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Organizational Design and Pricing Capabilities for Superior Firm Performance | Emerald

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Abstract

Purpose:The purpose of this paper is to test the relationship between organizational antecedents, pricing capabilities, and firm performance.

Design/methodology/approach: Quantitative survey of 748 managers from mostly large companies globally.

Findings: It was found that the following five key organizational resources (the 5 Cs) – center-led price management, organizational confidence, championing behaviors, organizational change capacity, and pricing capabilities – positively influence firm performance. Furthermore, it was found that center-led price management, organizational change capacity, and championing behaviors act as important antecedents to pricing capabilities and, except for the former, to organizational confidence. The authors also examine interaction and mediation effects.

Originality/value: The results thus suggest that generic organizational factors – namely center-led price management – as well as highly idiosyncratic firm, specific capabilities – namely organizational confidence, championing behaviors by top management, organizational change capacity, and pricing capabilities – are key requirements to increase firm performance via pricing.

Keywords: Performance, Organizational design, Pricing, Organizational behaviour, Pricing strategy

Paper type: Research paper

 

Introduction

Despite recent critiques (Kraaijenbrink et al., 2010; Hinterhuber, 2013), the core propositions of the resource-based view (Barney, 1991; Barney et al., 2011; Grant, 1991) are widely accepted: differences in firm profitability are the result of differences in firm capabilities. Empirical tests of the RBV (resource-based view), however, have yielded overall mixed results (Armstrong and Shimizu, 2007; Newbert, 2007, 2008) and have led to frequent calls for further empirical studies (Mol and Wijnberg, 2011).

As an important subset of overall firm capabilities, pricing capabilities are important drivers of firm performance (Dutta et al., 2003). Research on the role of pricing capabilities is today largely confined to qualitative studies. Furthermore, little is known about the organizational antecedents of pricing capabilities.

From a managerial perspective, this study is important. Although managers do understand the criticality of pricing, in day-to-day practice they frequently revert to ineffective rules of thumb in price setting (e.g. cost-based pricing) and largely ignore the role of pricing in the overall design of their organizations (Hinterhuber, 2004; Liozu et al., 2012). A significant problem of practice is thus the question of how to increase firm performance via pricing. This study shed light on this question.

In this study we test the relationship between organizational antecedents, pricing capabilities, and firm performance through a survey of 748 managers worldwide. We find that four key resources and capabilities – championing behaviors, pricing capabilities, organizational confidence, and organizational change capacity – directly influence firm performance.

We also find that three organizational factors – center-led pricing management, championing behaviors, and organizational change capacity – are significant antecedents of pricing capabilities; these organizational factors are – with the exception of center-led pricing management – also significant antecedents of organizational confidence. We finally study interaction effects between these antecedents. In sum, this paper is the first quantitative study to link both organizational confidence and pricing capabilities to firm performance. We also contribute to the literature of organization theory by suggesting key organizational antecedents of pricing capabilities as well as of organizational confidence.

The remainder of the article is organized as follows. In the next section, we provide our conceptual framework and theoretical support for the testable hypotheses that support the nomological network. The methodology section describes our database, sample, measures, and analysis. Next, we present a discussion of the results, the limitations of the research design, the theoretical contributions, and the implications for future research and managerial practice.

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Organizational Design and Pricing Capabilities for Superior Firm Performance