shattering the myth of costless price changes

European Management Journal Vol. 21, No. 6, pp. 663–669, 2003 2003 Published by Elsevier Ltd.Pergamon

Printed in Great Britain0263-2373 $30.00doi:10.1016/j.emj.2003.09.018

Shattering the Myth ofCostless Price ChangesMARK BERGEN, University of MinnesotaMARK RITSON, London Business SchoolSHANTANU DUTTA, London Business School and University of CaliforniaDANIEL LEVY, Bar-Ilan University and Emory UniversityMARK ZBARACKI, Wharton School

Despite its centrality to the topic, very little atten-tion has been paid to the topic of price changes.Indeed, for the most part, organisations operateunder the myth of costless price changes. This arti-cle broadens the definition of the costs of changingprice and then presents strategic recommendationsfor improving the way in which prices are changedwithin organisations. 2003 Published by Elsevier Ltd.

Keywords: Price changes, Strategy, Pricing policies

Introduction

Firms are constantly forced to consider whether,when, and how to change their pricing. Considersome of the changes in Ford’s pricing over the lasttwo years, which have encompassed everything fromconducting auctions on-line with suppliers, to adopt-ing ‘smart pricing’ with customers. Procter & Gamblechose to change its pricing structure to Every DayLow Pricing. Retailers such as Barnes & Noble andBest Buy have had to decide how to change pricesin the on-line world. Meanwhile companies such asAmazon.com have experimented with ‘dynamic pric-ing’ in the same on-online environment. Companiessuch as Abbott Laboratories, DuPont and 3M are con-stantly deciding when to complicate their pricing toallow more bundles and systems offerings into theirpricing mix. Companies like Unilever and LVMHhave had to adjust prices in response to hyperinfla-tionary pressures in Brazil, Eastern Europe and Asia.Finally, the introduction of the Euro resulted in thegreatest incidence of price change activity in the his-tory of global markets and created enormous mana-gerial pressures for many organisations. From thequotidian challenges of increasing supplier costs, tothe pricing challenges caused by new technologies

European Management Journal Vol. 21, No. 6, pp. 663–669, December 2003 663

like the Internet, through to macro-economic factorslike the introduction of the Euro — the biggest issuethat most firms face in pricing today is when, andhow, to change their pricing.

The Myth of Costless Price Changes

Strangely, there is little in the pricing literature tohelp a manager deal with the process of changingprices. We talk as if changing prices happens magi-cally, and that there are no costs to changing pricesin our firms. Studies have stated that price wars arebecoming more common because managers tend toview a price change as an easy, quick, and reversibleaction (Carr, 1999). Essentially we live with a myththat prices are easy and costless to change.

Yet price changes are not easy, and they are certainlynot costless. Just ask Procter and Gamble about thesubstantial costs of changing to an Every Day LowPrice strategy for their products. There were hugeinternal costs associated with communicating, edu-cating and convincing managers about this pricechange within the organisation. The salesforce hadto be retrained to sell without promotions and theorganisation had to be restructured to take fulladvantage of this new form of pricing. P&G had tore-engineer their purchasing, engineering, manufac-turing and distribution functions for value pricing tosucceed. Further, it required changes in productdevelopment and the roles of both brand managersand the salesforce had to be restructured. The com-pany had to change its incentives and compensationscheme to be in line with this new form of pricing.The costs of communicating with, educating, andconvincing customers were even larger. Many cus-tomers were very angry. The CEO of Stop and Shopwent so far as to say that ‘P&G is acting like a dic-

Essentially we live with a

myth that prices are easy and

costless to change

SHATTERING THE MYTH OF COSTLESS PRICE CHANGES

tator. Like all dictators they will fall. We will doeverything in our power to undermine their plan’.Wholesalers were also upset. SuperValu added a spe-cial surcharge to P&G products above its regular fees,and many wholesalers discontinued or stopped mer-chandising P&G brands. One senior P&G managersaid, ‘I had never in my 30 years in this business seenour customer base as angry, both in what we weredoing, and in how we were doing it.’ (Lal and Kris-tofferson, 1996).

