Value-informed pricing in its organizational context: Literature review, conceptual framework, and directions for future research

Abstract

Purpose
In the face of increased pricing pressure, managerial attention for value‐informed pricing (in which a price is based on the customer's value perception) is on the rise. Although value‐informed pricing in its organizational context received a great deal of attention, the body of literature is fragmented and insights are often not cumulative. It is the aim of this article to review and integrate the empirical literature on pricing practices in order to pave the road for future research.

Design/methodology/approach
Empirical studies on pricing practices are collected and reviewed. Building on the resource‐based view of the firm, the findings from these studies are summarized in an integrative framework that includes testable research propositions.

Findings
Value‐informed pricing is the result of the deployment of informational resources such as market research, relationships and internal knowledge on customers. Firms should not only develop these information sources, but also secure the process by which they are deployed. The latter is among others influenced by the competitive context and organizational information processing that may evolve into a routine.

Originality/value
The article integrates the insights from a stream of research that thus far has been highly fragmented. It generates insights that may help firms to establish a value‐informed pricing process and it may help to develop a more mature body of research on value‐informed pricing.

Full text

Value-informed pricing in its organizational
context: literature review, conceptual
framework, and directions for future research
Paul Ingenbleek
Marketing and Consumer Behaviour Group, Wageningen University, Wageningen, The Netherlands and
Agricultural Economics Research Institute, The Hague, The Netherlands
Abstract
Purpose – In the face of increased pricing pressure, managerial attention for value-informed pricing (in which a price is based on the customer’s value
perception) is on the rise. Although value-informed pricing in its organizational context received a great deal of attention, the body of literature is
fragmented and insights are often not cumulative. It is the aim of this article to review and integrate the empirical literature on pricing practices in order
to pave the road for future research.
Design/methodology/approach – Empirical studies on pricing practices are collected and reviewed. Building on the resource-based view of the firm,
the findings from these studies are summarized in an integrative framework that includes testable research propositions.
Findings – Value-informed pricing is the result of the deployment of informational resources such as market research, relationships and internal
knowledge on customers. Firms should not only develop these information sources, but also secure the process by which they are deployed. The latter is
among others influenced by the competitive context and organizational information processing that may evolve into a routine.
Originality/value – The article integrates the insights from a stream of research that thus far has been highly fragmented. It generates insights that
may help firms to establish a value-informed pricing process and it may help to develop a more mature body of research on value-informed pricing.
Keywords Pricing, Customers, Organizational processes, Decision making
Paper type General review
An executive summary for managers and executive
readers can be found at the end of this article.
Introduction
Faced with increased price pressure in their business
environment, firms are putting more effort in understanding
customers’ value perceptions (e.g. Financial Times, 2005).
The pricing literature offers a helping hand to these firms
because it examines how customers trade off quality and price
in value perceptions (Grewal et al., 1998; Zeithaml, 1988)
and it studies how firms can assess the willingness of
customers to pay (e.g. Ofir, 2004; Wertenbroch and Skiera,
2002). The implications for firms from these studies are
captured in pricing textbooks (Anderson and Narus, 1999;
Nagle and Hogan, 2006) and managerially oriented journal
articles (e.g. Hinterhuber, 2004; Kortge and Okonkwo, 1993;
Shapiro and Jackson, 1978; Simon et al., 2003) that provide
guidelines for successful price decision-making. However, the
pricing literature is less clear about the organizational context
of pricing practices that pay respect to customer value
perceptions (value-informed pricing). More clarity on this
issue is important because relatively few firms seem to
implement the advices that are offered by the p ricing
literature. Recent surveys examining the pricing practices of
firms have found that most firms base their prices on cost
information rather than on custo mer value information
(Avlonitis and Indounas, 2005; Hankinson, 1995; Noble
and Gruca, 1999a). The question why managers do so – i.e.
which organizational barriers they encounter when practising
value-informed pricing – has not been sufficiently answered
by pricing researchers (cf. Cressman, 1999).
However, this does not mean that little work has been done
that is relevant to value-infor med pricing in its organizational
context. Researchers are in fact challenged by the length and
breadth of the empirical evidence. Starting with the work of
Hall and Hitch (1939) in economics, different disciplines have
from time to time contributed to the stream of research
(Diamantopoulos, 1991). Unfortunately, a lack of integration
across these different disciplines and across time has created a
fragmented perspective on the organizational context of value-
informed pricing. It is the aim of this article to review the
empirical literature on pricing practices and to integrate its
most important findings in a conceptual model. Because this
review will focus on value-infor med pricing in its
organizational context, it is complementary to reviews that
predominantly deal with pricing models rather than
organizational factors (e.g. Gijsbrechts, 1993; Monroe and
Della Bitta, 1978; Monroe and Mazumdar, 1988; Rao, 1984)
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
16/7 (2007) 441 –458
q Emerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/10610420710834904]
The author thanks Ge
´
Backus, Ruud Frambach, Theo Verhallen and two
anonymous reviewers for their helpful comments on earlier drafts of this
paper as well as the Value Creation Knowledge Base Project of the
Agricultural Economics Research Institute for funding the project.
441

