Abstract
Pricing is not only an important activity but frequently also a very important expense for industrial companies. In this short article we examine whether an improvement in measuring the return from pricing (pricing return on investment (ROI)) leads to an improvement in pricing capabilities and firm profits. The answer to this question is not trivial: performance measurement is costly and could, at least in theory, reduce performance. We survey 166 marketing and pricing managers from business-to-business companies globally and find that the effectiveness of pricing ROI measurement is positively related to firm performance only if pricing capabilities are well developed. This article offers two contributions: it explores the concept of pricing ROI, and it documents a positive link between pricing ROI and firm performance. To the ongoing debate on antecedents of pricing capabilities this research thus adds a further, so-far unexplored, perspective.
Similar content being viewed by others
References
Ambler, T. (2003) Marketing and the Bottom Line: The Marketing Metrics to Pump Up Cash Flow, 2nd edn Harlow, UK: Pearson Education Ltd.
Amburgey, T.L. and Rao, H. (1996) Organizational ecology: Past, present, and future directions. The Academy of Management Journal 39 (5): 1265–1286.
Andersson, L. (2013) Pricing capability development and its antecedents. Doctoral dissertation. Department of Business Administration, School of Economics and Management, Lund University, Sweden.
Armstrong, J.S. and Overton, T.S. (1977) Estimating nonresponse bias in mail surveys. Journal of Marketing Research 14 (3): 396–402.
Babbie, E.R. (2007) The Practice of Social Research. Belmont, CA: Wadsworth.
Baron, R.M. and Kenny, D.A. (1986) The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology 51 (6): 1173–1182.
Best, R. (2012) Market-Based Management: Strategies for Growing Customer Value and Profitability. . 6th edn Upper Saddle River, NJ: Prentice Hall.
Byrne, B.M. (2009) Structural Equation Modeling with AMOS: Basic Concepts, Applications, and Programming. New York: Psychology Press.
Cassels, J. (1936) The significance of early economic thought on marketing. Journal of Marketing 1 (2): 129–133.
Churchill Jr., G.A. (1979) A paradigm for developing better measures of marketing constructs. Journal of Marketing Research 16 (1): 64–73.
Commander, C., Wilson, M. and Stevenson, J. (2007) The Evolved CMO. Cambridge, MA: Forrester Research and Heidrich & Struggles.
Comstock, B. (2008) Q&A with Beth Comstock (GE). Marketing NPV 5 (1): 1–2.
Cooper, R. (2002) Fortune 1000 IT Buyer Survey: What Could Shorten Sales Cycles and Further Increase Win Rates for Technology Vendors? London, UK: Ernst & Young Report.
Corporate Executive Board (2007) 2007 Marketing Performance Measurement Benchmarks for Midsized Companies. Washington DC: Marketing Leadership Roundtable Benchmarking Center.
Danaher, P.J. and Rust, R.T. (1996) Determining the optimal return on investment for an advertising campaign. European Journal of Operational Research 95 (3): 511–521.
Davey, K.K.S., Childs, A. and Carlotti, S.J. (1998) Why your price band is wider than it should be. McKinsey Quarterly 1 (3): 116–127.
Dean, J. (1966) Does advertising belong in the capital budget? Journal of Marketing 30 (4): 15–21.
Doctorow, D., Hoblit, R. and Sekhar, A. (2009) Measuring marketing: Mckinsey global survey results. McKinsey Quarterly 45 (1): 1–8.
Dutta, S., Zbaracki, M.J. and Bergen, M. (2003) Pricing process as a capability: A resource-based perspective. Strategic Management Journal 24 (7): 615–630.
Farris, P.W., Bendle, N.T., Pfeifer, P.E. and Reibstein, D.J. (2010) Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, NJ: Pearson Education.
Forbis, J.L. and Mehta, N.T. (1981) Value-based strategies for industrial products. Business Horizons 24 (3): 32–42.
Fornell, C. and Larcker, D.F. (1981) Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research 18 (1): 39–50.
Germann, F., Lilien, G.L. and Rangaswamy, A. (2013) Performance implications of deploying marketing analytics. International Journal of Research in Marketing 30 (2): 114–128.
Gruber, M., Heinemann, F., Brettel, M. and Hungeling, S. (2010) Configurations of resources and capabilities and their performance implications: An exploratory study on technology ventures. Strategic Management Journal 31 (12): 1337–1356.
Hair, J.F., Black, W.C. and Anderson, R.E. (2010) Multivariate Data Analysis with Readings, 7th edn. Englewood Cliffs, NJ: Pearson–Prentice Hall.
