Abstract
Price policy definition is one of the most important decisions in management as it affects corporate profitability and market competitiveness. Despite the importance that prices take in organizations, it appears that this element has not received proper attention by many academics and marketers since it represents, according to estimates, less than 2% of the papers on leading journals in the field. Thus, the aim of this study was to propose and test a theoretical model showing the impacts of pricing policy on corporate profitability. To this end, 150 companies in the metal-mechanic sector situated in the Northeast of Rio Grande do Sul State, Brazil were studied, integrating customer value-based pricing strategies, competition-based pricing strategies and cost-based pricing strategies with price levels (high and low) and performance with respect to profitability. The results indicate that the profitability of the surveyed companies is positively affected by value-based pricing strategy and high price levels while it is negatively affected by low price levels. Such findings indicate that pricing policies influence the profitability of organizations and therefore, a more strategic look at the pricing process may constitute one aspect that cannot be overlooked by managers.
Highlights
Price is one of the most flexible elements of the marketing mix, which interferes directly and in a short term over the profitability and cost effectiveness of a company (Simon, Bilstein, & Luby, 2008)
Likewise, concerning the development of new products (DNP), the results indicate that companies that use high price levels develop more new products
In order to have a better performance than their competitors, companies should establish a set of superior resources, such as, abilities, skills and knowledge, because the role of the price fixing capacity as a way of effectively improving the company’s performance is vital (Dutta, Zbaracki, & Bergen, 2003; Liozu & Hinterhuber, 2013)
Summary
Price is one of the most flexible elements of the marketing mix, which interferes directly and in a short term over the profitability and cost effectiveness of a company (Simon, Bilstein, & Luby, 2008). In marketing, the main focus is placed on the development of new products, distribution channels and communication strategies, and according to Lancioni (2005) this could lead to precipitated pricing decisions without properly evaluating market and cost factors. Pricing is treated as the simplest strategy within marketing, perhaps because many companies determine their prices based on intuition and the manager’s market experience (Simon, 1992). Only few managers strategically think about pricing while proactively administrating their prices in order to create favorable conditions that lead to profits (Nagle & Holden, 2003). Liozu and Hinterhuber (2012) highlight the need for more research regarding the pricing preferences and practices because, according to the authors, less than 2% of all published articles in marketing journals are focused on pricing
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