Establishing prices for new items has distinctive importance because sales performance during the first weeks after launch of an item greatly influence an item’s subsequent success. Pricing innovative items also is a distinctively difficult challenge because there’s little or no reference history.
The researchers’ objective was to identify psychological traits of pricing professionals which are associated with profitable marketplace performance of newly introduced items. The analysis was in terms of three approaches to setting the price:
- Cost-based pricing. Add a specific percentage to whatever you paid for the item.
- Competition-based pricing. Base the price on what others are charging for that or an equivalent item.
- Value-based pricing. Determine the maximum amount people will pay for the benefits offered by the item.
One winning psychological trait for robust sales performance of recently introduced items proved to be the pricing professional’s intuitive skills. This was measured via self-reported degree-of-agreement with items like “When I make a business decision, I trust my inner feelings and reactions.” The contribution of intuition makes sense. Depending on instincts avoids being overwhelmed by the abundance of information.
Another winning trait was conformity, which the researchers defined as recognizing in what ways other stakeholders are setting their prices and then setting your prices in response. Again, this makes sense. Pricing operates within the marketplace context. Analyses of the data indicated that managers who are more conforming can predict product performance more accurately whether they are engaged in cost-based or value-based pricing. At least part of this advantage is attributable to managers’ use of intuition.
Other research shows that the intuition must be educated by past experience and remain open to continuing improvement.
In stating their conclusions, the researchers recognize the bounds on their own rationality. They describe their study as exploratory rather than comprehensive, and they identify crucial questions for follow-up research. Yet, consistent with recognition of the need for marketers to move ahead based on the best conclusions available, the researchers suggest that those people responsible for pricing be selected for their demonstrated skills in intuition and conformity.
Another winning trait was conformity, which the researchers defined as recognizing in what ways other stakeholders are setting their prices and then setting your prices in response. Again, this makes sense. Pricing operates within the marketplace context. Analyses of the data indicated that managers who are more conforming can predict product performance more accurately whether they are engaged in cost-based or value-based pricing. At least part of this advantage is attributable to managers’ use of intuition.
Other research shows that the intuition must be educated by past experience and remain open to continuing improvement.
In stating their conclusions, the researchers recognize the bounds on their own rationality. They describe their study as exploratory rather than comprehensive, and they identify crucial questions for follow-up research. Yet, consistent with recognition of the need for marketers to move ahead based on the best conclusions available, the researchers suggest that those people responsible for pricing be selected for their demonstrated skills in intuition and conformity.
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