Examining the application of behavioral price research in business-to-business markets

Business-to-business (B2B) and business-to-consumer (B2C) markets differ in many ways as documented in the contemporary marketing literature. However, many behavioral characteristics of human beings – particularly those related to judgment and decision-making – are present across diverse contexts. From this insight, we derive a proposition: many behavioral price concepts developed in the past B2C behavioral price research may be applicable in B2B context as well. The objective of this paper is to examine this proposition through analyzing the existing evidence on five important behavioral price concepts: reference price, price thresholds, acceptable price range, price as an indicator of quality, and the price–perceived value model. At a more general level, the objective of this paper is to demonstrate the importance of recognizing how buyers' responses to prices and price information differ from the traditional assumptions about such behaviors in B2B marketing literature.The results provide strong evidence for the applicability of the reference price concept in B2B markets. The price–perceived value model is widely applied in B2B pricing, although in narrow form. Use of price as an indicator of quality also receives some support. For price thresholds and acceptable price range little research activity exists in B2B domain. Overall, while there has been some behavioral price research specifically in a B2B context, nevertheless it is comparatively sparse, and for some concepts virtually non-existent. We end the paper with a call that more behavioral price research is needed as such research has potential to help business marketing managers make more effective pricing decisions.     

Progress and Challenges in Product Line Pricing

In recent years, there has been a substantial increase in research on product line pricing. Modelers in multiple disciplines have offered methods for the optimal design/selection and pricing of the products in new or modified product lines. Behavioral scientists have contributed insights on how consumers' perceptions of product line prices, attributes, and quality levels influence their evaluation of the alternative choices. Significantly, the work of both modelers and behavioral scientists is distributed across three types of product line contexts: price‐quality product lines, multi‐attribute product lines, and product lines that include a core product plus options. This paper reviews this literature, and assesses its usefulness for managers. One observation is that, while scholars have developed approaches to optimization that offer increased scope and tractability, the applicability of these models is constrained by the narrow specification of profit functions, and the limited consideration of competitive and other dynamic forces. A second conclusion is that the managerial usefulness of the behavioral science research on perceptions and product‐line choice has been limited by a dependence on attribute‐based estimation of utilities, uncertainty about possible interaction effects, and an excessive focus on the cannibalization aspects of product line pricing. Based on the review, a research agenda is identified for enhancing the applicability of research on consumer perceptions and choice to product line pricing decisions, and for building more complete product line price optimization models.     

Intraorganizational influences on business-to-business pricing strategies: A political economy perspective

Historically, researchers have addressed pricing issues from many different perspectives, including the firm's business model (cost structure, experience curve), stakeholders (customers and channel partners), competition (market structure and intensity), and macroeconomic issues (interest rates, economic growth). An important dimension of organizational price setting that has been neglected is the impact that the firm's internal political system, reflected in interdepartmental coordination and rivalry, has upon price setting. A study of managers who are influential in shaping the firm's pricing strategy was conducted to identify intraorganizational issues and their relative impact on the firm's pricing strategy. The results of the study provide important implications for the development and execution of a firm's pricing strategy.     

Editorial — Behavioral and psychological aspects of b2b pricing

In this paper we define core research questions falling within the domain of behavioral and psychological aspects of B2B pricing. We then present the papers accepted for this special issue. Central research questions are, in our view, all those instances where decisions about price violate basic principles of rational choice. Decisions about price involve two main actors. First is the customer. We are interested in how customers' purchase decisions in B2B exhibit behavioral patterns that are inconsistent with rational choice models. Second is the manager. Managers set prices and in this process are equally susceptible to violating fundamental principles of rational choice. For this special issue we have been able to accept six papers. We welcome the debate that these papers are likely to start.     