Or just ask executives at Amazon.com. The customeroutrage at the price changes being made by Ama-zon.com with their experiments in dynamic pricingwas immense. The outcry was so large that they hadto rescind their pricing policy immediately, and issueboth public apologies and offer money back to thosecustomers who were affected.

Just ask Jacques-Etienne de T’Serclaes, partner atPriceWaterhouseCoopers in Paris, and formerly themanaging director of Euromarche. He states thatfirms will incur ‘major up-front costs inimplementing the changeover to the new currency’.They will have to ‘train theirworkers…modify their com-puter systems and checkoutmachines. They will have to re-price everything in their stores,and in most cases, maintaintwo prices for each product –the new Euro price and the oldnational price’ (Carr, 1999). Manfred Gentz, a mem-ber of the Board of Management of DaimlerChrysler,in Stuttgart was appointed to lead DaimlerChrysler’sEuro initiative. Gentz stated that the costs of pricechangeover to the new currency have been substantialand that ‘Approximately 1500 of our employees areinvolved in euro-related projects, and we expect tospend DM 200 million on the changeover’ (Carr, 1999).

According to the literature on the economics of priceadjustment, prices are often very costly to change.Recent field studies have documented that the processof changing prices can be very expensive whether inretail markets or industrial markets (Levy et al., 1997).Further, the most important costs of changing pricesare the time and attention required of managers togather the relevant information and to make andimplement decisions and preparing customers aboutthe price changes (Zbaracki et al., in press).

Fortunately for managers, there is an emerging litera-ture in marketing and economics that can help themknow when a price change is appropriate, and howto change prices most effectively. In this paper we’lldraw on that literature, and on experiences fromfirms who have faced the challenge of pricing, toshow you how to deal more effectively with chang-ing prices at your firm.

From e-commerce to international markets, this per-

European Management Journal Vol. 21, No. 6, pp. 663–669, December 2003664

spective on the dynamics of pricing offers managersnew tools and perspectives to tackle the kinds of pric-ing challenges they’ll be facing in the years ahead.We develop a framework for understanding the var-iety of customer, supply chain, and company aspectsof changing prices. This framework is valuable at thetactical level for people making specific pricingdecisions, at the managerial level where firms set uppricing processes, and at the strategic level where anunderstanding of pricing dynamics is critical to thelong-term viability of a firm.

The Costs of Changing Price within anOrganisation

The first inherent cost that many managers experi-ence in changing prices are simple physical costs.These costs can be defined as the costs incurred inthe actual physical act of changing prices. Originallythese costs were called ‘menu costs’ in the economicsliterature because they represented the literal costs ofaltering an existing menu of posted prices (see Rot-

emberg, 1982). Large retailerssuch as Carrefour, Aldi, andTesco experience these physicalcosts on a weekly basis throughthe labor costs associated withchanging thousands of shelfprices within their stores.Another way in which these

costs are often experienced by firms such as 3M,Ericsson, and Xerox is through the costs of produc-ing, printing, and distributing their price books.These costs can be substantial. In the retail groceryindustry the costs of changing prices is over 100,000annually per store, generating enormous costs for amajor chain, and taking up as much as 40 per centof the reported profits for some of these chains (Levyet al., 1997).

Another source of costs is managerial costs. Mana-gerial costs are defined as ‘the time and attentionrequired of managers to gather the relevant infor-mation and to make and implement decisions’ (Balland Mankiw, 1994, p. 142). Typically these costs areincurred within an organisation as a result of threedistinct activities: information gathering, decision-making, and communication (Zbaracki et al., inpress). Initially, it is important for companies togather information on their production and sellingcosts, competitive actions, and their customers’ likelyreactions to price changes. Usually this informationresides in many places throughout an organisation.Accounting and finance have the cost information,the salesforce has customer and competitive infor-mation, and marketing has the other sources of cus-tomer and market information. MIS must help set upsystems and software to allow managers to gather,store, evaluate and communicate this information inthe company.


