Pricing Research in Marketing: The State of the Art

Price is the only marketing mix variable that generates revenues; all others involve expenditures (or possibly investments) of funds. The effects of price changes are more immediate and direct, and appeals based on price are the easiest to communicate to prospective buyers. However, competitors can react more easily to appeals based on price than to those based on product benefits and imagery. It can be argued that the price decision is perhaps the most significant among the decisions of the marketing mix (strategy) for a branded product. Conventional wisdom suggests that the price decision should be made in consonance with those of other elements of marketing strategy. Despite the high importance of price, academic research on pricing issues in marketing has been modest at best. This has been true for various reasons: researchers have emphasized financial and cost analyses used to reach price decisions within a corporation, there has been greater support for and growth of advertising and product research, research in marketing has relied on behavioral science methodologies, data This paper is an attempt to synthesize the recently published research on pricing issues from the viewpoint of marketing science. The review will consider the relevance of selected trends such as the experience curve, individual choice models, and dynamics of evolution of demand over time on the issues of pricing decisions for products. The focus will be on such issues as the static and dynamic models of pricing (particularly for new products over the life cycle), price discounts, behavioral considerations for pricing strategies, interactions of price and other marketing mix variables, product line pricing, and pricing across a marketing channel. The paper will identify some directions for future research in this important area. * I thank Sharon McCarthy for her assistance in this research and Darius Sabavala, Subrata Sen, and an anonymous reviewer for their comments on an earlier draft of this paper. This work was partially supported by the Summer Research Fund of the Graduate School of Business and Public Administration, Cornell University.