The Right Price - At What Cost? : A Multi-industry Approach in the Context of Technological Advancement

University essay from KTH/Skolan för industriell teknik och management (ITM)

Abstract: The business climate is undergoing a transformation and managers are faced with several challenges, not the least of which is related to pricing strategy. With an increased transparency in the market as well as anincreased competitive pressure, and with more sophisticated and well-informed consumers, retail businesses find it hard to navigate the pricing jungle. At the same time, the conventional wisdom in the field of pricing and the theoretical models on the topic, originate from a time long before the digitalization. Old models are not a problem in itself, but when there are new forces in the pricing ecosystem, driven by technological advancement, an assessment of the incumbent models is in the best interest of both businesses and academia. The reason for this is that, the use of old models that rely on inaccurate assumptions may impact businesses’ prioritizing of resources or their overall business strategy. In addition, researchers might be distracted and the research field disrupted. Thus, the purpose of this study is to discuss whether or not there are additional dimensions in pricing strategy that are not covered by the incumbent pricing models. Here, dimensions refer to the key components of businesses’ strategic decision making in regards to pricing. This thesis examines pricing models in today’s business context in order to answer the research question: “Are there additional dimensions of the empirical reality of pricing strategy that are not covered by the incumbent pricing models?” The research question has been studied qualitatively through a literature review, a pilot study and twelve case studies, where the pilot study had the purpose of exploring the depth, whereas the multiple case studies focused on the breadth, of pricing strategies. The case studies cover businesses in different retail industries and of different sizes, namely the industries of Clothing & Accessories, Daily Goods, Furniture and Toys & Tools, and of the following sizes: micro, small, medium and large. The empirical data has mainly been gathered by conducting interviews with production, sales and management personnel at the case businesses. The data has been structured, reduced and analysed with the help of a framework of analysis that has been developed throughout the pilot study. The results of this study lean on previous research and a main divider in pricing strategies has been identified as businesses use either a data-driven or an intuition-driven approach in their strategic work with pricing. As such, it is proposed that the division of pricing strategies need to be acknowledged, since the separate methodological approaches may lead to different results, while implying different costs, resources and required knowledge. Furthermore, the division may form a basis for competitive advantage, be extended to other areas of strategic management and become clearer, since the adoption of technology and its impact will increase in the future. As a result, in the future of pricing, they key is going to be to account for both the strategic perspectives and the methodological approaches in the strategic decision making process of pricing.

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