Second, managers need to analyse this data andevaluate the benefits of various pricing actions andreactions. Actuaries at companies like Prudentialspend a great deal of time analysing the prices oftheir product offerings looking at costs, actuarialtables, competitive prices, customer information andcompany goals. Aside from the enormous amount oftime, many people throughout the organisation canbe involved in analysing pricing data. At Procter andGamble, for example, there are pricing specialistswho support brand managers who make pricingdecisions. Particularly large price changes must beapproved by the board. Upper management also setsgoals and objectives for pricing, handles internal dis-putes about pricing strategies, and deals with cus-tomers wanting to complain about or renegotiateprices. Upper management often has to resolve con-flicting views of pricing between the corporate man-agers and the salesforce. Another factor in the mana-gerial analysis costs is the frequency of price changedecisions. In large industrial firms, like 3M or AbbottLaboratories, this frequency is often annual. Whereasin the retail business like Safeway, the frequency ofprice changes runs on a weekly basis. Price changedecisions can even be made on a daily level, as is thecase at easyJet with their yield management systems.The combination of the time committed to a pricechange, the number of employees that are involved,and the frequency with which these decisions aremade can add up to enormous managerial costs dur-ing the analysis stage.

Third, price changes have to be sold or communi-cated within the firm. Price changes must be com-municated internally to upper management, to thesalesforce, and to other employees. In each case, notonly must the prices themselves be communicated,but also the logic behind the change. This is partlyso that members of the organisation can make senseof the price change, and also because many of theseemployees will eventually be responsible for com-municating this logic externally to customers. Thiscommunication requires preparation, and oftenresults in long hours of discussion and educationacross the organisation. For example, when DHL wasattempting to revise its pricing, the Worldwide Salesand Marketing Director had to communicate hisdecisions to country managers and their staff in over50 countries. Each country’s managers had differentreactions to these changes. This created an immensecommunication task for DHL, and its managers.

Both physical costs and managerial costs make up thetotal costs of price changes within a firm. In general,despite their relative subtlety and innocuousness, themanagerial costs dwarf the physical costs of pricechange and are by far the more important costs ofadjustment (Ball and Mankiw, 1994). It is importantfor managers to be aware that more visible physicalcosts may mask much larger managerial costs. Forexample, if bricks and mortar retailers such asMarks & Spencer or Barnes and Noble were to only


look at the physical costs of pricing they could easilychange prices much more frequently on their webpages than in their stores. The Internet, however,does not necessarily reduce the managerial costsinherent in a price change. In fact, quite the oppositewas true for Barnes and Noble. Their attempts to set‘click’ prices lower than the ‘brick’ prices wereinitially plagued by internal resistance from theiroffline businesses fearing cannibalisation. The Inter-net can actually increase the internal organisationalcosts of price adjustment, due to the added com-plexity of dealing with e-prices and in-store pricing,the added data from people buying through websites, and the additional knowledge and systems thatare required to understand e-buying. It is a trait ofmany new technologies (such as electronic shelf lab-els, Coke’s automatic vending machine, and theInternet) to claim that they can lower the costs ofchanging price. However, these technologies actuallyonly reduce the physical costs of changing price. Itis not clear whether these technologies will lower themanagerial and previously mentioned customercosts. Yet it is these costs that form the vast majorityof the costs incurred in changing price.

Managers must be fully aware of the full range ofmanagerial costs that may exist within their organis-ations when they change their prices. By being awareof these costs you are less likely to jump to the new-est fad in pricing, and you are less likely to rely onprice cuts as an initial response to competitiveactions. Further, these costs may limit your com-pany’s ability to react to price changes effectively.Managers considering new pricing formats, fromyield management to bundling/systems sellingshould be aware that the costs of changing pricingformats especially the internal organisational andcustomer preparation costs can be substantiallyhigher than the costs to change prices within an exist-ing pricing format. For example, salespeople at com-panies like Signode, John Deere and Abbott Labora-tories complain that price change processes requiremany levels of authorisation and therefore causelarge delays in the price change decisions. This is cru-cial because in many cases an inability to react toprice changes effectively can lose sales. An under-standing of managerial costs is critical in understand-ing whether a price change should be undertakenand also how it can be most effectively implemented.

