Organizing for value appropriation: Configurations and performance outcomes of price management

Abstract

Value creation and value appropriation are fundamental strategic processes. Both can be analyzed at the level of the individual manager, an organization or at the systemic level. On the organizational level, empirical research so far has put strong emphasis on aspects of value creation, while value appropriation has received less attention. We analyze value appropriation through the organizational implementation of pricing processes in the context of formalization, specialization, centralization, dispersion of influence, and top-management involvement in firms' pricing organization. Through a large-scale exploratory study of 419 European companies in the B2B area, we identify five empirical organizational configurations of pricing organization for value appropriation. Testing the effects of pricing configurations relating to pricing performance as well as overall firm performance reveals that more systematic approaches to pricing organization significantly improve value appropriation outcomes. Opposed Reviewers: Response to Reviewers: Reviewer #1: A very well written and interesting paper based on an extensive review of the literature to synthesize into a comprehensive conceptual framework tested in a large scale survey to generate clusters to then test for performance of different organizational approaches to pricing. The only comment I have is that in reporting the results the authors describe the performance levels of the different clusters but do not give the data on performance outcomes. The results section in general should in my view select data to support the interpretation.-> Response to reviewer comment 1: Dear reviewer, thank you very much for your positive feedback on our manuscript. We fully acknowledge that including actual data in the results section facilitates reading and comparing these results and, thus, improves the manuscript. Hence, we have inserted the numbers of our results as an addition to the verbal formulations, both for the description of clusters and in the discussion of performance outcomes.

Micro-foundations of value-based pricing and selling

“…While both disciplines study value creation and value capture, the relative emphasis and focus is different due to different objectives. 12 For example, while strategic management puts a strong emphasis on isolating mechanisms, such as intangible resources, for value capture (Lepak, Smith, & Taylor, 2007), marketing strategy focuses on processes, such as pricing (Burkert et al, 2016) and selling (Blocker et al, 2012). It is thus perhaps not surprising that value creation and value capture can be studied at the individual, organizational, and societal levels (Lepak, Smith, & Taylor, 2007).…”

“…For supplier firms, value capture means making a profit from enabling customer value creation. Value creation has been extensively studied in marketing, while value capture has largely been overlooked (see Burkert et al, 2016;Ellegaard, Medlin, & Geersbro, 2014;Hinterhuber, 2004). In fact, academia in general has shown little interest in value capture compared to value creation, leading Reitzig and Puranam (2009, p. 765) to conclude that research has primarily focused on firms' "ability to create value, rather than their differential ability to capture and protect the returns to value creation from the forces of competition."…”

“…Previous research has highlighted that pricing represents an important process for supplier firms to capture value (e.g., Burkert et al, 2016;Dutta, Zbaracki, & Bergen, 2003;Matthyssens, Vandenbempt, & Goubau, 2009;Nagle & Holden, 2002;Smith & Nagle, 2006;Töytäri, Rajala, & Brashear Alejandro, 2015), and marketing scholars have frequently highlighted the connection between pricing and firm revenue (Forman & Hunt, 2005;Lancioni, Schau, & Smith, 2005) and profit (e.g., Hinterhuber, 2004;Monroe, 2003;Nagle & Holden, 2002). Furthermore, empirical investigations utilizing secondary data indicate the larger potential profits attainable through price increases vis-à-vis cost decreases as showing that-ceteris paribus-pricing has a larger effect on value capture (Hinterhuber, 2004;Marn & Rosiello, 1992).…”

“…First, they can differ due to how pricing is organized across firms. For instance, Burkert et al (2016) surveyed managers from 419 small, medium, and large firms operating in business markets, and categorized them into five different clusters depending on how pricing is organized. The authors found that these clusters often differ along such variables as formalization, centralization, and specialization, for instance.…”

“…In marketing, two processes are commonly linked to value capture on the supply side: pricing and selling (see Blocker, Cannon, Panagopoulos, & Sager, 2012;Burkert, Ivens, Henneberg, & Schradi, 2016;Matthyssens, Vandenbempt, & Goubau, 2009;Nagle & Holden, 2002;Smith & Nagle, 2006;Töytäri, Keränen, & Rajala, 2017;. In this regard, Dutta, Zbaracki, and Bergen (2003, p. 616) note that "pricing is an important means by which a firm appropriates [i.e., captures] value through market-based exchange" and Blocker et al (2012, p. 16) argue that "salespeople are in a prime position to […] help their firms appropriate [i.e., capture] greater value."…”