Industrial Marketing Management 34 (2005) 123 131

Intraorganizational influences on business-to-business pricing strategies:

A political economy perspective
Richard Lancionia,*, Hope Jensen Schaub, Michael F. Smithb
a

Department of Marketing, Fox School of Business and Management, Temple University, Philadelphia, PA 19122, United States
b
Fox School of Business, Temple University, Philadelphia, PA, United States
Accepted 31 July 2004

Abstract
Historically, researchers have addressed pricing issues from many different perspectives, including the firms business model (cost
structure, experience curve), stakeholders (customers and channel partners), competition (market structure and intensity), and macroeconomic
issues (interest rates, economic growth). An important dimension of organizational price setting that has been neglected is the impact that the
firms internal political system, reflected in interdepartmental coordination and rivalry, has upon price setting. A study of managers who are
influential in shaping the firms pricing strategy was conducted to identify intraorganizational issues and their relative impact on the firms
pricing strategy. The results of the study provide important implications for the development and execution of a firms pricing strategy.
D 2004 Elsevier Inc. All rights reserved.
Keywords: Pricing strategy; Intraorganizational influence; Business-to-business pricing strategies

1. Introduction
How a firm assigns value to its boutputQ through its
pricing strategy has implications for stakeholders both within
and outside of the firm, such as employees, competitors,
suppliers, customers, government, and third party service
providers like transportation contractors. From a demand
side perspective, a firms pricing strategy is essentially a
quantification of the perceived value that the firm creates for
its customers. From a supply side perspective, pricing is a
strategic and tactical expression of how the firm wishes to
compete to generate revenues and, in light of its business
model, realizes a profit. Several seminal review articles
(Monroe & Della Bitta, 1978; Rao, 1984; Gijsbrechts, 1993)
on pricing have recognized the importance of understanding
the dynamics of developing a pricing strategy, as well as the
complexity inherent in such a task.
A firms pricing strategy may have a substantial
economic impact on the firm in contrast to other financial
* Corresponding author. Tel.: +1 215 204 8885.
E-mail address: Lancioni@aol.com (R. Lancioni).
0019-8501/$ - see front matter D 2004 Elsevier Inc. All rights reserved.
doi:10.1016/j.indmarman.2004.07.010

management options. For instance, Hinterhuber (2004)

documents that b. . .a 5% increase in average selling price
increases earnings before interest and taxes (EBIT) by 22%
on average, compared with the increase of 12% and 10% for
a corresponding increase in turnover and reduction in costs
of goods sold, respectively.Q A systematic approach to price
setting is important if the firm is to realize its financial
objectives; however, Shipley and Jobber (2001) note that
price setting b. . .is a much-neglected and ineptly administered marketing responsibility, and numerous errors are
made [p. 313].Q
The process of setting and modifying prices must be
understood as a component of the firms overall marketing
planning process. Oxenfeldt (1973) was an early proponent
of establishing systematic procedures in the context of an
overall planning process for the developing of pricing
strategies. As markets change, firms are thought to alter
their respective marketing plans to take advantage of the
new situations and profit accordingly. This change necessitates that all aspects of the marketing plan be treated with
the same degree of interest characterized by new market
research information, new product development, test mar-

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R. Lancioni et al. / Industrial Marketing Management 34 (2005) 123131

keting, revised promotional and advertising strategies,

competitive analysis, updated supply chain strategies, and
revised pricing strategies. Vertical and horizontal interdepartmental cooperation is supposed to take place for each
element, with equally high levels of scrutiny (Roger &
Whetten, 1982), to ensure that the result of this planning
process is an integrated marketing strategy. In addition, any
organizational roadblocks that could hinder the immediate
implementation of any part of the marketing plan would be
eliminated.
This article will explore the experiences of managers
who are influential in shaping their firms pricing strategies
across a number of industries. Of particular interest is the
documented existence of internal broadblocksQ that managers must face from within their own organization, as
they attempt to develop and modify pricing strategies. In
the next section, we will incorporate a political economy
framework to briefly review the literature on pricing and
establish a conceptual context for the contribution of this
research. Next, the research methodology will be described,
and the results of this study will be presented. Subsequently,
the authors discuss managerial implications and study
limitations.