Invest in Changing the Way Prices areChanged

It would be a mistake to portray the costs of changingprices as static limitations that every manager mustaccommodate into their pricing strategy. Aside fromidentifying the current costs of changing prices, firmscan also strategically modify their pricing processesin order to reduce the costs that will be incurred in

Interestingly, many

managers are only conscious

of the costs that they incur

when their supplier changes

prices to them


future price changes. Firms can reduce the numberof people involved in the pricing process, invest insystems that improve the flow of information amongparticipants in the pricing process, and invest intraining managers so that they are more effectivewith the time and analysis they spend on pricing.Creating more efficient pricing systems can save afirm money and simultaneously give it a competitiveadvantage in pricing. For example, American Air-lines estimated that the cost savings it could gain byreducing its number of fares from 700,000 to 500,000could reach $25,000,000 annually and reinforce theirposition as a price leader in the market (Silk andMichael, 1993).

One of the most natural places to think about re-engineering these costs is in firms in economies fac-ing inflation and hyperinflation. Firms in countriessuch as Brazil, Turkey, Eastern Europe and Asiancountries such as Korea and Japan, adopt a varietyof activities to reduce their costs of changing prices.In Israel in the 1980s stores would go from puttingprices on each product to putting prices on a chalkboard at the front of the store, by the checkout stands,so that prices could be changed more easily. Anothermethod that Israeli bookstores invented to reduce themenu cost caused by the need to frequently adjustprices because of the hyperinflation was to groupbooks by price groups and assign two digit codenumbers to the books in each group. Afterwards, tochange the prices of the books they simply alteredthe price that corresponded to each price group thussaving time and, more importantly, the physical costsof changing price. Another process to reduce the costof adjusting prices is known as co-called ‘dollarisa-tion’: the tendency in inflationary economies to postprices in foreign currency units that remain relativelystable. As the domestic cur-rency depreciates and thusloses value, there is a need toadjust prices upward to keepthe real prices stable. If thevalue of the US dollar remainsstable, then by quoting prices inthe US dollars, the seller elimin-ates the need to adjust theprice. The adjustment takesplaces automatically as theprice of the US dollar in termsof the domestic currency increases. Firms in Israelundertook this practice of dollarisation during per-iods of hyperinflation. Prices of durable goods, elec-tronics, and houses were always listed in dollars,from hundreds to thousand of dollars per item. Thiswas especially interesting given that, by law, no onein Israel was allowed to hold more than $100 US dol-lars demonstrating that although the prices werelisted and calculated in dollars, they were being paidfor in Shekels.

It is important to note that a firm may need to investmoney today in order to create more efficient pricing


processes (Dutta et al., 2003) and thus reduce coststomorrow. A recent study (Zbaracki et al., 2002)identified three types of investments that firms canmake to improve their pricing processes: humancapital, systems capital, and social capital. Humancapital refers to investments made in the knowledgeand skills of employees engaged in pricing activities.For example, Abbott Laboratories developed a spe-cific pricing training course for all the members ofone of their divisions. Systems capital refers to invest-ments made in the hardware and software used tofacilitate pricing processes. For example, one majorautomotive supplier invested millions of dollars innew software systems to analyse the financial impli-cations of price changes. In future years this reducedthe managerial time and labor spent on price adjust-ment substantially. Social capital refers to invest-ments made in the communication and organisationstructure and culture that unites the different parti-cipants in a particular firm involved in pricingactivity. For example, a pricing manager at a majorautomotive manufacturer created pricing teamsdrawn from key participants from all over the com-pany in order to specifically create better interactionsand communication around pricing decisions.Regardless of the actual investments made, theseexamples highlight the rich array of potential sol-utions that are available to managers who attempt toimprove their pricing processes and thus reduce thecosts of changing price in the future.

