Relating price strategies and price‐setting practices

Purpose – This article aims to address the relationship between price strategies and price‐setting practices. The first derive from a normative tradition in the pricing literature and the latter from a descriptive tradition. Price strategies are visible in the market, whereas price‐setting practices are hidden behind the boundaries of an organization. Design/methodology/approach – The study deals with the relationship between price strategies and price‐setting practices that refer to the use of customer value, competition, and cost information. Hypotheses are tested on survey data on 95 small and medium‐sized manufacturing and service firms in The Netherlands. Findings – The results show that price strategies and price‐setting practices are related because strategies are implemented through price‐setting practices. However, some firms do not pursue any of the strategies indicated by pricing theory, some firms engage in practices for no clear strategic reasons, and some firms insufficiently engage in appropriate practices to implement their strategic choices. Research limitations/implications – The results are limited to small companies. Researchers should examine why firms may not pursue any price strategy that is offered by pricing theory. They may also focus on organizational learning and pricing capabilities. Practical implications – Managers need greater awareness about the price strategies they can use, should be cautious about a potential mismatch between price strategies and price‐setting practices, and should reassess whether their firms are capable of engaging in the appropriate practices. Originality/value – Linking price strategies to price‐setting practices reduces conceptual confusion in the pricing literature and may help to specify the gap between pricing theory and practice.