstract

The current literature is largely silent on how executives interpret the concept of value-based pricing. Although only a minority of companies adopts value-based pricing approaches, little is known about antecedents of alternative pricing approaches. We suggest this may be because of the fact that few professionals possess an understanding of value-based pricing, which is both academically rigorous as well as practically relevant. Our interviews with 44 executives in 15 US industrial firms show that those practicing value-based pricing interpret customer value in ways fully consistent with the current academic literature. Those practicing cost- or competition-based pricing, however, show a poor understanding of value-based pricing, which may explain why their companies practice cost- or competition-based approaches.

This is a preview of subscription content, access via your institution.

References

  • Anderson, J. and Narus, J. (2004) Business Market Management: Understanding, Creating, and Delivering Value. Upper Saddle River, NJ: Prentice Hall.

    Google Scholar 

  • Anderson, J. and Wynstra, F. (2010) Purchasing higher-value, higher-price offerings in business markets. Journal of Business To Business Marketing 17 (1): 29–61.

    Article  Google Scholar 

  • Anderson, J.C. and Narus, J.A. (1998) Business marketing: Understand what customers value. Harvard Business Review 76 (6): 53–65.

    Google Scholar 

  • Backman, J. (1953) Price Practices and Policies. New York, NY: Ronald Press.

    Google Scholar 

  • Bowman, C. and Ambrosini, V. (2000) Value creation versus value capture: Towards a coherent definition of value in strategy. British Journal of Management 11 (1): 1–15.

    Article  Google Scholar 

  • Boyatzis, R. (1998) Transforming Qualitative Information: Thematic Analysis and Code Development. Thousand Oaks, CA: Sage Publications.

    Google Scholar 

  • Cannon, H.M. and Morgan, F.W. (1990) A strategic pricing framework. Journal of Services Marketing 4 (2): 19–30.

    Article  Google Scholar 

  • Cavusgil, S., Chan, K. and Zhang, C. (2003) Strategic orientations in export pricing: A clustering approach to create firm taxonomies. Journal of International Marketing 11 (1): 47–72.

    Article  Google Scholar 

  • Chakrabarti, A. (1974) The role of champion in product innovation. California Management Review 17 (2): 58–62.

    Article  Google Scholar 

  • Christopher, M. (1982) Value-in-use pricing. European Journal of Marketing 16 (5): 35–46.

    Article  Google Scholar 

  • Coe, B. (1990) Strategy in retreat; pricing drops out. Journal of Business & Industrial Marketing 5 (1): 5–25.

    Article  Google Scholar 

  • Corbin, J. and Strauss, A. (2008) Basics of Qualitative Research. Thousand Oaks, CA: Sage Publications.

    Google Scholar 

  • Day, G. (1994) The capabilities of market-driven organizations. The Journal of Marketing 58 (4): 37–52.

    Article  Google Scholar 

  • Dolan, R. and Simon, H. (1996) Power Pricing: How Managing Price Transforms the Bottom Line. Boston, MA: The Free Press.

    Google Scholar 

  • Dolan, R.J. (1995) How do you know when the price is right? Harvard Business Review 73 (5): 174–183.

    Google Scholar 

  • Dutta, S., Bergen, M., Levy, D., Ritson, M. and Zbaracki, M. (2002) Pricing as a strategic capability. MIT Sloan Management Review 43 (3): 61–66.

    Google Scholar 

  • Dutta, S., Zbaracki, M. and Bergen, M. (2003) Pricing process as a capability: A resource based perspective. Strategic Management Journal 24 (7): 615–630.

    Article  Google Scholar 

  • Ellram, L.M. and Siferd, S.P. (1998) Total cost of ownership: A key concept in strategic cost management decisions. Journal of Business Logistics 19 (1): 55–84.

    Google Scholar 

  • Flint, D., Woodruff, R. and Gardial, S. (1997) Customer value change in industrial marketing relationships: A call for new strategies and research. Industrial Marketing Management 26: 163–175.

    Article  Google Scholar 

  • Forbis, J. and Mehta, N. (1981) Value-based strategies for industrial products. Business Horizons 24 (3): 32–42.

    Article  Google Scholar 

  • Fox, J. and Gregory, R. (2004) The Dollarization Discipline: How Smart Companies Create Customer Value – and Profit From It. Hoboken, NJ: John Wiley & Sons.

    Google Scholar 

  • Gale, B.T. and Swire, D.J. (2006) Customer value accounting for value based pricing. The Journal of Professional Pricing 15 (4): 30–33.

    Google Scholar 

  • Glaser, B. and Strauss, A. (1977) The Discovery of Grounded Theory: Strategies for Qualitative Research. San Francisco, CA: Aldine.

    Google Scholar 

  • Golub, H. and Henry, J. (2000) Market strategy and the price-value model. The McKinsey Quarterly 37 (3): 47–49.

    Google Scholar 

  • Hallberg, N. (2008) Pricing capabilities and its strategic dimensions. PhD thesis, School of Economics and Management, Lund University.

  • Hinterhuber, A. (2004) Towards value-based pricing – An integrative framework for decision making. Industrial Marketing Management 33 (8): 765–778.

    Article  Google Scholar 

  • Hinterhuber, A. (2008) Customer value-based pricing strategies: Why companies resist. Journal of Business Strategy 29 (4): 41–50.

    Article  Google Scholar 

  • Ingenbleek, P., Debruyne, M., Frambach, R. and Verhallen, T. (2003) Successful new product pricing practices: A contingency approach. Marketing Letters 14 (4): 289–305.