Violations of rational choice principles in pricing decisions

Research on behavioral and psychological aspects of pricing is concerned with violations of rationality. This paper presents a comprehensive overview of the current literature by highlighting those studies that have specific relevance for industrial pricing. I hereby examine two different perspectives. First, by taking the customer perspective, I analyze under which circumstances customer purchase decisions violate basic principles of rational choice. Second, by taking the perspective of managers, I examine which biases affect the process of price setting within firms. This overview meaningfully advances industrial pricing theory and practice: It allows both customers and managers to guard themselves against widely diffused traps in decision making. It also enables managers to favorably influence customer perceptions of value and price without actually changing the price. Finally, by pulling together a number of different research areas into a more parsimonious framework and a tighter narrative, this framework offers systematic directions for future research.     

Best Practices for New Product Pricing: Impact on Market Performance and Price Level under Different Conditions

To date, research on new product pricing has predominantly been approached as a choice between market skimming and penetration pricing. Despite calls for research that addresses other complexities in new product pricing, empirical research responding to these calls remains scarce. This paper examines three managerial price‐setting practices for new products, i.e., value‐informed, competition‐informed, and cost‐informed pricing. By engaging in these practices, managers can develop and compare quantifications in order to attain an introduction price for the product. The authors draw on consumer price perception literature, Monroe's pricing discretion model, and numerical cognition literature to develop hypotheses about the impact of price‐setting practices on new product market performance and price level. By studying the effects on market performance and price level, the paper provides insights that may help explain the growth of new products and address the problems of underpricing. The hypotheses are tested in a management survey of 144 production and service companies. The results indicate which pricing practices are superior for the achievement of either higher market performance or higher prices in specific product and market conditions. Whereas value‐informed pricing has an unambiguous positive impact on relative price level and market performance, the results also suggest that in many cases engaging in value‐informed pricing is not enough. The effects of cost‐informed and competition‐informed pricing may differ depending upon the objective (market performance or higher prices), product conditions (product advantage and relative product costs), and market condition (competitive intensity). Engaging in inappropriate pricing practices leads to a decline in new product performance. Moreover, bad pricing practices make the positive effect of product advantage on the outcome variables disappear. The latter finding suggests that companies can jeopardize their efforts and investments in the new product development process if they engage in the wrong price‐setting practices. The findings imply that managers should consider different factors in new product pricing. First, when launching a new product, they should determine their explicit pricing objective, either stressing market performance or a higher price level. To determine the most appropriate pricing practices, however, they should next assess their situation in terms of product advantage, relative product costs, and competitive intensity. Together with the pricing objective, these conditions determine the best pricing practice. On a higher level, the findings imply that companies should invest in knowledge development in order to engage in the appropriate pricing practices for each product launch.     

Optimal pricing and advertising strategy for introducing a new business product with threat of competitive entry

The problem of optimal joint pricing and advertising decision making for a new product facing potential competitive entry has received inadequate attention. We propose a model that attempts to find the optimal price-advertising frontier in the face of potential competitive entry that maximizes total discounted profits for pre- and post-entry periods. We find that a firm would charge the price that equates price elasticity to marginal revenue product of advertising (as predicted by [Dorfman, R. and Steiner, P.O. (1954), Optimal Advertising and Optimal Quality, American Economic Review, 44(5), 826-836.]) only when the potential effects of pricing and advertising on its market share are not considered. Under optimal conditions, aware that market share is subject to erosion, the firm charges a somewhat lower price than the profit maximizing price, and sets an advertisement expense that is somewhat higher than the profit-maximizing advertising level as predicted by Cournot's monopolistic setting. We illustrate the applicability of our model using business product examples taken from several industries including operating systems, software, pharmaceutical, and telephone switching. Directions for future research with implications for B2B managers (for example, the possible effects of preannouncement to forestall competitive entry) are discussed.     

