Industrial Pricing Orientation: The Organizational Transformation to Value-Based Pricing

Abstract

Of three main orientations to pricing in industrial markets − cost-based, competition-based and customer value-based − most marketing and pricing scholars consider the latter superior – but few firms use it. The literature is silent about how organizational and behavioral characteristics of industrial firms may affect pricing orientation and, more specifically, value-based pricing. Semi-structured interviews with 44 managers of small to medium size U.S. industrial firms yielded insights into firm pricing orientations, processes and decision making patterns. We identified five organizational characteristics common to firms implementing value-based pricing: ability to effect deep transformational change, presence of a champion, skill in diffusing organizational capabilities, organizational confidence, and center-led pricing process specialization. Our data demonstrates that value-based pricing is not simply adopted but internalized through a long, tenuous and deep transformation process supported by an experiential and transformative learning environment.

Keywords: industrial pricing, pricing orientation, pricing process, value-based pricing, organizational structure, decision making theory, organizational change, transformative learning