Configurational theory and practices of firms employing multiple pricing policies: assessing effective and ineffective pricing recipes in multiple firm contexts

Abstract

This study examines the presence and impact of complex alternative organizational configurations of pricing on firm performance. The dataset is from a survey of company owners and company CEOs, of which a subsample was used previously and analyzed with multiple regression analysis. Analyzing an enlarged dataset that includes new data using fuzzy-set qualitative comparative analysis (fsQCA) supports the perspective that multiple price policy paths are identifiable for indicating high performance for different firm operational contexts. By applying the perspective of complex interdependences of specific pricing activities and specific organizational configurations related to pricing, this study offers a nuanced contribution to marketing theory. To practicing managers, this study offers guidance for adopting specific configurations of pricing policies in specific contexts for achieving high firm performance as well as guidance on which configurations indicate negative firm performance outcomes.

Appendices

Appendix 1: Constructs, definitions, coded items, and sources

Construct	Items	IR
Decision making rationality Adapted from Miller (1987) CR = 0.74 AVE = 0.49	Indicate the extent to which your organization does the following activities to support pricing decisions. (1 = Does rarely to 7 = Does Frequently)
	Applies pricing research techniques such as conjoint analysis and pricing/value simulations to make major product/service pricing decisions	0.449
	Conducts brainstorming with senior management groups for novel solutions to pricing problems	–
	Conducts formalized, systematic pricing review process as part of the product/service development process (like Stage Gate)	0.586
	Uses staff specialists to investigate and provide recommendation on major pricing decisions	0.425
Pricing capabilities Liozu and Hinterhuber (2014) CR = 0.83 AVE = 0.57	Rate your organization relative to your major competitors in terms of its capabilities in the following areas: (1 = Much Worse Than Competitors to 7 = Much Better Than Competitors)
	Using pricing skills and systems to respond quickly to market changes	–
	Knowledge of competitors’ pricing tactics	–
	Doing an effective job of pricing products/services	–
	Monitoring competitors’ prices and price changes	–
	Sticking to price list and minimizing discounts	–
	Quantifying customers’ willingness to pay	–
	Measuring and quantifying differential economic value versus competition	–
	Measuring and estimating price elasticity for products/services	–
	Designing proprietary tools to support pricing decisions	0.530
	Conducting value-in-use analysis or Total Cost of Ownership	0.526
	Designing and conducting specific pricing training programs	0.618
	Developing proprietary internal price management process	0.593
Championing behavior Adapted from Howell et al. (2005) CR = 0.84 AVE = 0.57	To what extent do you agree or disagree with the following statements about your involvement with pricing (1 = Strongly Disagree to 7 = Strongly Agree)
	I enthusiastically promote the pricing function	0.685
	I express confidence in what pricing can do	0.709
	I show tenacity in overcoming obstacles when changes in pricing are needed	0.460
	I get pricing problems into the hands of those who can solve them	–
	I get key decision makers involved in the pricing process	–
	I act as a champion of pricing	0.445
Collective mindfulness Adapted from Knight (2004) based on the work of Weick and Sutcliffe (2007) CR = 0.87 AVE = 0.50	To what extent do you agree or disagree with the following statements about your organization (1 = Strongly Disagree to 7 = Strongly Agree)
	Seeks input from diverse sources to solve problems	–
	Approaches unexpected events with novel solutions	–
	Expects employees are familiar with tasks beyond their immediate jobs	–
	Supports divergent viewpoints	0.452
	Fosters a climate that encourages open, ongoing communication	0.577
	Pays attention to real-time information	–
	Believes that regular updating, and refreshing of our employees skills are essential	0.415
	Strives to make ongoing assessments and continual updates in our operations	0.474
	Does not give up on solving problems	0.530
	Encourages employees to “bounce back” from mistakes	0.533
	Takes steps to correct errors before they worsen	0.520
	Treats failures as indicators of reliability of operations	–
Cost-based pricing Adapted from Ingenbleek (2007) CR = 0.76 AVE = 0.39	To what extent does your company take into account the following factors when setting prices for its products/services? (1 = not at all taken into account – 7 = very much taken into account)
	Variable costs of products/services	0.312
	Price necessary to break-even	0.355
	Investments in products/services	0.440
	Target margin guidelines	0.361
	Target return on sales levels	0.499
Competition-based pricing Adapted from Ingenbleek (2007) CR = 0.90 AVE = 0.59	To what extent does your company take into account the following factors when setting prices for its products/services? (1 = not at all taken into account – 7 = very much taken into account)
	Price of competitors’ products/services	0.528
	Competitors’ current pricing strategy	0.559
	Likelihood of competitors’ strength to react	0.579
	Market structure (number and strength of competitors)	0.669
	Degree of competition in the market	0.648
	Competitive advantage of competitors in the market	0.587
Value-based pricing Adapted from Ingenbleek (2007) CR = 0.87 AVE = 0.57	To what extent does your company take into account the following factors when setting prices for its products/services? (1 = not at all taken into account – 7 = very much taken into account)
	Advantages of the products/services compared to competitors’ products/services	0.509
	Customer perceived value of the products/services	0.668
	Customer willingness to pay for the unique benefits of the product/services	0.620
	Balance between advantages of products/services and price	0.611
	Differentiated value drivers of our products/services compared to substitutes	0.429
Perceived relative performance Adapted from Ingenbleek (2007); Morgan et al. (2009) CR = 0.92 AVE = 0.81	Please evaluate the performance of your major line of business over the past year relative to your major competitors (1 = Much Worse/lower Than Competitors – 7 = Much Better/higher Than Competitors)
	Acquisition of new customers	–
	Increase of sales to current customers	–
	Growth in total sales revenues	–
	Absolute price levels	–
	Pricing power in the market	–
	Business unit profitability	0.747
	Return on sales (ROS)	0.887
	Return on investment (ROI)	0.794

Appendix 2: Descriptive statistics, correlations, and discriminant validity of latent constructs

	M	SD	1	2	3	4	5	6	7	8
1. Value-based pricing	5.51	1.14	0.76
2. Competition based pricing	5.49	1.19	0.27	0.77
3. Cost-based pricing	5.25	1.15	0.27	0.31	0.62
4. Pricing championing behavior	5.46	1.10	0.28	0.13	0.26	0.76
5. Collective mindfulness	5.98	0.74	0.33	0.18	0.21	0.33	0.71
6. Rationality	3.04	1.61	0.21	0.12	0.31	0.26	0.13	0.70
7. Pricing capabilities	3.98	1.22	0.25	0.37	0.21	0.30	0.18	0.38	0.76
8. Firm performance	5.18	1.23	0.24	0.05	0.12	0.25	0.24	0.16	0.27	0.90

1. The bold numbers on the right represent the square root of the average variance extracted; all other numbers on the right are bivariate correlations