and to reviews in accounting research that focus on cost rather
than value aspects of pr icing (Balakrishnan and
Sivaramakrishnan, 2002; Lucas, 2003).
In the remainder of this article, the domain of value-
informed pricing will first be defined and the price perception
literature that is at its foundation will be discussed briefly.
Next, the literature collection process is discussed and insight
is provided into the development of pricing practices
literature, and its major shortcomings. Subsequently, a
conceptual model with testable propositions is presented
that integrates the findings from the pricing practices
literature that are relevant to value-informed pricing. The
article concludes with a brief discussion and directions for
future research.
The concept of value-informed pricing
Literature on marketing and consumer behavior has examined
the relations between price and quality in the consumer
perception. In general, these studies indicate that customers
trade perceived price off against perceived quality, resulting in
a “value perception” that is the basis of purchase intentions
(Grewal et al., 1998; Zeithaml, 1988). Although the term
“value” is prone to many different interpretations (Holbrook,
1994; Vargo and Morgan, 2005), reviewing a number of
definitions, Woodruff (1997, p. 141) argues that customer
value is generally seen as “something perceived by customers
rather than objectively determined by a seller” and that “these
perceptions typically involve a trade-off between what the
customer receives (e.g. quality, benefits, worth, utilities) and
what he or she gives up to acquire and use a product (e.g.
price, sacrifices)”. The perceptions are for med in comparison
with alternative offerings and reference prices (Grewal et al.,
1998). Here, these general findings are followed, and value-
informed pricing is defined as the extent to which a firm uses
information in the process of price determination on the
perceived relative advantages that it offers and on how
customers will trade off these advantages against the price
(which has yet to be determined).
Economics and marketing literature have both considered
techniques by which firms may engage in value-infor med
pricing, i.e. by which they measure value, willingness to pay,
or reservation price. (According to Winer, 2005, the three
terms can be used interchangeably because all three refer to a
maximum that a customer is willing to pay for a market
offering.) Following the work of Stoetzel et al. (1954), several
researchers focused on the development of survey questions
that tap customer value (e.g. Adam, 1958; Fouilhe
´
, 1960;
Gabor and Granger, 1961, 1966; Van Westendorp, 1976). In
general, all techniques indicate two price thresholds – one
that indicates the maximum price that customers are willing
to pay for an offering and one that indicates the price below
which consumers no longer trust the quality of the offering.
(Over time, other approaches have been developed that are
more robust for potential biases, for example Monroe, 1971;
Ofir, 2004; Wertenbroch and Skiera, 2002; Spann et al.,
2004.)
Measuring or otherwise creating an understanding of
customer value perceptions is important to firms. First,
because it informs them on the customers’ willingness to pay,
firms that engage in value-informed pricing will not charge
prices that are lower than necessary. Second, since firms that
engage in value-informed pricing are able to express perceived
benefits in the price, these firms can market a coherent
offering, whereby perceived price matches perceived benefits.
When customers perceive that they pay a good price for the
benefits obtained, their purchase intentions will increase
(Grewal et al., 1998). In short, understanding customer value
perceptions may lead to both higher sales and higher profit
margins. For these reasons, marketing strategists advocate the
creation and understanding of customer value (e.g. Day,
1994; Hunt and Morgan, 1995; Slater, 1997). As shown by
the pricing practices literature, the expression of customer
value in the selling price can, however, not be taken for
granted.
Review of pricing practices literature
The “discovery” of pricing practice can be attributed to
Robert Hall and Charles Hitch. Just before the Second World
War they were two young and ambitious economists who
believed that they had made an important discovery. Hall and
Hitch (1939, p. 12) recognized the difference between
economic theor y and pricing practice, because their
inter views with manager s suggested “a mode of
entrepreneurial behavior which current economic doctrine
tends to ignore”. On the basis of interviews in 38 firms, Hall
and Hitch (1939) discovered that pricing in fir m practice
deviated from pricing theory. In particular, they found that
firms assessed full costs and then added a profit margin (this
practice is well known in the literature as cost-based pr icing).
In these practices, information on dem and curves was
sometimes neglected by decision-m akers or it got lost
somewhere in the process. Hall and Hitch’s finding
suggested that firms were not profit-maximizing entities.
The implications of this finding and the methods on which it
was based became the focus of heated discussions on the
assumptions and methods of economics, also known as “the
marginalist controversy”, in the 1940s and 1950s (for reviews
see Lee, 1984; Mongin, 1992, 1997, p. 558). In this
discussion, Friedman (1953) stated, for example, that asking
managers to explain their pricing behavior was as useful as
asking young people to account for their long life. Hall and
Hitch’s (1939) article, in the end, had little or no impact on
mainstream pricing research[1]. However, it generated a
stream of research that is descriptive and that is largely
separated from the normative pr icing literature
(Diamantopoulos, 1991). Here, this stream of research is
labeled pricing practices research.
Collection of studies
The literature was scanned for empirical studies on pricing
practices that were available by December 2006. Several
methods for obtaining relevant studies were used. First,
electronic databases, including ABI/Inform, Science Direct,
Scopus, and Web of Science were searched, using key words
such as “value-based pricing”, “pricing practices”, “pricing
behavior”, and “cost-based pricing”. Second, the references
of the articles found and relevant books were examined to
identify any studies that might have been overlooked. We
focused on studies that were published in general journals in
marketing, economics, and management. Books and book
chapters were only included if they made a clear empirical
contribution. These search procedures led to a total of 53
studies. Not included are studies published in accounting or
operations research because they generally deal more with the
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
442

cost f actors of pricing than the customer value factors. Also
not inclu ded are contr ibutions to j our nals in specific
application fields such as h ospitals, tourism, and the
construction industry.
Rather than organizing them by discipline, research method
or chronologically, the studies are presented along the lines of
three interrelated research traditions that each have a slightly
different focus:
1 studies that developed cost-principles theory (Table I);
2 studies that examine pricing practice from the perspective
of decision processes (Table II); and
3 studies that originate from marketing strategy (Table III).
The type of research that is included in these streams is
discussed below, followed by a brief discussion of their
drawbacks. Findings from the studies will be discussed within
the context of the conceptual model presented in the next
section.
Literature based on cost-principles theory
The publication of Hall and Hitch’s (1939) article generated
more empirical research on pricing practices. Several
researchers repeated Hall and Hitch’s study by interviewing
managers about their pricing decisions (e.g. Edwards, 1952;
Pearce, 1956). Some of these studies focused on specific
subsets of firms such as large corporations (Kaplan et al.,
1958) or small firms (Haynes, 1964). Two studies also
focused on inter view techniques by which the factors
underlying the price decision could be revealed (Foxall,
1972; Pearce, 1956). This stream of research was further
developed by studies that used survey questionnaires and
measure cost-based pricing in a quantitative manner (Fog,
1960; Skinner, 1970). Once the controversy that Hall and
Hitch started was settled, attention on cost-principles theory
started to fade. The theory was picked up again by researchers
that aimed to explain price rigidity using interview techniques
(Blinder et al., 1998) or survey instruments (Hall et al., 2000)
to reveal why firms change prices less frequently than
economic theory would predict.
Literature based on organizational decision processes
In an attempt to theorize on the organizational behaviors of
firms’ managers, Cyert and March (1963) developed the
behavioral theory of the firm. The behavioral theory of the
firm sees the firm as a coalition of stakeholders that negotiate
about objectives. These objectives are thus satisfying rather
than maximizing in nature. Over time, simplifying rules of
thumb emerge within the firm that may yield satisfactory
results. According to the behavioral theory of the firm, (cost-
based) pricing practices are included among such routines.
With this theory in mind, Hague (1971) started to examine in
more detail the organizational decision process by which
prices are set in firms in descriptive case studies. Others used
systematic mapping techniques to portray the decisi on
processes (e.g. Capon and Hulbert, 1975; Farley et al.,
1971). In addition, several quantitative (yet predominantly
descriptive) s tudies depar ted from a decision-process
perspective, using survey data on the nature of pricing
objectives (satisfying versus maximizing) and related concepts
such as pricing practices (e.g. Jobber and Hooley, 1987;
Shipley, 1981, 1983). By studying pricing from a resource-
based view, Dutta et al. (2003) follow the development of the
behavioral theory of the firm into organizational learning and
competence-based views. Illustrated by a single case study,
they argue that pricing is not a costless activity, but one that
requires resources such as information, skills and knowledge.
Because these resources are deployed in an organizational
process that leads to a price decision, they speak of a “pricing
capability” (we return to this topic in the next section).
Literature based on marketing strategy
The dominant role of price in mainstream economic theory
challenged Udell (1964) to show that price is not all that
dominant in marketing practice. Using a survey approach, he
examined the perceived relative importance of marketing mix
elements. Many subsequent studies based on Udell’s work
have examined the relative importance of price in the
marketing mix as well as other survey questions like the
dominant pricing objectives (e.g. Avlonitis and Indounas,
2005; S amiee, 1987), dominant practices (also called
methods) (e.g. Pierc y, 1981; Udell, 1972), and the person
responsible for pricing in the organization (e.g. Abratt and
Pitt, 1985; Nimer, 1971). In these respects, researchers have
paid specific attention to business-to-business marketing (e.g.
Noble and Gr uca, 1999a; Shipley and Bourdon, 1990),
services marketing (e.g. Avlonitis and Indounas, 2005; Morris
and Fuller, 1989) and export marketing (e.g. Forman and
Lancioni, 2002; Myers, 1997a, b) contexts. In addition to the
aforementioned conc epts, this stream of literature also
examined the feasibility of normative price strategies and
their determinants to pricing practice (e.g. Chia and Noble,
1999; Noble and Gruca, 1999a).
Drawbacks of the pricing practices literature
Reviewing literature on pr icing practices, t hree major
drawbacks come to mind:
1 The body of literature is highly descriptive. The streams of
research based on cost-principles theor y and the
behavioral theor y of the firm are dominated by
descriptive case studies. The stream of research based
on marketing strategy is dominated by survey research,
often limiting statistical analyses to descriptives. Although
the stream of literature has a strong tradition in describing
what firms are doing, ver y few studies focus on the
question of which practices are successful and which are
not.
2 Dispersed over different disciplines and research
traditions, research insights on pricing practices are
often not cumulative. Many case studies come up with
insights that in hindsight repeat insights from prior
research. On the bright side, findings seem to be relatively
consistent, thus proving confidence in the reliability.
Descriptive results f rom sur veys are generally only
compared to a few of the studies that are available. The
limited awareness of the available body of research, also
leads to conceptual confusion. In particular, studies are
mixing up pricing objectives, pricing practices, pricing
policies, pricing methods, and price strategies. This may
lead to discussions, such as those between Cressman
(1999) and Noble and Gruca (1999a, b) about the
meaning of value-informed pricing , which Noble and
Gruca label a pricing strategy that is pursued in the
market, and Cressman searches for a meaning on the role
of customer value information in the pricing process.
3 Related to the above two issues, theoretical development
on how price decisions are made in firms and on which
practices are successful under which conditions has been
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
443

