Pricing capability development and its antecedents

Abstract: Previous studies have convincingly argued that firms’ ability to efficiently utilize their resources is linked to the effectiveness of their routines and resources for pricing. The ability to appropriate value and achieve a more efficient resource utilization relative to competitors through routines and resources for pricing has been named pricing capability. If an effective pricing capability could enable a firm to achieve a more efficient resource utilization and gain a competitive advantage, the questions if, and if so how, managers are able to design pricing capabilities are highly relevant. However, previous studies have presented conflicting arguments regarding managers’ ability to design pricing capabilities and stated that pricing capabilities are protected by isolating mechanisms. I argue that both the antecedents of pricing capability development and managers’ ability to design pricing capabilities are unclear. The purpose of this thesis is to identify the antecedents of pricing capability development. The findings from this longitudinal case study of pricing capability development in five business units within “Technologica”, a multinational manufacturing firm acting on mature markets within business-to-business relations, provide empirical evidence of how managers are able to design pricing capabilities through their discretionary decision making. I propose that managerial governance choices, originating from individual managers’ perception concerning which pricing governance structure they perceive to be the most efficient and profitable, are key antecedents of pricing capability development. Also, I suggest that managers, through pricing governance arrangements, are able to tackle behavioral aspects among sales representatives that create obstacles for effective value appropriation. This study shows that one such behavioral aspect is sales representatives’ tendency to sometimes favor hedonic intrinsic motives over extrinsic incentives in customer meetings and, thus, prioritize a friendly, pleasant customer relation at the expense of profit maximization. I suggest that a better understanding for managers’ ability to develop organizational capabilities could be gained by shedding more light on the link between managers’ choices regarding capability governance structures and the designability of different types of organizational capabilities. Finally, I propose that different types of organizational capabilities differ in terms of manageability and imitability, and vary in their relevance for different firms depending on industry conditions.