New Digital Service Pricing: the Impact of Price-Setting Practices on Market Performance and Pricing Power
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School of Business |
Master's thesis
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Date
2017
Department
Major/Subject
Mcode
Degree programme
Information and Service Management (ISM)
Language
en
Pages
72
Series
Abstract
This thesis examines the concept of new digital service pricing from a theoretical and an empirical point of view. Theoretically the topic was approached by summarizing materials in pricing frameworks from 1950 until 2016 to be applied for a model that may assist managers making pricing decisions for new digital services. The model consist of four parts representing the identification of: Value creation and value drivers, market strategy and corporate objectives, the competitive price range and lastly pricing strategy in the form of a scheduled set of final prices with the objective to maximize total discounted lifetime profits. The starting point for the empirical study was to adopt the conceptual and measurement model by Ingenbleek et al. (2013) which was modified to the needs of digital services. A new scale is developed for cost-informed pricing while the scales for relative cost and relative price are modified to better suit pricing research in the digital services industry. Upon testing the conceptual framework, suggestions for further modifications are proposed. Most notably, a new construct for market potential should be included. Further issues not currently covered by the framework are value transparency and the more complex structure of the final set of prices, as opposed to the study of a final single price point. A recommendation is also made for the reimagination of the outcome variables to better approximate total discounted lifetime profits. The proposed effects had to be studied in an exploratory manner as a cause of the small sample obtained (N=20). Careful support is given to the proposition of value-informed pricing having a positive effect on market performance. Higher use of value-informed pricing also seem to increase the variance in relative price, which leads to the hypothesis that a construct for market potential should be included in the conceptual framework. Careful support is also found for the proposition that the negative impact of cost-informed pricing on relative price is larger when relative service advantage is high. Competitive intensity might affect market performance negatively, while the effect on relative price was inconclusive.Description
Thesis advisor
Halme, MerjaKeywords
pricing, price-setting practice, new service pricing, best-practice