Value Co-Creation in Industrial Buyer-Seller Partnerships ... - Doria

industrial relationships the price can be seen as either a benefit or a sacrifice or both,depending on its accuracy and justifiability.3.4.3 Conceptualizing priceThe classical economic definition of price is where the supply and demand curves meet andexchange takes place. In industrial marketing price is most often seen as a quantification ofvalue. What is common for most of the literature on price is that it is based on anassumption of arm’ s length relationships between buyer and seller. When looking at highinvolvementrelationships such as a partnership, the idea of value and pricing principles aredifferent. The traditional cost-plus principle, which is the most common pricing principlefor industrial goods, might not be the most relevant 6 (Noble & Gruca 1999). According toHåkansson and Gadde (2002) one obvious reason for a relationship is that it should result incost reduction due to coordination. The argument is that value is synonymous with costreduction within a dyadic relationship, when looking at single transactions. Collaborationwith suppliers is a mechanism for cost reduction for the customer firm, which byimplication, impact upon pricing. However, value in long-term buyer-seller relationshipscan be seen as more than a question of cost reduction (Ibid.).While research reports that cost-plus pricing is the most commonly used pricing logic,the argument often cited is that price should be based on value and demand. According toKortge and Okonkwo (1993) a supplier should assess the value of a product for thecustomer and charge a price that is based on customer perceived value. Shippley and Jobber(2001) present a six-stage process for strategic price setting in the industrial context, basedon cost, demand, and competitor prices. Ford et al. (1998) take a relational perspective topricing and argue that price should reflect the investments and adaptations made by theactors in the relationship.Price as an aspect of cost and revenue in the exchange processGadde et al. (2002) discuss price as an empirical phenomenon. They conclude that “ price isonly one aspect of a complex pattern of primary and secondary cost and revenue patterns inthe exchange process among buyers and sellers in industrial markets” (p 16). This526 Cost-plus means a unit cost, including direct and indirect costs, plus a percentage mark-up (Noble & Gruca1999)