The Pricing Decision in Small Firms: Complexities and the Deprioritising of Economic Determinants

Abstract

JAMES CURRAN WAS UNTIL RECENTLY Midland Bank Professor of Small Business Studies and director of the Small Business Research Centre at Kingston University, England; he continues to be closely associated with the centre and its research. RobinJarvis is Professor of Accounting andJohn Kitching a Research Officer at Kingston University; Geoff Lightfoot, formerly a research student at Kingston University, is now Lecturer in Management at Keele University, England. Price setting by small business owners has previously been analysed mainly in terms of two approaches. The more theoretical has usually taken economic rationality based on profit maximisation as the yardstick to assess owner-managers' decision-making and behaviour. Empirical approaches (often reporting findings from studies with the above starting point) have repeatedly found that the great majority of small business owners employ relatively simple cost-plus pricing. This paper argues that both approaches are inadequate. Theoretical approaches stressing economic rationality and profit maximisation employ a narrow, outdated notion of 'rationality'. Empirical simplification of the processes involved due mainly to the more complex conceptualisation of 'rationality' which broadens the notion and allows other economic and non-economic norms and values to enter into price setting as well as a wider range of goals than profit maximisation. It suggests that older notions of economic rationality and other rationalities are not mutually exclusive but form differing 'logics' which underlie the decisions and behaviours resulting in price setting. Findings drawn from in-depth interviews with small business owners are Contents Summaries 1 3 used to show how a wider conceptualisation of rationality and data on the 'logics' used by small business owners is a complex and widely varying process. The outcomes, prices, are contingent upon a mix of economic and non-economic influences linked to each other in specific 'logics' used by the small business owners. The implications of the more complex conceptual approach and empirical data on price setting in the paper for those who advise small business are drawn out. They indicate that substantial revision is required if the small business owners are to see the advice as realistic and the take-up of such advice is to increase.