2. Background
2.1. Political economy framework
Price setting has long been a difficult process in businessto-business marketing. The complexity inherent in developing and modifying pricing strategies can be seen in the
plethora of internal and external economic and political
influences that shape a firms pricing decisions. One
framework that may be useful for identifying these various
influences is a variation on the political economy approach
that was applied to the study of distribution channels by
Stern and Reve (2000). The application of this framework
will be modified with the individual firm, as opposed to a
collective of firms, as the focus. Furthermore, since we are
applying this framework to broadly address managerial
price-setting considerations, we will not discriminate
between process and structure within the economic or
political dimensions. The political economy framework, as
applied here, is not intended as a means to structure an
extensive literature review on pricing, which has been
admirably done elsewhere (Gijsbrechts, 1993; Nagle &
Holden, 2002). Our purpose is to demonstrate the contribution of this research study, given the work on pricing to date,
and to propose a line of managerial research that complements existing research in pricing.
2.1.1. External economic considerations
Firms interact within a network of other firms that
comprise an industry or set of industries within a national
and global economy. The external economy shapes the firms

access to critical resources, such as raw materials, finished

products, capital, and labor. Economic growth and stability
directly affect opportunities to generate revenues and to
realize a profit in light of the cost of critical inputs,
manufacturing, and marketing. A selling firms potential to
generate revenue is shaped by the extent of economic activity
within a buyers industry, which affects a firms willingness
to buy in general and also impacts price sensitivity
specifically. One dimension that economists have used to
address pricing activity and constraints is through the
application of market structure dimensions (pure, monopolistic, monopoly, and oligopolistic competition) on pricing
(Mansfield, 1986). This approach has been used extensively
in the business-to-business area by researchers attempting to
address the dimensions of industry structure on pricing (c.f.,
Shipley & Bourdon, 1990). Other important contributions in
this area include a large body of work stimulated by Porters
(1980) work on competitive intensity and also the incorporation of economic costs in the form of experience curves
and pricing (Dolan & Jeuland, 1981).
2.1.2. Internal economic considerations
A truism in organizational price setting is that costs set
the floor, and demand sets the ceiling for prices (Dolan &
Simon, 1996). From a resource allocation perspective, firms
must balance revenues, costs, and investment bases across a
number of market opportunities. These opportunities may
represent brands, product lines, and strategic business units.
Decisions for allocating resources and setting prices are also
constrained by the firms external economic environment in
the form of competition and customer price sensitivity.
Given that pricing deals directly with revenues and costs, a
great deal of attention has been directed towards this area of
pricing. Some examples include transfer pricing (Gox,
2000), new product pricing (Bernstein & Macias, 2002),
product line pricing (Reibstein & Gatignon, 1984), price
change decisions (Monroe & Della Bitta, 1978), strategic
pricing (Tellis, 1986; Rao & Bass, 1985), brand life cycle
pricing (Simon, 1979), and the impact of the environment
on pricing strategy (Monroe & Zoltners, 1979).
2.1.3. External political considerations
Systematic economic decision making concerning the
allocation of tangible resources does not take place in a
social vacuum. Firms, while interacting with important
stakeholders, develop sociopolitical relationships with these
stakeholders. Stakeholders that have the potential to have a
substantive impact on the firm include customers, suppliers,
stockholders, government agencies, and third party service
providers. External political relationships have been studied
along several dimensions, including power, conflict, and
cooperation (Stern & Reve, 2000). Of particular interest is
the impact of marketing relationships of channel members
on pricing (Perrien & Ricard, 1995) and customer relationships. The importance of relationship marketing in the
business-to-business area has long been a distinguishing

