Pricing Capabilities and Firm Performance: A Socio-Technical Framework for the Adoption of Pricing as a Transformational Innovation

Pricing remains a neglected field not only in scholarly publication but also in the field of practice. Despite practitioners’ and consultants’ literature describing the strong potential positive effect of pricing on the firm profits, a vast majority of firms do not embrace pricing as a full-fledged activity of the marketing function, do not have a dedicated pricing function, and in effect do not manage pricing at all. At best, pricing activities and responsibilities are fragmented and distributed among several organizational actors. In 2010, the Professional Pricing Society reported that only 5% of Fortune 500 firms have a dedicated pricing function. To make the situation worse, when firms pay attention to pricing, they find the subject difficult and complex. They most often “throw in the towel” and cannot reach the level of desired success in terms of either firm performance or organizational change.To address this strong problem of practice, I designed a sequential, multi-stage, mixed-method research project to discover how firms successfully transform their pricing orientation and to understand their use of systems, models, strategies, and tactics. I borrow concepts from socio-technical systems and design, to explain how pricing is a technological innovation that requires both social and technical capabilities for successful adoption and assimilation by organizations.I report on three studies that comprise my project. Study 1 is a qualitative study of 44 managers in 15 industrial firms across three industries and 10 U.S. states that draws on grounded theory, organizational theory, and decision-making theory to explore the difference between firms that successfully adopted modern pricing practices and firms that did not. The findings identify stark contrasts in how firms are organized for pricing, how managers make pricing decisions, and what organizational factors are critical for the transformation towards value-based pricing. Based on these findings, a model of pricing transformation is proposed. Five organizational factors are identified as critical dimensions of the transformation: technical pricing capabilities, pricing champions, organizational confidence in pricing, organizational change capacity, and center-led management of the pricing function. Study 2 is a quantitative study of 748 pricing and business professionals from around the world who are engaged in the pricing process and was aimed at hypothesized contribution to relative firm performance of the five organizational factors identified in the qualitative. A structural equation model reveals that each factor positively contributed to firm performance but also that the way organizations were designed strongly influenced the relationship between technical and social pricing capabilities. Study 3 is a quantitative study of 507 account and commercial management professionals from around the world focusing on one of the most significant contributors to the overall model of the second study, namely, organizational confidence in pricing. This third study identifies the antecedents and consequences of pricing confidence on relative firm performance, and reveals that organizational confidence in pricing significantly and positively impacted firm performance. Taken together, the three studies triangulate on the technical capabilities and social capabilities associated with pricing as critical in explaining how firms adopt and assimilate pricing as a technological innovation. I propose a framework of transformation in pricing orientation that includes both the technical and social capabilities that are necessary to increase adoption and assimilation of a pricing orientation. This dissertation contributes to 1) the understanding of how a pricing orientation can be further adopted and better assimilated in firms, 2) the development of pricing capabilities theory, and 3) the role of socio-technical systems theory in advancing the social and human agenda in firms.

Name thesis:degree_name

Doctor of Philosophy

Level thesis:degree_level

doctoral

Discipline thesis:degree_discipline

Management

Grantor dc:publisher

Case Western Reserve University School of Graduate Studies

Year dc:date

2013

Author dc:creator

• Liozu, Stephan M.

Contributors dc:contributor

• Boland, Richard

• Management
• Cultural transformation
• organizational capabilities
• organizational change capacity
• organizational confidence
• organizational design
• pricing
• pricing capabilities
• pricing champions
• pricing orientation
• socio-technical systems.

Statement dc:rights

• unrestricted
• This thesis or dissertation is protected by copyright: all rights reserved. It may not be copied or redistributed beyond the terms of applicable copyright laws.

Language dc:language

English

Repository record dc:identifier

http://rave.ohiolink.edu/etdc/view?acc_num=case1364839749

OAI identifier oai:identifier

oai:etd.ohiolink.edu:case1364839749