Hallberg, N. (2008) Pricing capabilities and its strategic dimensions. PhD thesis, School of Economics and Management, Lund University, Sweden.
Han, S., Gupta, S. and Lehmann, D.R. (2001) Consumer price sensitivity and price thresholds. Journal of Retailing 77 (4): 435–456.
Hilarides, B. (1999) What makes a trade promotion successful? Frozen Food 47 (12): 48.
Hinterhuber, A. and Liozu, S. (2012) Is it time to rethink your pricing strategy? MIT Sloan Management Review 53 (4): 69–77.
Homburg, C., Jensen, O. and Hahn, A. (2012) How to organize pricing? Vertical delegation and horizontal dispersion of pricing authority. Journal of Marketing 76 (5): 49–69.
Igbaria, M., Iivari, J. and Maragahh, H. (1995) Why do individuals use computer technology? A Finnish case study. Information & Management 29 (5): 227–238.
Juran, J.M. (1992) Juran on Quality by Design: The New Steps for Planning Quality into Goods and Services. New York: The Free Press.
Kahneman, D. (2011) Thinking, Fast and Slow. New York: Farrar, Straus and Giroux.
Kirpalani, V.H. and Shapiro, S.S. (1973) Financial dimensions of marketing management. Journal of Marketing 73 (3): 40–47.
Kohli, A.K. and Jaworski, B.J. (1990) Market orientation: The construct, research propositions, and managerial implications. The Journal of Marketing 54 (2): 1–18.
Koufteros, X., Vonderembse, M. and Doll, W. (2002) Integrated product development practices and competitive capabilities: The effects of uncertainty, equivocality, and platform strategy. Journal of Operations Management 20 (4): 331–355.
Krishnamurthy, R. (2010) Mix models: From predicting the future to managing it. Presentation at MSI Conference, Los Angeles, CA, 2–3 March.
Kumar, V., Bhaskaran, V., Mirchandani, R. and Shah, M. (2013) Creating a measurable social media marketing strategy: Increasing the value and ROI of intangibles and tangibles for hokey pokey. Marketing Science 32 (2): 194–212.
Kumar, V., Jones, E., Venkatesan, R. and Leone, R.P. (2011) Is market orientation a source of sustainable competitive advantage or simply the cost of competing? Journal of Marketing 75 (1): 16–30.
Lenskold, J. (2003) Marketing ROI: The Path to Campaign, Customer, and Corporate Profitability. New York: McGraw-Hill Professional.
Liozu, S. and Hinterhuber, A. (2013) CEO championing of pricing, pricing capabilities and firm performance in industrial firms. Industrial Marketing Management 42 (4): 633–643.
Liozu, S. and Hinterhuber, A. (2014) Pricing capabilities: The design, development and validation of a scale. Management Decision 52 (1): 144–158.
MacKenzie, S.B. and Podsakoff, P.M. (2012) Common method bias in marketing: Causes, mechanisms, and procedural remedies. Journal of Retailing 88 (4): 542–555.
MacKinnon, D.P., Lockwood, C.M., Hoffman, J.M., West, S.G. and Sheets, V. (2002) A comparison of methods to test mediation and other intervening variable effects. Psychological Methods 7 (1): 83–104.
Mathieu, J.E. and Taylor, S.R. (2006) Clarifying conditions and decision points for mediational type inferences in organizational behavior. Journal of Organizational Behavior 27 (8): 1031–1106.
Medsker, G.J., Williams, L.J. and Holahan, P.J. (1994) A review of current practices for evaluating causal models in organizational behavior and human resources management research. Journal of Management 20 (2): 439–464.
Merrilees, B., Rundle-Thiele, S. and Lye, A. (2011) Marketing capabilities: Antecedents and implications for B2B SME performance. Industrial Marketing Management 40 (3): 368–375.
Mintz, O. and Currim, I.S. (2013) What drives managerial use of marketing and financial metrics and does metric use affect performance of marketing-mix activities? Journal of Marketing 77 (2): 17–40.
Moorman, C. (2013) The CMO survey: Highlights and insights. Fuqua School of Business, Duke University, Durham, NC, August. PowerPoint presentation, http://cmosurvey.org/results/survey-results-august-2013/, accessed 5 March 2015.
Morgan, N., Vorhies, D. and Mason, C. (2009) Market orientation, marketing capabilities, and firm performance. Strategic Management Journal 30 (8): 909–920.
Mossman, F.H., Fischer, P.M. and Crissy, W. (1974) New approaches to analyzing marketing profitability. Journal of Marketing 38 (2): 43–48.