R. Lancioni et al. / Industrial Marketing Management 34 (2005) 123131

characteristic of marketing in this arena. For instance, in the

critical area of customer relationships, it has been documented that many purchasing managers indicate that price is
one of the least important dimensions when evaluating a
vendor (Avila et al., 1993).
2.1.4. Internal political considerations
One aspect of the internal polity that has been addressed
in the literature prescribes how firms should develop pricing
policies and establishes prices within an administrative and
strategic framework. One of the early pioneers in this area
was Oxenfeldt (1960, 1973) who proposed a structured
approach to pricing decisions that incorporated the various
aspects of marketing strategy, such as target markets, brand
image, marketing objectives, and promotional strategies.
More recently, Shipley and Jobber (2001) proposed a
bpricing wheelQ approach that begins with an understanding
of the firms marketing strategy and proceeds to incorporate
external considerations, such as demand and competition,
and internal considerations, such as the firms cost structure,
into the development of a pricing strategy. Hinterhuber
(2004) incorporates this integrated approach to demonstrate
applications in the areas of new product pricing and price
repositioning.
2.2. Implications
A political economy framework was presented to
demonstrate the complexity of the issues involved in price
setting reflected in the many internal and external economic
and political forces shaping the firms pricing strategy.
Progress has been documented in the area of price-setting
processes and procedures integrating the external economy
(customers and competition), internal economy (firm cost
structure), and internal polity (proposed procedures for
setting prices). What has not been recognized, however, is
the importance of interdepartmental rivalry and conflicting
interests. To date, the literature approaches pricing from the
perspective of the marketing department (purchasing managers, marketing managers, sales managers) or upper
management. In reality, many departments such as finance,
accounting, marketing, and production either directly or
indirectly impact the firms pricing process. Each of these
departments has a mandate to contribute a special kind of
value added to the firm that may translate into objectives,
activities, and procedures that may conflict with other
departments. For instance, marketing may be interested in
extending a product line to provide more price options for
buyers. Production may be concerned with decreasing lot
size cost consequences, as a result of providing more product
options. Finance is often concerned with modifying prices to
ensure an appropriate return on any new investment required
to modify the manufacturing processes. The contribution of
this research is to provide insights into the existence of
departmental roadblocks in organizational price setting and
to document the implications of these political hazards.

125

3. Research study
To understand the potential impediments to the development of a firms pricing strategy, the Department of
Marketing, Fox School of Business and Management at
Temple University, conducted a study of 125 companies
listed in the Fortune 1000 group of firms. The sample
represented companies from more than 30 different US
industries, including retailing, manufacturing, chemical,
steel, oil, aluminum, building and construction, wholesale
distribution, semiconductor, software, food processing,
transportation, agricultural equipment, energy exploration,
residential and commercial construction, retail goods
manufacturing, computer equipment part manufacturing,
forestry and timber, electrical component manufacturing and
distribution, highway construction and maintenance, gasoline distribution and retailing, publishing, household product manufacturing, textile manufacturing, drug wholesaling
and distribution, and farm and agricultural equipment
manufacturers. Given the sensitive nature of the pricing
information provided by the survey respondents, the
researchers were restricted to the reporting of general results
only. The study queried the firm respondents using the
Zoomerang Internet survey service. The study examined
several critical organizational issues that related to price
setting and pricing management including:
(1) the departments in companies that make pricing
strategy development difficult and present the most
roadblocks to the implementation of a pricing strategy;
(2) the impact that senior, middle, field, and sales
management groups have on price setting and strategy
implementation;
(3) the effects that customer service has on price setting
and price management in firms;
(4) the extent to which sales departments affect the
industrial price-setting process; and
(5) identifying potential courses of action to overcome the
obstacles to price setting in firms.
3.1. Research methodology
The respondents were asked to complete and submit an
on-line questionnaire that consisted of several Likert-type
questions addressing the managerial concerns with regard to
intrafirm price setting. The data were summarized and
tabulated with the mean values used to rank order the
relative position of the items for each of the managerial
issues addressed in the study. The questionnaire was
subdivided into three areas:
(1) the organizational obstacles presented by individual
departments to developing and implementing a pricing strategy;
(2) the obstacles that senior, middle, and lower management present in developing and implementing a
pricing strategy; and

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R. Lancioni et al. / Industrial Marketing Management 34 (2005) 123131

(3) the success strategies that were used to over come the
obstacles to developing and implementing a pricing
strategy.
3.2. Research study results
3.2.1. Industrial departments and management groups
The first area examined in the study was the general
departments in industrial firms that were the most difficult
to deal with when trying to implement a pricing strategy. As
shown in Table 1, the finance department was ranked as the
most difficult to work with in developing a comprehensive
pricing policy for a firm. It was followed by accounting,
sales, production, marketing, and customer service that was
ranked as sixth by the respondent firm. There were several
general reasons mentioned for the rank order. The specific
problems that the individual departments presented to price
setting and policy implementation are discussed in subsequent sections of the paper.
Overall, finance departments were considered to be the
most difficult ones to deal with when a trying to develop
pricing strategies because of the departments general
inclination to want to control the price setting and planning
process in the firm. Accounting departments ranked second
because of the delays they caused in providing accurate cost
data for the overall price-setting process. Sales ranked third in
overall difficulty because it often acted independently and
did not follow company price setting and price quoting
procedures. The production or manufacturing groups in
industrial firms often insisted on large quantity purchases that
limited the firms flexibilities in designing special promotional programs for their customers. Marketing was ranked
fifth due to its tendency to not respond quickly to competitive
market changes. Finally, the customer service department
was ranked last because of the confusion often caused by its
practice of frequently misquoting prices to customers.
The management groups analyzed in the study were
classified as senior management, middle management, and
field and sales management. Senior management was defined
as any manager with a vice president, executive vice
president, or president or chief executive title. The middle
management group was defined as any person in the firm that
had an assistant VP, director, or manager in their title. The
lower level management group was defined as any person in

