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Value-Based Pricing: A State-of-the-Art Review - Abstract

Author

George Cressman (George.Cressman@WorldClassPricing.net), Strategic Pricing Group

Abstract

Pricing practices have a significant impact in Business-to-Business markets; for the average firm a 1% change in price level moves profit by 10-12%. Much of the current advice provided managers sets the foundation for pricing on costs rather than value. This cost focus systematically undermines the profit generation for many marketing efforts.

This article reviews the B2B pricing literature and then provides an overview of an integrated approach to pricing strategy. While the dominant driver of B2B purchase decisions is economic value, there are also psychological components to purchasing processes. This article will develop the current state of both economic value analysis and psychological underpinnings as the basis for pricing strategy.

A systematic approach to value based pricing focuses the business on three elements:

  1. Managing the value exchange with customers so the firm captures a portion of the value it creates for customers
  2. Managing competitive dynamics so the firm is consistently profitable.
  3. Managing resources so the firm deploys its resources in the most profitable activities.

While there has been significant exploration of these issues in the managerial literature – especially in the context of value based pricing strategy – there is a clear lack of rigorous theory development and testing.

Psychological elements of B2B purchasing processes share this lack of rigorous theory analysis. Although there has been substantial evolution of understanding of the role of psychological factors in pricing of consumer purchasing decisions, there is much less understanding of the emotive components of B2B strategy.

This article identifies areas for research for B2B pricing management for both the strategy elements and the psychological component.

The Handbook of Business-to-Business Marketing

This chapter is part of the ISBM Handbook of Business-to-Business Marketing, edited by Professors Gary Lilien and Raj Grewal. The Handbook of Business-to-Business Marketing is available from Edward Elgar Publishing and other online book retailers.

As the authors retain the copyright to their chapters, only they have the right to use or distribute their chapter. If you would like a copy of this chapter, please contact the author or authors directly through their emails included above.

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