    Article  Google Scholar 

  • Ingenbleek, P. (2007) Value-informed pricing in its organizational context: Literature review, conceptual framework, and directions for future research. Journal of Product & Brand Management 16 (7): 441–458.

    Article  Google Scholar 

  • Ingenbleek, P., Frambach, T. and Verhallen, T. (2010) The role of value-informed pricing in market-oriented product innovation management. Journal of Product Innovation Management 27 (4): 1032–1046.

    Article  Google Scholar 

  • Jackson, R., Niedell, L. and Lunsford, D. (1995) An empirical investigation of the differenced between goods and services as perceived by organizational buyers. Industrial Marketing Management 24: 99–108.

    Article  Google Scholar 

  • Jaworski, B. and Kohli, A. (1993) Market orientation: Antecedents and consequences. The Journal of Marketing 57 (3): 53–70.

    Article  Google Scholar 

  • Lincoln Yvonna, S. and Guba, E. (1985) Naturalistic Enquiry. Beverly Hills, CA: Sage Publications.

    Google Scholar 

  • Malhotra, N.K. (1996) The impact of the academy of marketing science on marketing scholarship: An analysis of the research published in JAMS. Journal of the Academy of Marketing Science 24 (4): 291.

    Article  Google Scholar 

  • March, J.G. (1999) The Pursuit of Organizational Intelligence. Malden, MA: Wiley-Blackwell.

    Google Scholar 

  • Maxwell, J.A. (2005) Qualitative Research Design: An Interactive Approach, Vol. 42, Thousand Oaks, CA: Sage Publications.

    Google Scholar 

  • Monroe, K.B. (1990) Pricing: Making Profitable Decisions. New York, NY: McGraw-Hill Publications.

    Google Scholar 

  • Moorthy, S., Ratchford, B. and Taludkar, D. (1997) Consumer information search revisited – Theory and empirical analysis. Journal of Consumer Research 23 (4): 263–277.

    Article  Google Scholar 

  • Nagle, T. and Holden, R. (2002) The Strategy and Tactics of Pricing: A Guide to Profitable Decision Making. Upper Saddle River, NJ: Prentice Hall.

    Google Scholar 

  • Narver, J. and Slater, S. (1990) The effect of a market orientation on business profitability. The Journal of Marketing 54 (4): 20–35.

    Article  Google Scholar 

  • Noble, P. and Gruca, T. (1999) Industrial pricing: Theory and managerial practice. Marketing Science 18 (3): 435–454.

    Article  Google Scholar 

  • Piscopo, G., Johnston, W. and Bellenger, D. (2008) Total cost of ownership and customer value in business markets. Advances in Business Marketing and Purchasing 14 (1): 205–220.

    Article  Google Scholar 

  • Priem, R. (2007) A consumer perspective on value creation. Academy of Management Review 32 (1): 219–235.

    Article  Google Scholar 

  • Shapiro, B.P. and Jackson, B.B. (1978) Industrial pricing to meet customer needs. Harvard Business Review 56 (6): 119–127.

    Google Scholar 

  • Shipley, D. and Bourdon, E. (1990) Distributor pricing in very competitive markets. Industrial Marketing Management 19 (4): 215–224.

    Article  Google Scholar 

  • Sivakumar, K. and Raj, S. (1995) Quality-tier competition: Impacts of the ‘Whether’ decision and the direction of price change. Cambridge, MA: Marketing Science Institute Report No. 95 (106).

  • Smith, G. (1995) Managerial pricing orientation: The process of making pricing decisions. Pricing Strategy & Practice 3 (3): 28–39.

    Google Scholar 

  • Stewart, T. (2006) Interview of Jeffrey R. Immelt. Growth as a process. Harvard Business Review 84 (6): 60–70.

    Google Scholar 

  • Thompson, K.N. and Coe, B.J. (1994) Gauging the value of suppliers’ products: Buyer-side applications of economic value pricing models. Journal of Business & Industrial Marketing 9 (2): 29.

    Article  Google Scholar 

  • Walter, A., Ritter, T. and Gemünden, H.G. (2001) Value creation in buyer-seller relationships – Theoretical considerations and empirical results from a supplier's perspective. Industrial Marketing Management 30: 365–377.

    Article  Google Scholar 

  • Wang, T., Venkatesh, R. and Chatterjee, R. (2007) Reservation price as a range – An incentive compatible measurement approach. Journal of Marketing Research 44 (May): 200–213.

    Article  Google Scholar 

  • Zeithaml, V. (1988) Consumer perceptions of price, quality, and value: A means-end model and synthesis of evidence. Journal of Marketing 52: 2–22.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Andreas Hinterhuber.

Appendices

Appendix A

Table A1

Table A1 Themes and sub-themes definitions

Appendix B

Table B1

Table B1 Identified value-based pricing methodologies in business publications

Appendix C

Table C1

Table C1 Detailed sample information

Appendix D

Table D1

Table D1 Detailed sample description

Appendix E

Table E1

Table E1 Value-based pricing conceptualizations

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Liozu, S., Hinterhuber, A., Boland, R. et al. The conceptualization of value-based pricing in industrial firms. J Revenue Pricing Manag 11, 12–34 (2012). https://doi.org/10.1057/rpm.2011.34

Download citation

  • Received:

  • Revised:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/rpm.2011.34

Keywords

  • pricing
  • industrial firms
  • value-based pricing
  • managerial cognition