Marketing and Entrepreneurship: Research Ideas and Opportunities

By Gerald E. Hills | Go to book overview

11
Pricing for Entrepreneurial Firms

Richard D. Teachand Robert G. Schwartz


BACKGROUND

In 1964, Udell conducted a multi-industry study and found that chief executive officers (CEOs) ranked price only eighth in importance out of 12 policy areas. Although Oxenfeldt ( 1973) claimed that pricing decisions were highly intuitive and had historically been based on cost considerations, the importance of pricing to a firm's management had changed over time ( Samiee 1987). Current literature suggests that pricing strategies are now considered to be one of the most important aspects of a firm's overall strategic business planning process ( Ferrell, Lucas, and Bush 1989).

Porter ( 1980) postulated that there were three generic dimensions to a firm's marketing strategy. These were: cost leadership (resulting in low prices), focus (the careful selection of specific target markets), and product differentiation (having unique products). This generic view of a firm's marketing strategy leads to a diversity of strategic management choices. Rich ( 1983) found that smaller firms in technology-intensive industries tended to be price followers and provided profitable but higher-priced offerings. Cost leadership strategies were also deemed infeasible for small firms ( Dess and Davis 1984).


ENTREPRENEURIAL FIRMS AND PRICING

Teach, Schwartz, and Tarpley ( 1992) researching price positioning and price leadership, reported that micro electronic companies considered price positioning and price leadership strategies as independent strategies. In contrast to Rich, they found that 37 percent of their sample of CEOs considered their firms to be "low priced" and 29 percent "high priced." In addition, 27 percent of the CEOs

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