Price Changes and the Supply Chain

When prices are changed they can have an enormousimpact on your supply chain partners. At Supervalu,

the largest wholesaler in theUnited States, the senior pric-ing manager stated: ‘Whenevera supplier like Kraft changestheir prices we have to evaluatewhat new price we charge ourretailers, and then our retailershave to make similar calcu-lations.’ Thus, a price changeby Kraft created costs for theircustomers, like Supervalu, andtheir customers’ customers, the

retail supermarkets, and then their customers, theconsumer. Essentially a price change ‘ripples’ downthrough the supply chain. At one large supplier ofindustrial parts the management lowered its listprices, thinking that this would be well received byits customers. But many of these customers wereactually upset by this price cut because their com-puter systems were only set up to deal with priceincreases. In this instance the price decrease wouldhave proved costly because each decrease wouldhave had to be entered by hand into the system.Interestingly, many managers are only conscious ofthe costs that they incur when their supplier changes

%pricing is all about price

changes, and that these

changes are often

simultaneously subtle and

substantial


prices to them. They are not cognisant of the coststhat they create for their customers when they changetheir prices. Many times channel efficiencies can beobtained and customer relationships can be extendedwhen managers take a less myopic view of the costsof changing price throughout their supply chain.

Alternatively, it is also possible for a manager to usetheir cognisance of the pricing change costs of theirsupply chain partner to their pecuniary advantage.Consider an example of the supply chain in the groc-ery industry. One manager at IRI used his under-standing of these costs to make additional profits forhis clients. He realised from his data that retailersincurred costs from small price changes and thereforewould not always change theirretail prices in response tosmall price changes from themanufacturer. These sizesranged from a nickel to a quar-ter depending on the productcategory. He counseled his cli-ents against small pricedecreases because they wouldnot be passed on to the endconsumers. He also supportedsmall price increases because they would not lead tohigher prices for end customers.

Customer Interpretations of PriceChanges

Changing prices can be a source of customer frus-tration if they view the changes as unfair. Forexample, Coke recently considered using new tech-nologies to allow their vending machines to changeprices based on the temperature. Chairman DougIvester was quoted as telling a Brazilian magazinethat people watching, say, a sports event in summerheat would naturally develop a powerful craving fora drink. ‘So it’s fair that it should be more expensive… The machine will simply make this process auto-matic.’ The customer reaction to this idea was swiftand intensely negative. In fact, when Ivester was for-ced out in December, many media sources partlyattributed it to the public relations fiasco. Cokeimmediately dropped all interest in trying thesekinds of price changes (King and Narayandas, 2000).

Similarly Amazon.com began experimenting withchanging prices by customer on their website. Theyset higher prices to loyal customers, under theassumption that they valued Amazon’s services andhad a stronger relationship with Amazon. Yet oncethey were discovered to be changing prices this way,there was a huge public outcry with a number ofloyal Amazon customers stating that they wouldnever buy from Amazon again. Firms such as EddieBauer and Fingerhut have faced similar problems


when they have set different prices on their catalogueversus their prices on the web. They are concernedthat customers will be frustrated to see differentprices between the two formats. So if it does notmake sense to change prices on the catalogue it willnot be done on the web.

Customers can also perceive price changes as unfairduring periods of currency changes. With respect tothe introduction of the Euro, for example, Jacques-Etienne de T’Serclaes, partner at Price WaterhouseCoopers in Paris, and formerly the managing directorof Euromarche, stated that ‘The way shoppers behavewhen confronted with the new currency will haveimmediate and lasting repercussions for retailers,

managers and the entire Euro-pean economy.’ He suggeststhat the new currency will ‘dis-orient people’, have a ‘strongpsychological impact’, and thatcustomers ‘will be suspiciousthat retailers are using round-ing to cheat them’ (Carr, 1999).

