Demand restrictions in price‐based decisions: managers versus consumers
| Date | 01 April 2006 |
| Published date | 01 April 2006 |
| Pages | 214-224 |
| DOI | https://doi.org/10.1108/10610420610668658 |
| Author | Isabel María Rosa Díaz |
| Subject Matter | Marketing |
Pricing strategy & practice
Demand restrictions in price-based decisions:
managers versus consumers
Isabel Marı
´a Rosa Dı
´az
Department of Business Administration and Marketing, University of Seville, Seville, Spain
Abstract
Purpose – The aim of this study was to evaluate the role of qualitative demand factors in companies’ pricing decisions.
Design/methodology/approach – An empirical study was carried out, interviewing price managers in a selection of 74 companies from Andalusia
(Spain).
Findings – It has been observed that qualitative aspects play a secondary role in pricing decisions. There are two main reasons: quantitative
information is easier to obtain, use and interpret than qualitative information; and most companies, and in particular smaller ones, have no budget
available for qualitative market studies.
Research limitations/implications – The empirical research is based on a sample of companies in the food sector. Thisopens several lines of future
research: to diversify the areas of activity participating in the study; to include other company characteristics in the analysis; and to design operative
methods for incorporating qualitative demand factors into pricing decisions.
Originality/value – The relevance of this study lies in the strong influence that can be exerted over consumers’ purchasing decisions by qualitative
aspects of demand.
Keywords Pricing, Demand, Food industry, Spain
Paper type Research paper
Factors determining pricing decisions in service
companies: the role of demand
Establishing and changing the sale price of a product is an
extremely complex multidisciplinary process involving
production, finance, legal and marketing considerations.
Within the process of establishing the sale price, the
predominant role has most frequently been taken by cost
limitations, which is why the greater part of the studies and
methods developed in this area have concentrated on these
factors (Avlonitis and Indounas, 2005). However, to set a
price correctly, the target market, and the restrictions that this
market involves, must also be taken into account, and must be
given appropriate weighting (Christopher and Gattorna,
2005).
In this “market orientation” context, one factor which
companies often take as a reference point for their pricing
decisions is demand. The objective is to analyze the influence
of price on consumers’ purchasing decisions. That influence
can be analyzed from two different standpoints. One is
quantitative, and relates to the results of the consumer’s
purchasing decisions as a function of the price. The tool
normally used for this quantitative evaluation is price
elasticity of demand. The second perspective in the analysis
of consumer price sensitivity is qualitative. The objective in
this case is not concerned so much with the results of price-
based purchasing decisions, but rather to understand the
consumer’s interpretation of the price. The central element
here is not how much is sold depending on the price, but why,
and how that price is interpreted and evaluated (Henderson,
2005).
In short, the analysis of consumer price sensitivity requires
knowledge of both the magnitude and the characteristics of
that sensitivity (Harmon and Foote, 2003; Homburg et al.,
2005; Lindsey-Mullikin, 2003). The main reason is that,
although price elasticity of demand (a quantitative factor) is
useful in price management, companies must also bear in
mind its limitations (Bearden and Urbany, 1998; Rao et al.,
2000; Rosa Dı
´az, 2005):
.elasticity can only be observed after the f act;
.its usefulness as a forecasting tool depends on the extent
of any changes in the specific conditions and situations in
which it was calculated; and
.it is important not only to identify the sensitivity of
demand to price variations, but to know how to respond
to this sensitivity in order to fulfill objectives.
These limitations make it advisable to complement elasticity
studies with other research based on behavioral science, that
is, qualitative factors (Henderson, 2005; Lichtenstein and
Janiszewski, 1999).
In this context, the aim of this study was to ascertain and
evaluate the role of demand factors in companies’ pricing
decisions and, in particular, the role of qualitative aspects.
The objective, therefore, was not simply to discover whether
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
15/3 (2006) 214–224
qEmerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/10610420610668658]
214
To continue reading
Request your trial