Table I Pricing process literature based on cost-principles theory
Author Focus Field Approach Summary of relevant contents
Hall and Hitch
(1939)
How organizations
determine prices
Economics Interviews in 38 firms
from several industries
Find that firms actually do not set prices with the objective of
profit maximization, but use more satisfying objectives. Firms
base prices on costs and profit margins. Find market
information to be important in determining profit margins in
a number of firms, and find several firms that base their price
not merely on costs but on competition or customer
information
Edwards (1952) The role of costs
information compared
with market
information in price
settings
Economics Two case studies in
manufacturing
industries
Argues that cost methods are used to justify price decisions
that have already been taken, and that the freedom of
determining price levels is limited by external circumstances.
Describes pricing as a process that benefits from discussions
between different business departments and from
experience in understanding the market. Comments sharply
on costs-principles theory (p. 303): “there are a great many
factors entering into price-fixing and of these far and away
the most important is the price the customers are willing or
can be induced to pay”
Pearce (1956) The role of costs and
market information in
pricing and methods
of examining firms’
pricing behavior
Economics Single case based on
interviews and
accounting data
Finds that market information to a large extent affects profit
margins and thus selling-prices. Methodologically he finds
that managers tend to explain their price settings on the
basis of cost calculations and do not mention the market
information they actually use in their price settings
Kaplan
et al.
(1958) Study price policies
within the context of
the firm to understand
the role of big
business in the US
economy
Economics Ten cases of large
firms
Find that the price policies of large firms are influenced by
among others the product, product lines, market objectives
and instruments, legislation, and environmental pressures.
The size of the firm leads to the ability of firms to manage
pricing in way that supports the company’s objectives, rather
than that it leads to specific price policies. Although cost-plus
pricing is the dominant approach, price policies differ widely
between firms and are not always carried out consistently
within firms
Fog (1960) Comparison of neo-
classical price theory
with price setting in
practice
Economics/
management
Survey of 139 Danish
firms in various
industries
Distinguishes neo-classical economics as an instructive
theory from cost-principles theory as a descriptive theory, but
finds large deviations in practice from this theory of
companies not using cost-based approaches, but market-
based approaches
Barback (1964) Comparison of
neoclassical and cost-
principles theory in
pricing practice
Economics Case studies of seven
manufacturing firms
Cases do not describe the neoclassical theory of pricing
because managers seek a satisfying level of profits, rather
than profit maximization. Price decisions have no long time-
horizon because managers find it difficult to make
predictions on market development and because they
consider firm survival to be more important than profit
increases
Haynes (1964) Studies pricing
practices in small firms
Economics Open interviews in 88
small firms
Finds that many firms engage in cost-based pricing, but that
mark-ups vary along market conditions. Influence of demand
is found in even the most extreme cost-oriented cases. Half
of the firms make no use of cost information. Some of these
firms engage in price experiments or systematically collect
market information
Sizer (1966) Examines the
contribution of the
accountant in price
settings
Management Discussion of evidence
from various cases
The contribution of the accountant varies over different
pricing processes. By applying cost-plus pricing, accountants
help to reduce the uncertainty of future profits. Nevertheless,
cost calculations should only be used as reference points,
since the pricing process will also need input on other factors
(continued)
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
444

limited. The conceptual framework presented in the next
section, summarizing the most important findings from
pricing practices research, may be helpful in determining
new directions for this stream of research.
Conceptual model
The findings from the pricing practices literature that are
relevant for value-informed pricing are summarized in the
conceptual model in Figure 1. From an organizational
perspective, value-informed pricing is rooted in the pricing
practices literature. In response to cost-principles theory,
many authors have highlighted on the basis of case studies
that firms do not exclusively use information on costs, but
also use market information (Edwards, 1952; Fog, 1960;
Foxall, 1972; Nimer, 1971; Pearce, 1956; Shipley, 1983;
Skinner, 1970; Wentz, 1966). In particular, Edwards (1952)
and Pearce (1956) concluded that managers may be likely to
use cost information, but in the end they appear to search for
“what the market can bear” (Pearce, 1956, p. 114), or “the
customer’s willingness to pay” (Edwards, 1952, p. 307). This
way, these authors described what Monroe (2003) calls the
“pricing discretion” and Winer (2005) calls the “strategic
pricing gap”. Price discretion consists of a price floor (costs)
and a price ceiling (customer value), which shape the natural
boundaries confronting managers in a price decision. When
determining prices, managers thus rely on different types of
information. Even if they engage in cost-based pricing, profit
margins may be flexible and based on market information
(Hall and Hitch, 1939; Haynes, 1964; Skinner, 1970).
Because firms may use different types of information in their
price decisio ns, value-informed pricing is something of
degree, rather than something that is either present or absent.
An important theoretical contribution to the pricing practices
literature is the introduction of pricing to the resource-based
view of the firm (Dutta et al., 2003). The resource-based view of
the firm suggests, among other things, that performance
differences between firms are caused by firms having different
resource stocks (including physical assets, but also non-physical
assets, such as competencies, skills and knowledge). In order to
out-perform competitors, firms should not only strive for a
superior resource stockthat isdifficult for competitors to imitate,
but should also develop competencies that enable them to deploy
Table I
Author Focus Field Approach Summary of relevant contents
Wentz (1966) The role of market
information in price
setting and
performance
consequences
Marketing Two cases in consumer
and industrial markets
Finds that costs only determine selling prices to a small
extent and that analysis of the external environment in
pricing decisions contributes to financial performance
Skinner (1970) Finds more details
about the practice of
cost-plus pricing and
the circumstances
under which it is used
more frequently
Management Survey Finds that costs and profits are important factors that are
included in price decisions, but not the only factors. Market-
factors are used by a number of firms to determine or change
profit margins, but were limited in the general pricing policy
Foxall (1972) Descriptive theory on
pricing for marketing
as opposed to cost
theory
Marketing Interviews in firms
producing consumer
electrical appliances
Finds that companies are likely to use cost-plus formulas in
their price setting, but that market factors are included in the
final price setting and are the basis of the existence of price
differentials. Managers, however, are likely to tell the cost-
plus formula when asked how prices are set. As such he
concludes that cost-principles theory is based on insufficient
empirical evidence
Plinke (1985) Whether the type of
cost calculation has an
influence on price
decisions for capital
goods
Management Experiments Finds that respondents confronted with full costing (highly
aggregated information) determine higher offering prices
than those that are confronted with disaggregated cost
information (with a higher transparency of cost structure)
Blinder
et al.
(1998) Why prices in reality
do not change as
frequently as
suggested by
economic theories
(price rigidity)
Economics Survey of 564 US firms
in a variety of
industries
Use cost-principles theory along a number of other theories
to explain price rigidity. Findings indicate that prices are
“sticky” because of fear that competitors will not change
prices, price increases wait for cost increases, non-price
competition and relationships between supplier and
customer firms
Hall
et al.
(2000) Examine price rigidity
in the UK
Economics Survey of 654 UK firms
in a variety of
industries
Whereas firms evaluate prices on average each month, they
on average change them only twice a year. Cost-based
pricing is an important explanation of why prices do not
change as often as predicted by economic models. Only
explicit contracting is a more recognizable explanation for
respondents than cost-based pricing
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
445

