THE EFFECTIVENESS OF COST BASED PRICING STATEGY MARKETING ESSAY

5417 WORDS

Pricing is major consideration in purchasing decisions and is correlated to a company/organisations financial performance. Langabeer proposes two major perspectives in pricing, namely, perceived value pricing and cost-based pricing. Although there are many studies on pricing strategies, current academic research on the impact of how these pricing strategies affect company/organisation performance are limited. This dissertation will examine the use of perceived value pricing and cost-based pricing, and their interaction effects will affect company/organisation performance.

A questionnaire was disseminated to 80 respondents working in various industries where they could influence the adoption of various pricing strategies in their respective company/organisation. Various tests were conducted on their responses to establish any significant relationship/association between/among variables, affirming the 10 hypotheses developed.

Results suggest that cost-based pricing has no significant effect on company/organisation performance, whereas perceived value pricing results in positive improvements in company/organisation performance. Significantly, the combined use of cost-based pricing and perceived value pricing lead to better performance than the sole use of either pricing strategy.

This dissertation also examines the factors that drive the adoption of using a combination of both strategies. The findings show that managerial orientations (ie. company, customer and competitor orientations) and behavioral predispositions (ie. risk aversion, perceived environment hostility and long-term outlook) drive the company/organisation pricing strategies. Survey results show that managers, who scored high in company and customer orientations and low in risk-taking levels, competitor orientation, perceived environment hostility and business outlook tend to adopt a combination of the two pricing strategies. (247 Words)

Acknowledgement