Pricing strategy and revenue models: A multiple case study from the IT service sector in Finland

Abstract

Objectives of the Study:

The goal of this research is to study the two managerially and academically important issues of 1) the level of value based pricing used in SMEs and 2) pricing strategy as a tool for partnerships.

Academic background and methodology:

In one of the staple articles on the issue of value-based pricing, Hinterhuber explains that although the effect of pricing on profitability is quite clear, managers often see pricing as a zero sum game, where the company's gain comes only at the customer's expense. (2004) Managers often do not pursue value pricing because they perceive customers as quite price sensitive. However, in their research, Avila and Dodds found that purchasing managers ranked price as the least important criteria in the decision making process (1993).

Although the literature has attempted to describe pricing as a tool for partnerships (Voeth & Herbst, 2006; Johnston & Lawrence, 1988; Porrini, 2006), there has been no attempt to explain what aspects of pricing and revenue strategies make the most significant contribution to the success of partnerships. Sainio and Marjakoski describe value based pricing and revenue logic as key determinants of business models, but do not make the connection between these inputs and the goal of building partnerships (2009). We addressed this gap in the literature by proposing a framework to assess pricing as a tool for partnerships based on these two dimensions: 1) value versus market pricing and 2) on-going versus one-time revenue models.

The multiple case study method employed in this study helped to overcome the knowledge gap of novel pricing concepts by providing clarification of concepts to the interviewees. The interviews were structured which encouraged comparability between the cases. The integrity of the interview data was ensured by conducting all interviews within a short time frame, producing full transcripts of interviewee comments, and translating the complete texts.

Findings and conclusions:

The proposed framework was tested and can be used as a strategic tool to build deeper partnerships with clients. The dimensions used in the framework were supported by the stated goals of the interviewees, who each hoped to build and maintain partnerships with their clients.