Behavioral issues in price setting in business-to-business marketing: A framework for analysis

Abstract

Highlights Managerial price setting processes are examined through insights obtained from behavioral decision making. Behavioral models of pricing provide realistic understanding of managerial price setting in business-to-business contexts. Issue understanding, cognitive biases and heuristics are offered as major managerial factors that impact price setting. An agenda for future research is offered along with managerial suggestions for price setting.3 Behavioral Issues in Price Setting in Business-to-Business Marketing: A Framework for Analysis AbstractBusiness-to-business pricing research has often focused on developing rational and normative frameworks and models for pricing issues, strategies and tactics. However, there has been less attention given to behavioral models that help us understand the realities of pricing and how managers actually set prices. Specifically, there has been less attention given to the various individual and group influences on the price setting process. We apply insights from a steadily increasing body of literature on behavioral decision making to identify some relevant behavioral issues that may affect managerial price setting processes in business-to-business contexts. We conclude with some implications for theory building and practice and an agenda for future research. Approaching the field of business-to-business pricing from the perspective of behavioral decision making, which contends that managerial cognitive biases are key sources for deviations 5 from optimal decisions, we attempt to understand the impacts of managerial factors on the price setting process. Our primary objective is to build a case for the study of managerial cognitions that could affect the use and application of normative frameworks of price setting. With this objective in mind, we attempt to make three distinct contributions to the current sparse research in the area of managerial influences on business-to-business pricing. First, we extend insights from behavioral research from various disciplines, including behavioral economics, management and behavioral finance, to understand how behavioral issues may contribute to the price setting process. While most existing research on business-to-business marketing focuses on the customer or the purchasing manager (e.g., Anderson et al. 2000), we place our attention on the manager in the selling or marketing firm. Second, we offer a preliminary framework that contends that managerial issue identification, cognitive biases and heuristics intervene in the Keywords

International Pricing Strategies for Born-Global Firms

“…These decisions are regularly reviewed in order to prepare for and mitigate disturbances caused by changes in foreign competition, currency exchange fluctuation and inflationary pressures (Snieskiene and Cibinskiene, 2015). Due to missing access to relevant market information (Iyer, G. R., Xiao, S. H., Sharma, A., & Nicholson, M., 2015) and high levels of uncertainty in foreign markets (Hallberg, 2017), there is a tendency towards suboptimal pricing strategies (Iyer et al, 2015), underpricing (Ingenbleek et al, 2013), and a higher importance of individual judgment, human capital and commercial experience for the implementation of pricing strategies (Hallberg, 2017). Pricing decisions in an uncertain and dynamic environment have received considerable research attention in recent years (den Boer, 2015), but the international dimension of new product pricing and how hightech start-up firms manage their pricing strategies, practices and models still requires further research.…”

“…Accordingly, case-study firms 1-3 used predominately value-informed price-setting practices. The SMEs of case-study firms 1-3 expressed their intention to understand the added value of their products and the willingness to pay of their potential clients but admit that there is a significant risk of over-and underpricing due to missing market data (Iyer et al, 2015;Ingenbleek et al, 2013). Case-study firm 4 mainly focuses on a competition-informed price-setting practice although the added value and the cost are also considered for pricing decisions.…”

The influence of business and political ties on supplier selection decisions: the case of the Nigerian public sector

“…For the past few decades the literature on business-to-business (B2B) marketing strategies has increasingly emphasised the importance of relational and other non-market variables in explaining organisational buying behaviour (Iyer et al, 2015;Hadjikhani and Laplaca, 2013;Flynn and Davis, 2014;Johnson and Tellis, 2008;Wilson, 2000). The current emphasis on relational determinants of organisational buying behaviour is partly due to the inadequacies of 'rational' economic models in explaining the 'irrational' buying behaviour observed in most social institutions and not-for-profit organisations who often pursue multiple (and sometimes conflicting) goals (Flynn and Davis, 2014;Augier, 2013;Ariely, 2009;Wilson, 2000;Milan, 1998).…”

Partitioned pricing, price fairness perceptions, and the moderating effects of brand relationships in SME business markets

“…The purpose of this research is to explore partitioned pricing, the strategy of dividing the price of a product offering into two or more mandatory components (Morwitz, Greenleaf, & Johnson, 1998), and its effects on price fairness perceptions in a B2B context. This objective furthers the efforts of recent literature which seek to understand managers' behavioral pricing effects in business markets (Hinterhuber & Liozu, 2015;Homburg et al, 2014;Iyer, Xiao, Sharma, & Nicholson, 2015;Monroe et al, 2015). Additionally, we add to the growing literature on the importance of branding in business markets and the influence of managers' emotions (i.e., positive and negative affect) on business purchase situations (Brown, Zablah, Bellenger, & Johnston, 2011;Leek & Christodoulides, 2012) by examining how buying managers' relationship with a brand and related emotions impact the relationship between partitioned pricing and price fairness perceptions.…”

“…While Iyer et al (2015) recommend experimentation for B2B behavioral pricing research specifically, they also admit that finding appropriate manager subjects can be difficult, which results in smaller sample sizes in B2B experimental designs. This is true with our experiments as our sample sizes are small.…”