Table II Pricing process literature based on decision processes
Author Focus Field Approach Summary of relevant contents
Cyert and March
(1963)
Behavioral theory of
the firm
Economics Theory and case
studies, laboratory
experiments and
simulation regarding
price and output
decisions
On the basis of their theory, the authors formulate detailed
pricing and output models in which they show that specific
objectives can be reached by using rules of thumb (like cost-
based pricing rules)
Farley
et al.
(1971) Analyze a market
information system for
short-term price
decisions
Management Case study of a single
firm in the aluminum
industry
Find that short-term price decisions are strongly affected by
cross-functional collaboration and information sharing, as well
as by implications of the firm’s marketing strategy. The success
of permanent and incidental price changes can be increased
within the current organizational behaviors
Hague (1971) Describes the pricing
process from a
behavioral theory of
the firm perspective
Marketing 13 case studies in
small and large UK
firms from different
industries
Only a few firms have single managers taking price decisions.
Most firms have either small or larger groups that take price
decisions. Both types of group are strongly involved in
informal discussions, but larger groups (often in large firms)
tend to use more formal procedures and calculations in their
decisions
Capon
et al.
(1975) Mapping systems of
forecasting and short-
term price
modifications
Management Case study of a single
oligopoly firm
The price decision system involves series of checks and
balances and builds on formal and informal sources of
information as well as the personal experience of the many
individuals involved. Price objectives remain fairly constant
over a longer period of time
Capon and Hulbert
(1975)
Applicability of
decision systems
analysis for
forecasting, pricing,
advertising and new
product decisions
Marketing Case study of a single
raw materials-
processing firm
Find that decision system analysis can yield insights in
problems faced by a company and that it offers solutions.
Specifically, it may increase the success of pricing processes on
various strategic levels, such as annual contracts and list prices
Farley
et al.
(1980) Decision systems for
volume planning and
pricing
Marketing Case study of a Belgian
and a French firm on
the French market
Decision-making process appears to be similar over the two
different countries, but it varies in the degree of information
processing and participation
Shipley (1981) The use of pricing
objectives in practice
Economics Survey of 728 UK firms
in multiple industries
Companies may have a set of pricing objectives that change
over time. Firms are more likely to satisfice than to maximize.
Profit target is the most mentioned objective; long-term
horizons are more popular than short-term horizons.
Objectives vary to a greater extent with firm size than with
number of competitors
Shipley (1983) Flexibility of pricing
techniques and their
determinants
Economics Survey of 728 UK firms
in multiple industries
Most firms tend to be relatively flexible in their pricing
practices, and this is not affected by the extent to which the
firm is committed to cost-based techniques. Flexibility is
influenced by size but not by the number of close competitors
in the market
Jobber and Hooley
(1987)
Pricing objectives in
relation to market
evolution, firm size,
and performance
Economics Survey of 1,775 UK
service and
manufacturing firms
Revenue is more often an objective in emerging and declining
markets, while profit is more widespread as objective in
growing and mature markets. Profit and market share
objectives are found more in larger firms, while cash flow is an
important objective of small firms in turbulent markets. The
objective of sales revenue is related to poorer performance,
while profit and market share objectives result in respectively
higher profits and market shares
Hornby and Macleod
(1996)
Relationships between
pricing objectives and
firm variables like size,
competition, and
financial performance
Management Survey on 60 firms in
the computer industry
Find no strong evidence for a systematic relationship between
pricing objectives and financial performance, levels of
competition, firm size, or stages of market evolution. The most
profitable firms emphasize market share in their objectives,
while less profitable firms regard cash flow objectives as more
important
Dutta
et al.
(2003) Study the pricing
process from the
perspective of the
resource-based view of
the firm
Management Single case study on a
large manufacturing
firm
The pricing process is a capability that requires investments
and costs. Pricing resources, skills, and routines may help or
inhibit a firm to set the right price. Firms should allocate
resources to both value creation and pricing. If firms set
inappropriate prices, customers may misuse resources
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
446

Table III Pricing process literature based on marketing strategy
Author Focus Field Approach Summary of relevant contents
Udell (1964) The role of price in
marketing strategy
Marketing Discussion of survey
results
In contrast with economic theory, it is shown that
products are actually more important in marketing
strategy than price. The non-price elements of
marketing strategy are better explained by the
nature of the product and its market, than industry
structure or firm size
Udell (1968) The role of price
compared with other
elements in marketing
strategy
Marketing Survey Uses more sophisticated measurement techniques
to show that sales effort (including communications)
and product effort exceed pricing in importance.
Argues that the importance of pricing is limited
because of (among others) the welfare level in the
USA, the necessity of informing consumers,
oligopoly structures, and product differentiation as a
means to charge higher prices
Nimer (1971) Discussion of pricing
practices in
technology industries
Marketing Survey Prices are affected by costs to a large extent;
nevertheless a large majority also includes the
“utility value” or “economics to the customer” in
the price setting and uses different pricing policies
for different products. About half uses
recommendations from marketing or sales
departments
Pass (1971) Investigates pricing
objectives and
importance of pricing
in marketing strategy
Marketing Survey of 85 UK firms Although companies appear to have relatively well
defined pricing objectives with a long-term profit
horizon, pricing is found to be multi-purpose and
must be viewed in the context of the company’s
general strategy for achieving its corporate
objectives
Udell (1972) Role of marketing
instruments in
marketing strategy as
a foundation of non-
price marketing
strategy
Marketing Two large US surveys Results show among others that cost-plus pricing is
exceeded by pricing according to competitive levels
and (depending on the industry) pricing according to
“what the market will bear”
Piercy (1981) Export market
selection and pricing
on export markets
Marketing Survey on industrial
UK firms (
n
¼ 116)
Finds that two thirds of the investigated firms use
market-based pricing methods as opposite of cost-
based methods. Firms tend to use different prices on
export markets
Abratt and Pitt
(1985)
Investigate and
compare pricing
practices of industrial
firms in two industries
Marketing Interviews in the
construction (
n
¼ 12)
and chemical (
n
¼ 9)
industries in South
Africa
Find costs and competitors’ prices to be most
influential in pricing decisions, followed by buyer
behavior and economic climate. About two thirds of
the firms use demand estimations aside cost-plus
methods. Find a high percentage of people
responsible for price decisions in the marketing and
sales departments
Samiee (1987) Pricing objectives and
importance of price in
marketing strategy
Management Survey of 104 US-
based and 88 foreign-
based firms
Finds pricing to be the second most important
element in marketing strategy after product. US-
based firms rank pricing on average higher than
foreign-based firms. Foreign-based firms also take
pricing decisions that are more decentralized and
have a longer-term focus in their profit objectives
Morris and Joyce
(1988)
Practices of marketers
on estimating
customers’ price
sensitivity
Marketing Survey of 83 US
industrial firms from
multiple industries
Marketers recognize the importance of determining
customer price sensitivity and are reasonably well
acquainted with its determinants and changing
nature. However, they do not approach it in a
systematic strategic fashion
(continued)
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Paul Ingenbleek
Journal of Product & Brand Management
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447

