What every manager should know about pricing

Abstract

Purpose The purpose of this paper is to provide a theoretically rigorous and practically relevant summary of research findings that enables managers to drive sustainable profits improvements via pricing. It showcases multiple case studies that demonstrate how companies can achieve higher-than-average profitability by implementing intelligent pricing strategies and tactics. Design/methodology/approach Over the past 20 years, this writer has conducted dozens of academic surveys with managers exploring the antecedents, moderators and consequences of pricing practices for existing and new products. The writer has analyzed all pricing research published in leading academic journals over the past decades. Finally, as equity partner of Hinterhuber & Partners, a pricing consultancy (www.hinterhuber.com), this writer – through collaborations with companies and workshops conducted with practicing managers – has collected data and insights on best practices in managing pricing as a strategic activity. Findings Pricing is the most powerful driver of superior profits, yet managers view pricing as relevant only in the context of innovation. This narrow view prevents companies from realizing their full potential. Best practice examples of pricing as well as rigorous academic research suggest that pricing based on solid scientific principles helps average companies to achieve above-average results. This paper presents a review of recent research and summarizes the fundamental principles that managers must master so that pricing becomes an enabler of lasting superior performance. Research limitations/implications Academic research in pricing surpasses managerial practice. Managers often rely on outdated concepts when it comes to pricing strategy and tactics. Practical implications The paper presents a framework that allows managers to implement pricing strategies that improve performance. Social implications Effective pricing strategies benefit companies, customers and other stakeholders. Originality/value The paper provides a comprehensive overview of the latest research on pricing and thus documents that pricing based on solid, scientific principles is an enable of lasting, above-average profitability.