Integrating climate change,food prices and population health

The inter-related nature of food, health and climate change requires a better understanding of the linkages and a greater alignment of policy across these issues to be able to adequately meet the pressing social and health challenges arising from climate change. Food price is one way through which climate change may affect health. The aim of this study of the global and Australian food systems is to provide a whole-of-system analysis of food price vulnerabilities, highlighting the key pressure points across the food system through which climate change could potentially have the greatest impact on consumer food prices and the implications for population health. We outline areas where there are particular vulnerabilities for food systems and food prices arising from climate change, particularly global commodity prices; agricultural productivity; short term supply shocks; and less direct factors such as input costs and government policies. We use Australia as a high-income country case study to consider these issues in more detail. The complex and dynamic nature of pricing mechanisms makes it difficult to predict precisely how prices will be impacted. Should prices rise disproportionately among healthy foodstuffs compared to less healthy foods there may be adverse health outcomes if less expensive and less healthy foods are substituted. Higher prices will also have equity implications with lower socio-economic groups most impacted given these households currently spend proportionately more of their weekly income on food. The ultimate objective of this research is to identify the pathways through the food system via which climate change may affect food prices and ultimately population health, thereby providing evidence for food policy which takes into account environmental and health considerations.     

Peak-Load Versus Discriminatory Pricing: Evidence from the Golf Industry

Using a unique dataset on the golf industry we analyze the weekend premium in golf course fees. Since both peak-load pricing and price discrimination may be at play, we attempt to separate these two forms of pricing. We find that as competition increases there is a decrease in the weekend premium, which we attribute to price discrimination. Additionally, we find that resort courses and courses that are heavily dependent on tourism have less differential pricing, which we attribute to less peak demand and less peak-load pricing.     

关于输配电价几个重要问题的探讨

我国电力企业将要由传统的垂直垄断的模式转变为网厂分开、竞价上网的模式。电网公司作为一个独立的经营实体分离开来,有着独立的收益需求。在市场运营过程中,通过输配电价取得收益就成了电网公司取得收益的主要手段。在输配电价的制订过程之中,管制方式、输配电成本、输电定价方法、价格水平及电网投资、输配电价价区、电网提供的辅助服务等六个问题十分重要。文中就这六个问题的解决作了一些有价值的探讨。     

Are organizational buyers rational? Using price heuristics in functional risk judgment

Although recent studies on B2B marketing suggest that organizational buyers may not be as rational as the prevailing perspective would assume, empirical evidence is still scarce. We argue that managers infer a product's functional risk from its price level, which is a behavioral response to price stimuli similar to what happens in the B2C context. We conducted an experiment manipulating the price, importance of the decision, and type of product (intense in search and credence attributes). Our findings narrow a research gap previously identified by various authors regarding the lack of empirical studies on behavioral aspects of B2B pricing, specifically related to the price-quality effect (a common heuristic used by shoppers in the B2C market, in which buyers perceive price to be a signal of the inherent qualities of a product). We identify potential boundary conditions that explain the relationship between price and perception of a product's functional risk.     

Mortgage Pricing: Some Provisional Empirical Results

We test some of the qualitative properties of mortgage pricing models. The models use option pricing techniques, focusing on prepayment as a call option. They imply a quite nonlinear relationship between mortgage price and coupon, interest rates and volatility. We test for both the first and second derivatives of the effects of these variables using data on Ginnie Mae mortgage backed securities. We find that the model is largely supported by the data.     

Target pricing: Demand-side versus supply-side approaches

The practice of target pricing has been a key factor in the success of Japanese manufacturers. In the more commonly known demand-side approach, the target price for the supplier equals the manufacturer's market price less a percent margin for the manufacturer but no cost-improvement expenses are shared. In the supply-side approach, cost-improvement expenses are shared and the target price equals the supplier's cost plus a percent margin for the supplier. Using a general oligopoly and Cournot duopoly models, we characterize the equilibrium and optimal policy for each approach under various conditions. We find that sharing cost-reduction expenses allows the manufacturer using the supply-side approach to attain competitive advantage in the form of increased market share and higher profit, particularly in industrial conditions where margins are thin and price sensitivities are high.     