Table III
Author Focus Field Approach Summary of relevant contents
Morris and Fuller
(1989)
Examine pricing
opportunities for
industrial service
providers as well as
the extent to which
opportunities are
realized
Marketing Survey on 71
accounting firms
Although industrial services provide specific
opportunities to marketers, pricing practices and
objectives are not different from those found in
industrial product markets. Cost-based pricing
(including billable time) is the most popular pricing
practice and pricing objectives are (short-term)
profit-oriented
Coe (1990) Changes in pricing
objectives, methods
and strategies of US
companies in the
1980s
Marketing Longitudinal survey of
50-60 US industrial
firms
A decline of product innovation as core strategy
throughout the 1980s goes parallel with a declining
role of pricing in marketing strategy, an increase of
profit pricing objectives over market share and
competition objectives, and an increase of cost-plus
pricing at the expense of market-based pricing
strategies
Shipley and
Bourdon (1990)
Gain insight in pricing
practices in highly
competitive markets
Marketing Survey of 204
distributors
In a highly competitive market, pricing practices are
oriented to competitors’ prices. Nearly all
respondents set price competitiveness as an
objectives, and large majorities provide competitive
price discounts, and follow competitors’ prices,
especially downward
Cunningham and
Hornby (1993)
Pricing practices in
small firms
Management Case studies on 12
firms in different
industries
Manufacturers are more concerned about full costs,
whereas non-manufacturers are more concerned
about direct costs and a stronger focus on the
market when making price decisions. Companies
position themselves in niche markets and hence
base prices only to small extents on competitor
information. Although they do little formal market
research, they are strongly influenced by direct
customer contacts
Hankinson (1995) Examines pricing
behavior in small
firms
Marketing Interviews in 50 firms
over a five-year period
In general, pricing behaviors are inconsistent with
optimization objectives. The majority of the firms
engages in cost-based pricing practices. Firms ignore
opportunities to increase financial performance
through pricing and take little effort in improving
their pricing skills
Myers (1997a) The use and non-use
of competitive pricing
in exports
Marketing Interviews and survey
in 369 exporting US
firms
Finds that companies that put a lot of time and
effort in pricing, and who price in a systematic way
with extensive use of market information, have
overall a higher satisfaction with the outcomes of
price decisions. Pricing is found to be the second
most important element of marketing strategy, but
marketing managers often feel no support in their
pricing efforts from top management or production
departments
Myers (1997b) Explores the pricing
strategies and
processes of exporting
companies, as well as
the factors that
determine the
adoption of strategies
and processes and
cultural differences
between countries
Marketing Interviews in eight US
and eight Mexican
firms
Firms consider export pricing of relatively little
importance compared with other marketing
instruments and have no consistent pricing policies.
Along external factors, export pricing is influenced
by determination of costs, centralization and
flexibility of the pricing decision, information use
and international experience. These factors may be
influenced by the home country of the exporting firm
(continued)
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
448

Table III
Author Focus Field Approach Summary of relevant contents
Carson
et al.
(1998) Describe how
managers in small and
medium-sized
enterprises make price
decisions and to
assess the quality of
those decisions
Marketing Interviews in 40 firms
in various industries
Most firms use cost-based approaches. The extent to
which they include competitive factors varies across
firms. Prices are set in ways that are common within
an industry. Pricing is often performed in an inexact
or haphazard way. Experiential knowledge helps
managers in making price decisions, but does not
break industry traditions
Noble and Gruca
(1999a)
Apply Tellis’s (1986)
framework of pricing
strategies to industrial
markets and
empirically test this
Marketing Theory and survey on
270 US industrial
capital goods firms
Find confirmation for the theoretical framework of
pricing strategies and their determinants. Find a high
number of firms to use cost-based methods in their
strategies
Chia and Noble
(1999)
Repetition of Noble
and Gruca’s (1999a)
study in Singapore to
examine the
consistency between
US and Singapore-
based firms
Management Survey of 75 industrial
firms
The relative importance of top pricing strategies for
capital goods in Singapore is comparable with the
USA. This also includes a large proportion of firms
that engage in cost-based pricing. Compared with
the USA, demand uncertainty is lower in Singapore,
which is attributed to the fact that in a smaller
economy and geographic concentration it is easier
to keep contact with customers and implement
market-based strategies
Sto
¨
ttinger (2001) Inductive
development of a
model that describes
industrial exporters’
pricing practices
Marketing Forty-five interviews
in firms from five
industries
Operative pricing strategies (objectives, methods,
standardization and centralization) and their
performance, depend on market-related, industry-
related, product and company variables, along with
management attitudes, reflecting the internal and
external environment for price decisions
Tzokas
et al.
(2000) Industrial export
pricing and pricing
competence: pricing,
objectives, methods
and policies
Marketing Survey of 178 UK
exporting firms in
chemical, metal and
plastic-rubber
industries
Find five different pricing orientations and generally
a higher importance of market information over
costs information, even though production costs are
the most important single factor. Firms with a high
pricing competence follow a customer orientation in
their general approach to pricing, their pricing
objectives, and methods
Myers and Harvey
(2001)
Antecedents and
outcomes of pricing
control by domestic
manufacturers when
they use foreign
distributors
Marketing Survey of 297
exporters in various
industries
Larger firms and those with more internationally
experienced employees tend to absorb pricing
authority, as opposed to deferring the responsibility
to intermediaries. Asset specificity and channel
dependence decrease pricing control over
intermediaries
Forman and
Lancioni (2002)
Identify industrial
pricing strategies in
international
marketing and their
determinants
Marketing Survey of 190
industrial export firms
Determinants from the international environment in
which firms operate (such as government
intervention and country of origin) significantly
affect firms’ choices for international pricing
strategies. Smaller firms use more standardized
pricing strategies, while larger firms use more
adaptive strategies
Cavusgil
et al.
(2003)
Determine strategic
orientations in export
pricing to create firm
typologies
Marketing Survey of 404 US-
based exporters
Four strategic orientations in export pricing are
determined on the basis of a cluster analysis.
Clusters differ in the extent to which they apply cost-
plus pricing and use market intelligence in pricing,
the extent to which they centralize pricing decisions,
have experience in exporting, product
differentiation and export performance
(continued)
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
449

these resources (e.g. Dierckx and Cool, 1989; Hamel and
Prahalad, 1994; Wernerfelt, 1984). Resources may be of various
types, including information (Hunt and Morgan, 1995). In line
with this, we see value-informed pricing as an outcome of
information (re)sources on customer value perceptions. The
extent of value-informed pricing depends on the degree to which
organizations have developed their information sources, and the
degree to which they manage to dep loy these resources
effectively in the process of price determination.
Information sources
At the fou ndation of value-infor med pricing in its
organizational context are therefore the infor mation sources
that may inform managers about the customer’s value
perception. The literature on pricing practices indicates
three sources of customer value information:
1 The deployment of market research is described in several
cases (e.g. Hague, 1971; Capon et al., 1975). Cases speak
of both infor mation on competitors’ prices and of
information on customer value, such as willingness to
pay. The information is sourced from in-house market
information depar tments or exter nal market research
agencies that gather it by customer surveys, interviews,
desk research, and/or by market experiments (e.g.
Haynes, 1964).
2 Interactions with customers with whom the firm has a
relationship are described in several studies as important
information sources (e.g. Hague, 1971). Whether the fir m
relies more on cu stomer interactio ns or on market
research partly depends on the number of customers
that the company caters for. Hague (1971) finds, for
example, that a firm producing fast-moving consumer
goods for a mass market relies on formal market research,
whereas an industrial manufacturer sources comparable
information from conversations with managers from the
customer company.
3 Some cases specifically mention that firms assess
customer value on the basis of managers’ knowledge
about customers derived from prior experiences with
customers (e.g. Edwards, 1952).
P1. Value-informed pricing depends on relationships,
market research, and internal information sources.
P2. The higher the number of customers, the more a firm
will develop market research sources and the less it will
develop relationship sources.
Under conditions of high demand uncertainty, for example
due to rapidly changing customer wants and needs, it is more
difficult to develop information sources for value-informed
pricing. Noble and Gruca (1999a) find a significant effect of
demand uncertainty on cost-based pricing, suggesting that in
uncertain markets managers rely on cost information rather
than customer value information. A specific cause of demand
Table III
Author Focus Field Approach Summary of relevant contents
Ingenbleek
et al.
(2003)
Examine the effect of
pricing practices on
new product
performance
Marketing Survey of 77 industrial
firms
Value-informed pricing is the only pricing practice
that unconditionally affects new product
performance. The effect becomes stronger if product
advantage is higher and competitive intensity lower.
Competition-informed pricing has a positive effect if
product advantage lower. Cost-informed pricing has
a positive effect if competitive intensity higher
Forman and Hunt
(2005)
Determines how
managers consider
internal and external
factors and how these
factors influence
choices for pricing
strategies
Marketing Survey of 190
industrial export firms
International experience, product technology,
degree of exogenous environmental factors,
internationalization, and market share affect the
weight given to internal and external factors when
making decisions on international pricing strategies
Avlonitis and
Indounas (2005)
Explores pricing
objectives of service
companies and relate
them to pricing
methods
Marketing Survey of 170 service
companies
Service firms predominantly pursue market
objectives (attracting and maintaining customers
and satisfying their needs) versus financial
objectives. Pricing methods are, however, more cost-
based than market-based. Market-based objectives
and methods correlate, and so do financial
objectives and cost-based methods
Solberg
et al.
(2006) Examines the
influence of strategic
approach, managerial
control, and
information use, on
pricing practices of
export firms
Marketing Interviews in
exporting companies
in Austria (11),
Norway (six) and the
USA (seven)
Only firms with limited international ambitions
engage in cost-plus pricing. Most firms exploit
differences between international markets in a price
differentiation strategy. Firms with more
international experience use more multifaceted
information and become more independent from the
information of intermediaries and have more control
over price decisions. In more global industries, firms
must make their prices more globally competitive
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
450

