Pricing by intuition: Managerial choices with limited information

Abstract

In making pricing decisions, managers can chose from several pricing strategies. To ensure long-term business success, pricing choices need to balance numerous requirements, from revenue streams to keeping customers happy. The complexity of pricing decisions and time pressures that often accompany them prompt the need for fast, simplified decision algorithms. The present exploratory study examines the ways in which considerations of price fairness and competitive strategy combine in managers' decisions regarding the price level.Results of a survey of 116 brand managers provide no evidence of complex, compensatory decision algorithms. Cluster analysis of managers' responses to hypothesized pricing scenarios shows that with limited information available, decision-makers tend to simply charge consistently higher, lower, or equal prices compared to their competitors irrespective of the quality of their products. Descriptive profiles of the clusters suggest that brand strength has the strongest impact on managers' pricing choices, suggesting a brand heuristic as the main decision tool. Competitive intensity, organizational culture, and strategic orientation are also related to particular patterns of pricing decisions.