Pricing Capability and Its Strategic Dimensions

Abstract: The notion of pricing as being of vital importance to firms is supported by a long line of publications that outline recommendations on how price should be managed in order to maximize long-term profits. This implies that pricing, or firm level pricing capability, should constitute an important area of research in the field of strategic management, a field which has as its prime objective to develop explanations of firm performance. Yet, research on pricing capability in strategic management has remained sparse. Rather than addressing this area directly, firm pricing capability has been treated as a non-strategic issue. This is done either by assuming that prices are automatically set at levels reflecting competitive market prices and the product’s value to customers, or by viewing price as an easily manageable part of the firm’s overall competitive strategy. This empirical study of pricing capability in five cases in the corrugated packaging industry illustrates the problems firms face when pricing their products. The study showed, not only that pricing was difficult to manage, but also that in order to handle the information and control-related uncertainties inherent in pricing decisions, the studied business units committed themselves to complex configurations of assets, routines, activities, and pricing policies. This thesis sets out to uncover the structure and strategic relevance of these configurations, and by doing so, to point out some fundamental problems in mainstream strategic management theory. As it turns out, the failure in addressing the strategic dimensions of pricing capability is not arbitrary, but reflects a theoretical gap that leaves established explanations of firm performance unable to account for important phenomena, such as pricing capability.