uncertainty may be the geographical distance between the
company and its customers. Chia and Noble (1999) find in
their survey on price strategies in industrial markets a lower
level of demand uncertainty in Singapore than for comparable
industries in the USA (studied by Noble and Gruca, 1999a).
They attribute this finding to the geographic proximity
between sellers and customers in Singapore. In line with this
finding, Samiee (1987) finds that foreign-based companies
have their price decisions decentralized more often to
subsidiaries that are geographically closer to customers than
domestic companies. The effect of geographical distance on
relationships as information sources for value-informed
pricing is, however, not unconditional. Solberg et al. (2006)
find in their case studies that firms with more international
experience are more multifaceted market information and
that they are less dependent on information from these
intermediaries. It thus seems that experience can overcome
geographical distance, because over time fir ms have
strengthened their relationships despite the distance. The
relationship between geographical distance and relationships
as information sources is therefore moderated by firm
experience.
P3. The higher demand uncer tainty, the lower the
avail ab ili ty o f i nfo r m at io n r eso ur ce s f or va lu e-
informed pricing.
P4. The smaller the geographical distance, the higher the
quality of market relationships as information sources.
The relationship between geographical distance and
the quality of market relationships as information
sources is moderated by firm experience.
According to the resource-based view, firms deploy resources
in the first place to create value to customers in the form of
products and ser vices by which they may achieve competitive
advantage on their markets (Hunt and Morgan, 1995).
Congruently, managers tend give a larger weight to value
creation variables than to pricing. Using a survey approach,
many studies examined the perceived relative importance of
marketing mix elements (Myers, 1997a; Pass, 1971; Piercy,
1981; Samiee, 1987; Udell, 1964, 1968, 1972). Overall, these
studies suggest that price is perceived as the second most
important element after product or product quality. In
modern marketing language, we would say that managers see
the drivers of customer value generally as most important,
followed by price, which enables them to take the rewards for
creating value (cf. Nagle and Hogan, 2006).
Firms that allocate resources to create superior customer
value, may also be committed to develop information sources
for value-informed pricing in order to take the rewards for
their investments. Studies on pricing objectives have indeed
pointed out that pricing objectives are embedded in the
marketing strategy (Farley et al., 1971), the product line
(Kaplan et al., 1958) and overall objectives of the firm (Pass,
1971; Samiee, 1987). Avlonitis and Indounas (2005) find that
market-related pricing objectives are subsequently associated
with market-based pricing practices and that financial
objectives are associated with cost-based pricing practices.
In addition, not the firms that have managed to create
superior customer value, but firms that struggle to survive
(Hornby and Macleod, 1996) or are small and perceive their
market as turbulent (Jobber and Hooley, 1987) are the ones in
which cash flow objectives dominate.
An important study on the relation between value creation
and information sources for value-informed pricing is Coe’s
(1990) longitudinal study of pricing practices. Throughout
the 1980s she measured, at three points in time, several
variables of firms’ marketing strategies. The major conclusion
that she draws from these data is that innovation came to a
halt during the 1980s, while cost-based pricing was on the
Figure 1 Summarizing conceptual framework
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
451

rise. In other words, her findings suggest that firms that stop
creating customer value loose the incentive to invest in the
development of information sources for value-informed
pricing.
P5. The more resources t he firm allocates to value
creation, the more it will develop information
resources for value-informed pricing.
Process
The availability of information on customer value perceptions
alone does not guarantee high levels of value-informed
pricing. The extent of value-informed pricing is also affected
by the degree to which this information is transmitted in the
organization, how it is interpreted, and to what extent it is
used. Through these processes, firms deploy their information
sources for value-informed pricing. Many qualitative studies
in the pricing practices literature describe formal and informal
contacts within firms in which information is shared and
interpreted (Farley et al., 1971; Capon et al., 1975; Sizer,
1966). Managers combine different pieces of information in
these processes in order to understand market conditions,
including customers’ value perceptions (Edwards, 1952;
Farley et al., 1980; Hague, 1971). Information processing
therefore moderates the relationship between information
sources and value-informed pricing.
Several studies describe that managers use their own prior
experience in these processes rather than collectively shared
firm experience (Capon et al., 1975; Edwards, 1952). Most
likely, they use what they have learned from prior experience
to interpret the infor mation on customer value perceptions. It
is therefore proposed that managerial experience influences
information processing.
P6. Information processing moderates the relation ship
between resources and value-informed pricing.
P7. Managers’ personal experience influences information
processing.
Studies based on the behavioral theory of the fir m confirm
that over time, organizations will develop routines in how they
process the information (Capon et al., 1975; Farley et al.,
1971; Hague, 1971). As indicated by studies on cost-based
pricing practices, these routines may vary in rigidity. In the
most rigid form of cost-based pricing, firms set prices on the
basis of full costs and than add a predetermined profit margin,
while in a less rigid form, profit margins may vary along
market conditions (cf. Hall and Hitch, 1939; Shipley, 1983).
However, routines that are more rigid are not necessarily
more cost-based. Skinner (1970), for example, finds that
firms engage in cost-plus pricing regularly review the
feasibility of their price levels and profit margins.
Congruently, Shipley (1983) finds that firms that indicate
that they use cost-based pricing do not adapt their prices less
frequently to market circumstances than others. It is therefore
proposed that rigidity strengthens the effect of information
processing on the relationship between information sources
and value-informed pricing (if the deployment of information
sources is routinely low (high), r igidity prevents that these
sources are deployed to a higher (lower) degree).
Rigidity itself may be influenced by two factors:
1 industry tradition; and
2 firm size.
Carson et al. (1998) note on the basis of their interviews in 40
firms that different industries are marked by specific pricing
practices and that firms tend to conform with these practices
rather than try to do something different. We therefore
propose that rigidity will be stronger if pricing practices within
an industry are more similar to each other. With respect to
firm size, Hague (1971) finds that pricing practices in smaller
firms are taken in smaller groups and thus can adapt more
flexibly to changing market circumstances, whereas pricing
procedures are more rigid in large firms. We propose:
P8. Rigidity strengthens the impact of infor mation
processing on the relationship between information
sources and value-informed pricing.
P9. Rigidity is higher if (a) pricing practices within an
industry are more similar, and (b) the size of the firm is
larger.
Pricing process routines may extend beyond the boundaries of
the firm if the pricing decision involves several members of a
marketing channel. In particular, research on export pricing
has paid attention to pricing control, in which an exporting
firm should decide how much control it wants to have over
the price decisions for the different countries to which it
exports and the extent to which price decision-making can be
left to intermediaries (Myers, 1997b; Myers and Harvey,
2001; Sto¨ttinger, 2001). Cavusgil et al. (2003) find that a
cluster of companies that strongly centralizes decision-making
is also heavily involved in cost-based pricing and acquires
hardly any market intelligence, while a cluster that strongly
decentralizes decision-making tends to avoid cost-based
pricing and is heavily involved in the acquisition of market
intelligence. This finding suggests that centralization weakens
the relationship between information sources and value-
informed pricing.
Solberg et al. (2006) find in a case study of 25 fir ms that
experience with expor t markets makes fir ms more willing to
leave decisions to intermediaries. An explanation they offer
is that exper ience removes the infor mati on asymmetry and
thus lower s the chance o f oppor tunistic behavior on the side
of the inter mediar y. However, Cavusgil et al. (2003) found
in a quantitative study of 404 fir ms that the most
decentralized companies are moderately experienced.
Therefore, there may be an optimum in firm experience to
achieve decentralized decision-making, after which routines
become rigid, centralized and focused on the inter nal
environment of the firm. In line with these findings, we
propose an inverted U-shaped relation between firm
experience and pr icing control:
P10. Thehigherpricingcontrol,theweakerthe
relationship between information sources and value-
informed pr icing.
P11. Firm experie nce has an inverted U-shape d effect on
pricing control.
Competitive context may moderate the relationship between
information sources and value-informed pricing, because
depending on the product differentiation, other types of
information may be more relevant than customer value
information. If the firm does not differentiate its product or
service from competitors, the price ceiling will be determined
by competitors’ prices. Udell (1972) finds, for example, that
prices of durables are more frequently based on customer
information, while those of commodities are more frequently
based on competitor information. Cunningham and Hornby
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
452

