Exploring the complementary effects of perceived value and cost-based pricing strategies on firm performance.
Heng, Jeremy Jun Jie.
Lim, Belinda Kah Siew.
Date of Issue2010
College of Business (Nanyang Business School)
Pricing is one of the most important marketing decisions that carry major financial consequences. Langabeer (1988) proposes that there are two major perspectives in pricing, namely, perceived value and cost-based pricing. Although many researchers have offered similar classifications of pricing strategies, current academic research on the impact of how these pricing strategies affect firm performance are few and far between. To bridge the research gap, our study seeks to examine how the use of perceived value pricing and cost-based pricing, and their interaction effects will affect firm performance. Our results suggest that cost-based pricing alone has no significant effect of firm performance, whereas perceived value pricing results in positive improvements in firm performance. More importantly, the combined use of both cost-based pricing and perceived value pricing lead to better firm performance than the sole use of either pricing strategy. Given that the dual use of cost-based pricing and perceived value pricing leads to superior performance outcomes, we also explore how certain managerial orientations (namely, company, customer and competitor orientations) and behavioral predispositions (namely, risk aversion, perceived environment hostility and long-term outlook) drive the adoption of either pricing strategy. Our findings show that these factors are important antecedents of both cost-based and perceived value pricing strategies. Specifically, managers who possess a high customer orientation, high company orientation, low competitor orientation, low perceived environment hostility, and who are more risk-averse and short-term focused are more likely to adopt the two pricing strategies. We discuss the managerial implications of these findings.
Final Year Project (FYP)
Nanyang Technological University