Nagle, T.T. and Holden, R.K. (2002) The Strategy and Tactics of Pricing: A Guide to Profitable Decision Making. Englewood Cliffs, NJ: Prentice Hall.
Nail, J. (2005) ForrTel: The State of Marketing Measurement. Cambridge, MA: Forrester Research Report.
Narver, J.C. and Slater, S.F. (1990) The effect of a market orientation on business profitability. The Journal of Marketing 54 (4): 20–35.
Nunnally, J. (1978) Fundamentals of factor analysis. In: J. Nunnally (ed.) Psychometric Methods, 2nd edn. New York: McGraw-Hill, pp. 237–404.
O’Sullivan, D. and Abela, A.V. (2007) Marketing performance measurement ability and firm performance. Journal of Marketing 71 (2): 79–93.
Ouchi, W.G. (1979) A conceptual framework for the design of organizational control mechanisms. Management Science 25 (9): 833–848.
Park, H.-S., Auh, S., Maher, A.A. and Singhapakdi, A. (2012) Marketing’s accountability and internal legitimacy: Implications for firm performance. Journal of Business Research 65 (11): 1576–1582.
Pauwels, K. et al. (2008) Dashboards and Marketing: Why, What, How and What Research Is Needed? Cambridge, MA: MSI Report No. 08–203.
Perot, R. (1988) The GM system is like a blanket of fog. Fortune 15 (February): 48–49.
Peters, T.J. and Waterman, R.H. (1982) In Search of Excellence: Lessons from American’s Best-Run Companies. New York: Harper & Row.
Phillips, J. (1997) Return on Investment in Training and Performance Improvement Programs: A Step-by-Step Manual for Calculating the Financial Return. Woburn, MA: Butterworth-Heinemann.
Roth, A.V. and Van Der Velda, M. (1991) Operations as marketing: A competitive service strategy. Journal of Operations Management 10 (3): 303–328.
Rust, R.T., Lemon, K.N. and Zeithaml, V.A. (2004) Return on marketing: Using customer equity to focus marketing strategy. Journal of Marketing 68 (1): 109–127.
Sapienza, H.J., Smith, K.G. and Gannon, M.J. (1988) Using subjective evaluations of organizational performance in small business research. American Journal of Small Business 12 (3): 45–53.
Scheuble, P. (1969) ROI for new-product policy. Harvard Business Review 47 (6): 110–120.
Seggie, S.H., Cavusgil, E. and Phelan, S.E. (2007) Measurement of return on marketing investment: A conceptual framework and the future of marketing metrics. Industrial Marketing Management 36 (6): 834–841.
Shah, R. and Ward, P.T. (2003) Lean manufacturing: Context, practice bundles, and performance. Journal of Operations Management 21 (2): 129–149.
Spanos, Y.E. and Lioukas, S. (2001) An examination into the causal logic of rent generation: Contrasting Porter’s competitive strategy framework and the resource-based perspective. Strategic Management Journal 22 (10): 907–934.
Stalk, G. (1988) Time: The next source of competitive advantage. Harvard Business Review 66 (4): 42–52.
Steenkamp, J.B.E.M. and Baumgartner, H. (1998) Assessing measurement invariance in cross-national consumer research. Journal of Consumer Research 25 (1): 78–107.
Stewart, D.W. (2009) Marketing accountability: Linking marketing actions to financial results. Journal of Business Research 62 (6): 636–643.
Stock, G.N., Greis, N.P. and Kasarda, J.D. (2000) Enterprise logistics and supply chain structure: The role of fit. Journal of Operations Management 18 (5): 531–547.
Streukens, S., van Hoesel, S. and de Ruyter, K. (2011) Return on marketing investments in B2B customer relationships: A decision-making and optimization approach. Industrial Marketing Management 40 (1): 149–161.
Wittink, D.R. (2002) Analysis of ROI for Pharmaceutical Promotion (ARPP). New Haven, CT: Yale School of Management. Working paper, 18 September.
Author information
Authors and Affiliations
Corresponding author
Additional information
2holds a PhD in Management from the Weatherhead School of Management at Case Western Reserve University. He is Assistant Professor of Management and Strategy at Chatham University in Pittsburgh, PA, USA. His research focus is on value and pricing management from an organizational and managerial perspective.
Appendix
Appendix
Rights and permissions
About this article
Cite this article
Hinterhuber, A., Liozu, S. Pricing ROI, pricing capabilities and firm performance. J Revenue Pricing Manag 14, 211–228 (2015). https://doi.org/10.1057/rpm.2015.11
Received:
Revised:
Published:
Issue Date:
DOI: https://doi.org/10.1057/rpm.2015.11