Table 2
Industrial management groups resisting the development of a pricing
strategy
Management groups
Senior management (a manager
with a vice president, executive
vice president, or president or
chief executive title)
Middle management (a manager
that had an assistant VP, director,
or manager title)
Field management (a manager that
had field manager, supervisor,
sales person, or customer service
representative title)
Total

(No. of firms
ranking)

Order of
difficulty

77

26

22

125

the industrial firm that had a field manager, a supervisor, sales

person, or customer service representative in their titles.
As shown in Table 2, senior management was ranked as
number 1 in presenting the greatest number of obstacles to
price setting and price planning in firms. This group was
followed by middle management (ranked second) and field
and lower level management (ranked third). In general,
senior management was ranked high because of its general
desire to control the pricing process. The principal obstacle
presented by middle management to price setting was
perceived to be its failure to implement pricing policies
and existing pricing programs. Field and lower level
management groups were generally ranked third because
of their short-term orientation and desire to make bdeals
with customers.Q Each of the above groups rankings are
discussed in more detail in later sections of the paper.
3.3. Price policy and finance and accounting
The research revealed that the most difficult organizational department to deal with in developing and implementing a pricing policy was finance. The resistance provided by
the department according to the research study was
manifested in many forms. The most dominant resistance
by the finance group comes in the form of its desire for all
product lines marketed by the firm to make a profit (Table 3).
The department generally resists any price reductions by the
marketing and sales groups for fear that they will lead to

Table 1
Industrial organizational departments presenting the greatest roadblocks to
the development of general pricing strategies in firms

Table 3
Obstacles presented by the finance department in the development of an
industrial pricing strategy

Major departments

(No. of firms
ranking)

Order of
difficulty

Obstacles

(No. of firms
ranking)

Order of
difficulty

Finance
Accounting
Sales
Production
Marketing
Customer service/relations
Total

45
37
20
12
6
5
125

1
2
3
4
5
6

All products make profits

Short-term time horizon
No allowance for cross-elasticity effects
Limit market flexibility
Resist pricing flexibility
Limit product/service bundling
Total

47
26
14
12
9
6
125

1
2
3
4
5
6

R. Lancioni et al. / Industrial Marketing Management 34 (2005) 123131

Table 4
Obstacles presented by the accounting department in the development of an
industrial pricing strategy
Obstacles

(No. of firms
ranking)

Order of
difficulty

Emphasize cost-plus-price setting

Insist on full cost recovery
Include all burden costs
Include all overheads
Total

83
28
9
5
125

1
2
3
4

negative margins for individual products or service offerings.

The reasoning for the resistance stems from the finance
departments tendency to have a short-term time horizon
when viewing product and product line profitability. The
research showed that finance managers tended to think on a
quarter-to-quarter basis and not year to year when reviewing
the margin contributions of a companys product lines.
Another major obstacle of finance departments to the
development of company wide pricing policies is its
resistance to the practice of cross-elasticity pricing tactics
by the marketing and sales groups. In general, the tactic is
used to stimulate customer demand for other products in a
firms product portfolio. For example, assuming that a
product line is composed of three products or servicesA,
B, and C. The products will be at different price levels with
product A at the lowest price, followed by B that is the
medium priced item, and C as the highest priced. By cutting
the price on A, customers will be influenced to buy the Bs
and the Cs. This is referred to as the cross-elasticity effect
where a price cut on one item (A) can have on the demand
for others in the same product line. It is a very common
strategy used in sales and marketing. Finance often resists
this tactic for fear that it will lower margin contributions.
The finance group is often accused of limiting the overall
flexibility of companies in the implementation of their
pricing strategies that are a part of the company marketing
plans. The flexibility limitation prevents firms from defending market share positions, gaining new customers, and
increasing sales volumes. Another major obstacle presented
by finance is limiting the use of product and service
bundling. The tactic is effective in stimulating the demand
for mature products that need the addition of new products
to continue their sales growth and extend their life cycle. For
example, products may be grouped into a bundle with the
combination being price promoted with single price. The
synergism of the bundle increases its appeal. A popular
bundle used by computer manufacturers, such as Gateway
and Dell, to market their computers includes computers,
printers, software, DVD-CRM players, and stereo speakers.
The bundle is price promoted to stimulate the demand for
the product lines included in the group.
The general resistance offered by accounting departments
to the implementation of pricing policies in industrial firms
tends to be more microoriented than that of finance. For
example, the most common practice of accounting groups is
insisting that price setting be based on the traditional cost-