(1993) observe in their case studies of small companies that
these companies often focus on a specific market niche for
which they can differentiate from competitors that target a
mainstream market. Small companies also tend to base prices
on customer value information.
However, the effect of product differentiation can be
removed by competitive intensity, because competitors
quickly launch imitations. In a highly competitive market for
distribution services in which differentiation is very difficult,
Shipley and Bourdon (1990) found that firms predominantly
based their prices on competitor information. In such a
research setting it is difficult to disentangle competitive
intensity from a difficulty in differentiating products from
competitors. The latter is shared by all firms in the industry
and may be a basis for the intensity of competition in the
market. Hence, we p ropose that both lower product
advantage and higher competitive intensity influence the
relation between information sources and value-informed
pricing:
P12. The higher the product differentiation and/or the lower
the competitive intensity, the stronger the relation
between information sources and value-informed
pricing.
Consequences
The literature on customer value perceptions and willingness
to pay would predict two positive outcomes from value-
informed pricing:
1 higher market performance because prices fit perceptions
of quality, leading to positive value perceptions and
purchase intentions; and
2 higher profit margins because managers have a better
understanding of willingness to pay.
The pricing practices literature provides some evidence that
these relationship s hold in an organizational context. Myers
(1997a) finds a significant positive correlation between the
use of market infor mation in price decisions and a rather
rough performance measure focusing on managerial
satisfaction with this decision. More specifically,
Ingenbleek et al. (2003) find a positive direct effect of
value-informed pricing on new product performance, as well
as an interaction effect with product advantage. They
interpret this finding as follows: that the direct effect may
have been caused by an effect of value-informed pricing on
sales, and t hat the interaction effect may have been caused
by the fir m’s understanding on how high its price ceiling has
become after creating product advantage, thus increasing
the profitability of each unit sold in the market. Fir ms that
had not created product advantage, but rather offered an
imitation, performed better if they based prices on
competitor infor mation. Comparably, in the two clusters
of c ompanies that score high on product differentiation in
the analysis of Cavusgil et al. (2003), the segment that
acquires more market intelligenceisalsomoreprofitable
and managers perceive their venture as more successful.
Thus, we propose:
P13. The higher value-informed pricing, the higher the
market performance of the company.
P14. (a) The higher product differentiation and (b) t he
lower compet itive intensity, the stronger the impact
of value-informed pricing on price levels.
Discussion and implications
Building on the resource-based view of the firm, this article
summarized the findings from pricing practices literature in a
model on value-informed pricing in its organizational context.
The findings suggest that value-informed pricing is not taken
for granted. Several implications for firms can be drawn. First,
firms need appropriate information sources. Despite the
difficulties of demand uncertainty that may hamper the
development of these sources for some firms, in every firm
information sources are in fact resources that need to be
acquired or developed, whether they are relationships, formal
market research, or inter nal knowledge on customers.
Companies committed to the creation of customer value
will also be more committed to the development of these
information sources. Second, obtaining appropriate
information sources alone is not enough: firms should also
be able to deploy them. This requires an appropriate
organization of information processing, a certain awareness
on the pricing routines (including the firm size and similarity
of pricing practices in the industry which may influence their
rigidity), and to some firms a strategic decision about the
extent to which pricing is delegated to other channel
members. Third, firms should be aware of the competitive
context of their price decision. Whereas value-informed
pricing is likely to lead to prices that match customers’ value
perceptions and thus their purchase decisions (leading to
higher satisfaction, sales and market share), low levels of
product differentiation and high levels of competitive intensity
may require competitor information to determine appropriate
price levels.
Summarizing the findings of existing studies also has
implications for future research, because it may help to
overcome the fragmentation of pricing practices literature.
The fr agmentation seems an important barrier for the
relatively weak development of this stream of literature, at
least compared to other streams within the pricing literature.
If a cogent body of knowledge is to be developed on this topic
then future studies certainly need to be more cumulative,
building on each others insights and developing research
questions on the basis of insights from prior studies.
Another implication needs to be drawn on the theoretical
underpinning of a great deal of pricing practices literature.
Although the theoretical underpinning of this stream of
literature is generally weak, the framework provides sufficient
possibilities to connect to theoretical approaches that are
adopted by strategic and organizational contributions to the
marketing literature. In par ticular, studies on market
relationships and information processing come to mind.
With respect to market relationships, future research may
investigate th e relationships that firms have with thei r
customers and potential customers (e.g. Dwyer et al., 1987),
and how these relationships are deployed by firms as sources
of customer value information. Within these relationships the
free flow of information on willingness to pay may be
influenced by trust and commitment (Morgan and Hunt,
1994). Market relationships as sources of value-informed
pricing are however not necessarily restricted to the dyads
between buyers and sellers. Following a network approach,
future research may also examine how the embeddedness of
firms in a network enables or disables them to learn about
their customers’ value perceptions (e.g. Murry and Heide,
1998; Rindfleisch and Moorman, 2001). The findings from
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
453

