Index of Paper Presentations for the Parallel Sessions - Academy of ...

May, 2012a. Lillian L. Cheng, Cheng, Monroe & Associates, Inc.: lilcheng@me.com; 1(206) 979-6338; 321High School Rd NE, Suite D3, #138, Bainbridge Island, WA 98110b. Kent B. Monroe, Cheng, Monroe & Associates, Inc.: kentmonroe@verizon.net; 1(804)716-2395; 4905 Old Millrace Place, Glen Allen, VA 23059This is a working paper. Please do not quote or copy without prior approval of the authors.An important determinant of corporate profitability, sustainability and survivability is a firm‘spricing strategy. It is, therefore, surprising to note the relative lack of attention paid to thisimportant element of marketing strategy. Among the key approaches to developing pricingstrategies are cost-based pricing, competition-based pricing and value-based pricing. However,cost-based and competition-based pricing strategies are reactive whereas value-based pricingstrategy is proactive (Ross 1984; Monroe 2003). Although the benefits of value-based pricingstrategy have been articulated (Monroe 1990), relatively few companies practice pricing to value(Hinterhuber 2008).There are obvious difficulties in implementing value-based pricing, not the least of which isdetermining customers‘ value perceptions, and importantly, communicating a product/service‘svalue to current and potential customers. Also, firms frequently are constrained by how thecompetition prices their products in the same categories. Since buyers use reference prices tointerpret prices they encounter (Monroe 1971a), competitors‘ prices may limit implementingprices that truly reflect actual value. This reference price typically is within buyers‘ acceptableprice range (Monroe 1971b). An essential step in a value-based pricing strategy is tocommunicate the value proposition of the firm‘s product/service offerings to its buyers. Thiscommunication is particularly critical in situations when the firm‘s target price is at or above theupper price thresholds of its customers. In this paper, we argue that marketing channels play avital role in communicating product/service value through customer pre-purchase experiencesthat influence buyers‘ acceptable prices.Acceptable Price RangeBuyers have a range of acceptable prices that form a judgment scale for assessing prices in aproduct category (Monroe 1971b). this range of acceptable prices is part of the buyers knowledgeof the products and market and is formed from their prior experiences. Buyers have, therefore, anupper and a lower price threshold. These price limits shift as buyers obtain more informationabout the product and the distribution of prices for the product category in the market. Positivebuyer product perceptions move their range of price acceptability upwards (Monroe 2003) withthe upper price limit increasing more leading to a wider acceptable price range (Rao and Sieben1992). Understanding the process by which buyers learn through experiences and decide topurchase is, therefore, key in examining how this acceptable price range may be widened and theupper price threshold lifted.BUYERS LEARNING AND DECISION PROCESSESAs buyers shop, how do they process the bewildering array of information on attributes, benefits,price, quality and ―learn‖ about the products so as to make their choices? What role doesmarketing play in aiding buyer information search and decision-making? It is our thesis thatbuyers obtain information and ―learn‖ through their experiences. Some of this learning isintentional or explicit including fact learning, immersed learning or learning by doing. Otherlearning is incidental or implicit in that neither the experience nor the knowledge acquired is