127

plus-profit pricing methodologies. The problem industrial

firms often encounter with this method is that their cost
accounting systems are often inaccurate. Using these costs
in price setting may result in prices being set too high or too
low, depending upon market conditions. Despite this reality,
the cost-plus-profit system is still insisted upon by accounting departments in industrial firms. Another obstacle
presented by accounting departments is the insistence upon
full cost recovery for existing and all new products. This
obstacle is particularly difficult to achieve since burden
costs are difficult to estimate, and their allocations over a
portfolio of products are often inequitable in terms of the
actual cost absorptions of each of the products. For example,
research and development costs are generally classified as
burden costs. Industrial firms often cannot account for R&D
cost incurrence situations across their product portfolios.
(Table 4) The result is that the firms will often arbitrarily
assign either a portion of the burden costs to a single
product or use an average burden rate for all products. This
makes price setting very difficult.
Another obstacle that accounting often presents to price
setting is the insistence that all new product prices must
include all overheads and burdens as soon as they are
introduced. For new product managers, this obstacle
presents a real problem. Managers are faced with the
dilemma that if they want to offer discounts to stimulate
demand for new products, they are limited in how much the
discounts can be and how long they can be offered. This
obstacle limits the possible long run success of a new
product since it may be judged unprofitable and eliminated
too soon before it has had a chance to demonstrate its
market popularity.
3.4. Price policy and marketing and sales
Sales and marketing departments present contrasting
obstacles for pricing managers in developing pricing polices
for their industrial firms. The research showed that sales
departments generally act too quickly in cutting prices
because of competitive pressures. (Table 5) In contrast,
Table 5
Obstacles presented by the sales department in the development of an
industrial pricing strategy
Obstacles
Quick price cuts in face of
competitive challenges
Failure to follow overall
pricing policy of firm
Individual deals with
customers
Belief in bwe will make it
up on volumeQ
Quick to use discounts to
close deals
Total

(No. of firms
ranking)

Order of
difficulty

41

33

25

14

12

125

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R. Lancioni et al. / Industrial Marketing Management 34 (2005) 123131

Table 6
Obstacles presented by the marketing department in the development of an
industrial pricing strategy

Table 7
Obstacles presented by the production department in the development of an
industrial pricing strategy

Obstacles

Order of
difficulty

Obstacles

45
29

1
2

26

24
125

Limits product variations

Insists on recovery of all
direct and variable costs
Quantity purchases
Limited new product
introductions
Perfect forecasting
Total

Postponing pricing decisions

Slow response to market
competition
Infrequent reviews of current
price policies
Lack of an overall price plan
Total

(No. of firms
ranking)

