Pricing orientation, pricing capabilities, and firm performance

Purpose – How do pricing methods affect firm performance? From both an academic as well as a managerial perspective this question is important. The literature is silent on the relationship between pricing approach and company performance. The aim of this paper is to address this research gap. Design/methodology/approach – To address this practical and theoretical deficit, the authors surveyed 1,812 professionals involved in pricing to measure the influence of pricing approach on firm performance. Findings – The authors find a positive relationship between value‐based pricing (but not competition‐based pricing) and firm performance. Furthermore, the authors find that the three pricing orientations differently influence firm pricing capabilities, which in turn are positively related to firm performance. This paper is thus the first paper documenting a positive relationship between value‐based pricing and firm performance through a quantitative research design. Originality/value – These findings have important theoretical as well as practical implications and suggest that all firms, regardless of size, industry or geography, benefit from value‐based pricing.