Exploring the role of relationship pricing in industrial export settings: Empirical evidence from the UK

This paper sets out to shed initial empirical light on the role of relationship pricing in an industrial export context, by a) investigating the extent to which selected contextual variables shape the adoption of relationship pricing, and b) examining manifestations of relationship pricing in the process that industrial exporters use for levying their prices. Analyzing data from a stratified random sample of 243 UK exporters of industrial products, the results demonstrate that the adoption of relationship pricing is a) facilitated by the degree of an exporter's market orientation, export experience, and the level of formality in export price setting and b) hindered by firm age and export intensity. It is also shown that industrial exporting firms adopting relationship pricing tend to follow a more market-based export price decision-making process, as this is manifested in market-based export pricing information, objectives and policies. The practical implications of the findings are discussed and useful future research directions are highlighted.     

The impact of shopbot use on prices and price dispersion: Evidence from online book retailing

Internet price search tools, notably shopbots, have reduced consumers' search costs for price and product characteristics. While a variety of analytic models predict that increased consumer search will lower price levels among competing retailers, there is no consensus in the literature as to how price dispersion will change with increased consumer search. Moreover, there are no papers that have empirically tested these predictions using direct observation of variation in shopbot use over time.This paper examines the impact of changes in shopbot use over time on pricing behavior in the Internet book market. We do this by combining price and clickstream data collected from August 1999 to July 2001 — a period of rapid expansion in shopbot use. We find that a 1% increase in shopbot use is correlated with a $0.41 decrease in price levels and a 1.1% decrease in price dispersion.     

The Real Estate Brokerage Market: A Critical Reevaluation

This paper presents an analysis of the theories and evidence regarding the structure and performance of the market for real estate brokerage services. Some of the theoretical models found in the literature appear to suffer from logical inconsistencies, while others lack empirical support for their underlying assumptions and/or their predictions of market inefficiencies. Moreover, several important legal and institutional changes that have occurred recently have not been given sufficient attention in the existing literature.
Although some new evidence on this market is presented here, additional empirical research is warranted in at least two areas: the current pricing structure and the underlying production and cost functions of the real estate brokerage industry.     

Organizing for value appropriation: Configurations and performance outcomes of price management

Value creation and value appropriation are fundamental strategic processes. Both can be analyzed at the level of the individual manager, an organization or at the systemic level. On the organizational level, empirical research so far has put strong emphasis on aspects of value creation, while value appropriation has received less attention. We analyze value appropriation through the organizational implementation of pricing processes in the context of formalization, specialization, centralization, dispersion of influence, and top-management involvement in firms' pricing organization. Through a large-scale exploratory study of 419 European companies in the B2B area, we identify five empirical organizational configurations of pricing organization for value appropriation. Testing the effects of pricing configurations relating to pricing performance as well as overall firm performance reveals that more systematic approaches to pricing organization significantly improve value appropriation outcomes.     

哈萨克斯坦新《转移价格法》对石油公司国际原油销售的影响及对策研究

为了更好地规范哈萨克斯坦国际业务中涉及的贷款、采购服务和原油销售等进出口业务,2010年6月30日,哈萨克斯坦政府修订了《转移价格法》。新《转移价格法》将被监管的主体扩大至＂哈萨克斯坦境内发生的与国际交易相关的交易＂公司;要求公司定期提供交易监督报表,签订《转移价格协议》;取消了修订前允许商品销售价格与市场价格偏离10的规定。新《转移价格法》与旧法相比,包含很多积极的改变和修订,但也存在一些问题。例如,新《转移价格法》对转移价格和关联关系的认定有待商榷,将管理范围拓展到哈境内的交易有失公平,市场价格的确定过于简单等。新《转移价格法》对石油公司的国际原油销售带来很大的财税风险。因此,石油公司应规范销售业务流程,严格要求买方提供销售费用证明文件;及时准确报送原油销售报表和相关销售费用证明文件,接受政府监督;加强公司内部审计和外部咨询,确保销售证明文件合法合规。