pricing practices literature indicate, for example, that
experienced firms have built up a network of customers and
other contacts that supply them with diverse insights from the
market (see P4). Over time, these firms might have created a
more central position in their network, leading to more up-
tot-date, reliable and diverse information.
Regarding organizational infor mation processes, the
organizational learning literature may help to design studies
that focus on the actual pricing process (e.g. Huber, 1991;
Moorman, 1995). Such studies may, for example, focus on
organizational practices in information acquisition,
distribution, interpretation, and use, and examine which
roles different organizational members fulfill in these
processes. It may answer questions like how marketers
should deal with the ambiguity of market information when
distributing information to other members in the organization
(Adams et al., 1998). A specific role can be given to
interpretation processes. Pricing practices literature suggests
that managers’ personal experience creates interpretation
schemes that may be used to make sense of customer value
information (see P7). Future studies may examine which
interpretation schemes are favorable for value-informed
pricing and how managers can develop these schemes (see,
for example, Day, 1994). The concepts of information
acquisition, distribution, inter pretation, and use from
organizational learning literature strongly relate to market
orientation, which is often conceptualized as organization-
wide processing of market intelligence (Kohli and Jaworski,
1990). Yet, rooted in the culture of an organization, market
orientation is a resource that is difficult to imitate by
competitors (Homburg and Pflesser, 2000). It may thus
provide firms with a basis for sustainable competitive
advantage, not only because it provides a basis to create
value, but also because it provides a basis for value-informed
pricing.
In addition, the framework shows some omissions on which
future studies may focus. First, more research is necessary on
the consequences of value-informed pricing. Prior research
has examined the effects of pricing practices on general
performance measures such as managerial satisfaction and
new product performance. Future research may examine in
greater detail the relationships of value-informed pricing with
price levels, market perfor mance/sales, and financial
performance. Second, future research may examine how
top-level managers allocate resources to value creation and to
pricing. It may focus, for example, on the impact of
management attitudes on investments in different types of
resources for pricing, and distribution of resources over value-
informed pricing and value creation. Also interesting would
be an investigation into how different leader ship styles impact
the organization of the pricing process, and what types of
routines are developed in this process. Third, future research
might study relationships between pricing and value creation
processes within the firm. To date, it is unclear whether the
creation of customer value in processes of product and service
development leads to greater insight in customer value
perceptions, nor is it clear how firms can transmit such
insights from these value creation processes to the pricing
process.
Overall, the research agenda calls for a stronger connection
between pricing re searchers and researc hers that are
experienced in marketing strategy and marketing
organization. If pricing literature aims to provide a helping
hand to firms, it should not only create an understanding on
how customers develop price and value perceptions and on
what optimal price decisions are under specific market
conditions, it should also investigate how managers can
implement this advice within the organizational context of
their firm. In this respect, research on value-informed pricing
represents a response to a call from business managers, who
have indicated that pr icing pressure is on the top of their
agendas and who hope to find a solution in value-informed
pricing.
Note
1 To the best of our knowledge, Hall and Hitch never
published on the topic again and moved to different fields.
Hall became a Keynesian economist and was for several
decades one of the major advisors of the British
government in economic affairs (Jones, 1994). Hitch
returned to the USA, where he had a career in operations
research. When Hitch was asked in the 1960s whether he
was “the Hitch of Hall and Hitch”, he responded: “that
was in a previous incarnation”. (Enthoven, 1995).
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About the author
Paul Ingenbleek is Assistant Professor of Marketing ,
Wageningen University, and Senior Researcher at the
Agricultural Economics Research Institute in The Hague,
The Netherlands. Paul Ingenbleek can be contacted at:
Paul.Ingenbleek@wur.nl
Executive summary and implications for
managers and executives
This summary has been provided to allow managers and executives
a rapid appreciation of the content of the article. Those with a
particular interest in the topic covered may then read the article in
toto to take advantage of the more comprehensive description of the
research undertaken and its results to get the full benefit of the
material present.
The knowledge-based economy is a reality for almost every
organization competing in the global economy. For many it is
very re al, construction contractors for example chasing
petrodollars while confronting the hard realities of
internationa l shor tages of skilled engineer s. For many,
though, it remains something of an abstract concept.
Managing knowledge assets is often on the “nice to do” list
rather than the “business critical” one.
Take the issue of pricing policy. In the battle for both
market-share and margin pricing can be the most business
critical issue. But applying knowledge management principles
to it is a stretch for many. Yet if they did they would find the
exercise more than a little rewarding in soft areas (such as
customer satisfaction levels and differentiation) as well as in
the hard areas of cold, hard cash.
It’s an area researched by Paul Ingenbleek of Wageningen
University in The Netherlands in examining “value-informed
pricing”, that is prices being set based upon customers’
perceptions of value, or putting it simply, getting it right on
price.
The principles of value-informed pricing
The search for value seems to be inherent to the human
condition; it is that trade-off between what the customer gives
and what they receive. It is essentially about customer
perception and is defined by the customer rather than the
seller.
When it comes to pricing people tend to have an upper and
lower limit as to what they believe to be fair. These are the
pricing thresholds. If too little is levied opportunities for
margin and profitability are missed, and more than this, the
value of what is being offered can be questioned, the product
becomes cheap with the potential for the implication of “and
nasty”.
At the upper limit of pricing there can be arguments for
luxury goods to be “reassuringly expensive”, but without the
perceived quality being there this can quickly be interpreted as
being “a rip-off” or the customer being “taken for a ride”.
Readers can insert the colloquialism of their choice, but will
intuitively understand the point from their own exper ience.
To come up with value-informed pricing, essentially to hit
the right spot within a price range perceived as reasonable by
customers requires meaningful and ongoing attention to
gathering and utilizing information. It is about p aying
attention to market research, buil ding customer
relationships and l everaging knowledge of customer
perceptions and behaviour. It is about knowing customers
and managing relationships while having the processes in
place for to make informed, broader judgements.
Theories of creating and deploying knowledge assets have
long existed in academia. They have felt to many managers to
be abstract concepts removed from the realities of their daily
quest to be competitive, to satisfy customers and to make a
dollar or two for their shareholders. The ideas behind value-
informed pricing bring such theories into a sharp, pragmatic
focus.
Step-by-step approach to the information challenge
Accepting the point that value-informed pricing works, and
the benefits can be measured in a fairly immediate way (such
as margin) as well as with an eye to the medium term (such as
better customer satisfaction feeding in to profitability later),
there is a job to be done. The first thing to establish is whether
the firm is committed to creating customer value, most
companies purport to be, but how genuine are they? Without
a deep seated, embedded commi tment there are no
foundations on which to build the value-pricing proposition.
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
457

Next, although demand for products and services can be
the great unknown for marketing managers, investment in the
creation and development of appropriate information sources
can begin to bring some clarity to a somewhat murky world of
uncertainty. Formal market research will be part of this
process, but as important will be relationships (across
stakeholders) together with inside knowledge on customers.
These knowledge assets and the ability to use them become
core to the competitiveness of the firm, and prerequisites for a
value-informed pricing strategy.
Deployment is then the key. Creating knowledge assets is
laudable, but it is the proper deployment of them that brings
advantage. This requires attention to the organization of
information. It also requires careful consideration at a
strategic level as to how pricing decisions are made – for
example, to what extent should channel partners be involved.
Then the competitive context should be worked out. Value-
informed pricing is all about customer knowledge, but the
competitive context is likely to need serious consideration.
Where there are low levels of product differentiation and high
levels of competition the need to set prices in relation to
competitors is likely to become more acute.
Without being necessarily easy, this step-by-step approach
is one that is at least achievable and beyond Ingenbleek’s
research will make intuitive sense to managers. Research in
this area remains a work-in-progress, but practice may be
what ultimately drives the agenda. At the same time, high
blown talk of knowledge economies may begin to make sense
on the frontline of marketing management.
(A pre
´
cis of the article “Value-informed pricing in its
organizational context: literature review, conceptual framework,
and directions for future research”. Supplied by Marketing
Consultants for Emerald.)
Value-informed pricing in its organizational context
Paul Ingenbleek
Journal of Product & Brand Management
Volume 16 · Number 7 · 2007 · 441–458
458
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