marketing departments often postpone pricing decisions,

until all pars of the market plan are ready. (Table 6) Both
obstacles make the price-setting process difficult. By
responding too quickly, the sales group could precipitate a
pricing war. By acting too slowly, a company may not be
able to take advantage of a market opportunity.
Other contrasting obstacles presented by the departments
include the sales departments failure to adhere to existing
pricing company policies and the marketing groups failure
to review and update existing pricing policies. The failure to
abide by existing pricing policy results in a greater
discontinuity of customer orders. For example, minimum
order size is often part of a companys pricing policy. Taking
orders that are below a prescribed level can cause a firm to
incur higher transportation or increase handling charges.
A common problem with sales departments is their
tendency to make individual deals with customers without
consideration of the ramifications of this practice. For
example, offering similar customers different prices for the
same products in the same quantities can be a violation of
the RobinsonPatman Act. Likewise, pricing practices that
involve price fixing are violations of the Clayton Act.
Another obstacle to developing a comprehensive policy
for an industrial firm is the belief by the sales group that bwe
will make it up on volume.Q This topline sales revenue
approach to price setting often does not result in higher
profits but greater losses for a company. To illustrate, cutting
prices to generate customer demand requires that a firms
supply chain and production costs decrease faster than its
prices. As long as the spread between prices and costs
continues to increase, greater profits will result. To the
extent that this practice may result in lower prices without
corresponding cost declines will result in long-term losses
for a firm. Another obstacle to the development of an
effective pricing policy is the propensity of sales departments to use (Table 5) bdiscounts to close deals with
customers.Q Again, while the practice may result in
successfully consummating many orders, the long-term
result is lower profitability for the firm.
3.5. Price policy and manufacturing and customer service
The management groups that a pricing manager would
not think affects the pricing process in a firm are

(No. of firms
ranking)

Order of
difficulty

41
31

1
2

26
18

3
4

9
125

manufacturing and customer service. One department is

involved in the production and valued-added process of the
firm, and the other deals with the resolution of customer
problems. But both departments present problems for
industrial firms in price setting and implementation. The
research indicates that the manufacturing department
presents major obstacles including its insistence on the
recovery of ball direct and fixed costs.Q (Table 7). In
addition, this group desires large quantity purchases and
increased production runs to lower overall manufacturing
costs.
The customer service group often creates problems in
the pricing area by quoting prices to customers while
resolving their service problems. The department does not
coordinate its price quoting activity with marketing or
sales resulting in a great deal of confusion. Customers
often get two different price quotesone from sales and
one from customer service. The research showed that
customer service groups often quoted prices that were not
current or did not reflect the recent discount programs of
the firm. (Table 8) The lack of coordination between
customer service and sales is often due to a lack of
understanding on the part of companies of how to organize
their service and sales groups. Generally, they are often
physically separated with the service group operating as a
call center.
The production group often takes a parochial view of its
own operations with little concern for how things are priced
and how their operation will affect the pricing process in the
firm. The groups insistence on limited product additions
Table 8
Obstacles presented by the customer service department in the development
of an industrial pricing strategy
Obstacles
Too quick to quote prices
Lack of coordination with
sales on price quotes
Fails to comply with overall
company pricing policy
Fails to coordinate with sales
on price promotions
Total

(No. of firms
ranking)

Order of
difficulty

45
31

1
2

28

21

125

R. Lancioni et al. / Industrial Marketing Management 34 (2005) 123131

129

Table 9
Strategies for overcoming departmental obstacles to the development of an
industrial pricing strategy: finance

Table 11
Strategies for overcoming departmental obstacles to the development of an
industrial pricing strategy: production

Success strategies

Order of
effectiveness

Success strategies

Coordinate all price

promotions with production
Negotiate lead times on new
product introductions
Set realistic inventory levels
to reduce overstocks
Total

Emphasizing that price setting

and implementation is
strategicnot tactical or
operationalbchange the cultureQ
Full cost recovery occurs
over timenot in the short term
Pricing flexibility occurs is
essential for success in pricing
Total

(No. of firms
ranking)
67

38

20

4. Solution strategies for dealing with departmental

roadblocks
4.1. Finance department
As shown from the research developing, a comprehensive pricing strategy for a firm is difficult. To do it
requires unique solutions in dealing with each department
in a firm. The most influential department in a company
to affect price setting is finance (Table 1). Obviously, this
departments influence must be changed to develop an
effective pricing strategy. The research showed that the
most successful strategy was changing the culture in the
department from one of thinking of price setting as an
operational activity to considering it as a strategic
process. (Table 9) Another strategy was convincing the
finance group that full cost recovery must be done over
time and not in the short run. The research study also

Table 10
Strategies for overcoming departmental obstacles to the development of an
industrial pricing strategy: accounting

Emphasize that direct

costing/activity-based costing
are the best methodologies
for setting prices
Monitor the effects of all
discount and rebate programs
Emphasize that burdens and
some overheads may not be
recoverable
Provide continual accurate and
current cost data to the pricing
group for price setting
Total

Order of
effectiveness

74

33

18

125

125

and new products restricts sales revenue in many firms. The

research showed that the production departments insistence
on full cost recovery limits can limit a companys ability to
match competitive price moves.

Success strategies

(No. of firms
ranking)

(No. of firms
ranking)
49

4.2. Accounting department

Accounting was shown to be the second most difficult
department to deal with in developing a company pricesetting strategy. The most important factor is convincing
the accounting group to move away from cost-plus-profit
pricing methods to direct cost pricing. (Table 10). In
addition, the research showed that getting the accounting
group to understand that burdens and overhead costs may
not be fully recoverable in the pricing of a single
product but rather over several products and product
lines. With the general tendency of accounting departments to stress cost recovery in price setting, the research
showed that convincing them to provide accurate cost
information to price managers will help in achieving this
objective.
4.3. The production department
Because the production department is not directly
involved in the sales and marketing of products, getting
the group to cooperate in developing an effective pricing
strategy is not easy. One of the strategies found to be

Order of
effectiveness

Table 12
Strategies for overcoming departmental obstacles to the development of an
industrial pricing strategy: customer service

Success strategies

36

22

18

125

showed that, in dealing with the finance group, it is

important to convince them that flexibility is important in
price setting (Table 9).

Develop an integrated
marketing/pricing plan
Quote only list prices
to customers
Improve coordination with
the sales department and
the field sales force
Provide sufficient lead times
on price promotions, discounts,
and rebate programs
Total

(No. of firms
ranking)

Order of
effectiveness

55

38

20

12

125

130

R. Lancioni et al. / Industrial Marketing Management 34 (2005) 123131

successful in removing any hurdles to effective price

setting was working with the production department to
coordinate all planned price promotions with the setting
of production schedules. The end result of this cooperation would be fewer inventory shortages and expedited
orders.
Another strategy that the research showed to be effective
in making production more cooperative in price setting was
negotiating lead times on new product introductions. The
value of this strategy was that the production group became
a partner in the product development process from the
beginning (Table 11).
4.4. Customer service and marketing
The marketing and customer service groups can certainly
hinder the development of an effective pricing strategy in a
firm, but the research showed that there are several success
strategies that could be used to change this. For example,
customer service should only quote list prices. This makes
the discounting and deal making the responsibility of the
sales force. Another strategy that was shown to be
successful is coordination of sales promotion plans with
the customer service group. Again, this strategy worked
well because it made customer service a member of the
promotional planning process.
For marketing, the best strategy for coordinating this
groups activity with price setting was in the development of
an integrated marketing-pricing plan. This strategy forces
the two groups to work together in coordinating price setting
with the development and implementation of the marketing
plan (Table 12).

5. Summary and conclusions

This research has shown the difficulties firms face
from their own internal departments in the development
of effective pricing strategies. It is hard to understand
why there are so many organizational roadblocks to the
price-setting process. It may due to internal company
politics, a lack of understanding of the importance of a
planned price setting, or management cultures that do not
place a high priority on pricing and regard the price
setting as a bseat of the pantsQ quick response decision.
Certainly, as the research has shown, resistance to
progressive pricing strategies emanates from many groups
in a company with each having its own parochial
interests and agendas. This departmental self-serving
behavior towards pricing is not beneficial to a companys
long-term profitability and market share. Managers should
begin to examine how pricing is done in their companies
and eliminate the bstove-pipeQ thinking that may exist,
while at the same time begin to develop an overall
pricing plan that has bbuy inQ and is supported by all of
departments.

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Richard Lancioni is currently Chair and Professor of Marketing, Fox
School of Business and Management, Temple University. He has published
in a variety of marketing and business journals. His research interests
include pricing and pricing management, marketing strategy, and supply
chain management. He is a member of the American Marketing
Association, Council of Supply Chain Management Professionals, and a
Board Member of the Professional Pricing Society.

R. Lancioni et al. / Industrial Marketing Management 34 (2005) 123131

Hope Schau is currently an Assistant Professor of Marketing, Fox
School of Business and Management, Temple University. She has
published in a variety of the leading marketing and business journals.
Professor Schaus research interests include pricing, Internet marketing,
consumer behavior, and marketing management. She is a member of the
Association of Consumer Research and the American Marketing
Association.

131

Michael Smith is currently an Associate Professor of Marketing, Fox

School of Business and Management, Temple University. He has published
in a variety of marketing and business journals. His research interests
include pricing and pricing management, marketing strategy, and supply
chain management. He is a member of the American Marketing
Association, the Council of Supply Chain Management Professionals,
and the Direct Marketing Association.