It is clear from these examplesthat a manager must be able to

predict how different markets will react to your pricechanges. This means more than simple estimates. Itmeans using lead users, market research, and pre-vious price changes, to accurately anticipate yourcustomers’ likely responses. Managers must acceptthat there may be irrational or emotional responsesto a price change that has been made very rationallyand for good economic reasons. If price changes areassociated with changes in costs or with maintainingthe business in response to competitive pressuresthen customers are more likely to perceive pricechanges as fair. In contrast, however, if these pricechanges are associated with taking advantage of cus-tomers’ value, or their lack of price sensitivity, or thelack of competitive alternatives in the market, thenthey are perceived to be unfair (Thaler et al., 1986).

The key for managers is to attempt to understand theway in which the market will interpret a price changeand to accept the fact that different customers, in dif-ferent market segments, may well perceive exactlythe same price change in an entirely different way.In our fieldwork, for example, we visited the top 10customers for one particular client. The client hadrecently lowered all their list prices for a particularproduct line in an attempt to signal to customers thattheir products were competitive in this marketplace.Yet each customer, when confronted with this pricechange, developed a completely different interpret-ation of the price decrease. One customer suggestedthat the manufacturer must be going out of business,another customer thought the manufacturer antici-pated a new competitor in the market, a third cus-tomer was convinced that the price change wasdesigned to aid a different distributor at theirexpense. These very different interpretations could


often be attributed to what was happening in eachcustomer’s particular market. For example, the firstcustomer was going out of business, the second wasfacing a new market entrant, and the third was strug-gling to negotiate with the manufacturer. Lookinginto your customers’ environments and understand-ing their issues from their perspective is often criticalin understanding how to communicate a pricechange.

Another way that customer interpretations of pricesare encountered is as ‘norms’. Sometimes the realcost of a price change is that it creates a precedent ora market expectation for future price changes. Pricingactions in one period therefore have repercussions infuture periods since they create a norm that is hardto change. Some managers describe cutting prices as‘feeding the animal.’ A classic example of this is thepressure most managers experience in using salespromotions to increase sales. Eventually the overuseof these promotions can create customer norms inwhich a sales promotion is expected, indeeddemanded, before purchase will occur (Jones, 1990).These customer norms are also a cause of fallingprices in the computer and other high technologyindustries today. Conversely, customers can alsodevelop norms that expect increasing rather thandecreasing price changes. One company we studiedhad been raising prices for years, but now wanted tolower prices. When confronted with the managerialsuggestion to lower prices, the salesforce asked man-agement to raise prices instead. In effect, priceincreases had become the norm for their industry andthe sales managers were afraid of the effect thatchanging this norm would have on future pricechanges and negotiations with their customers. Man-agers can often form their own interpretation ofwhether a price change is good or bad in isolationfrom the market. In reality, all price changes areinterpreted by customers through a lens of theirexisting pricing norms. Given the heterogeneity ofcustomer experiences, a single uniform price changecan actually result in a wide array of responses fromcustomers because each interprets and reacts to thesame price change in a different manner.

Too often firms concentrate on the level of the pricechange at the expense of the explanation behind it.At a minimum this suggests that firms should investin continually monitoring the pricing norms that aremanifest in the market. It also suggests that firmsshould allocate resources to communicating with cus-tomers in order to deliver a coherent message whenchanging prices. As the examples above illustrate, itis critical for firms to communicate the logic behindtheir price changes so that customers can make senseof these changes in the way that the firm intended.Finally, in some situations an understanding of cus-tomer interpretations of price changes may also con-strain a firm to not change price. Coke and Ama-zon.com have both publicly stated that, based on


their past experiences, they would not change pricesin this manner again.

Shatter the Myth of Costless Pricing

In response to the effectiveness of Wal-Mart’s everyday low pricing strategy Sears launched their versioncalled ‘Everyday Fair Pricing’. Yet adjusting to thisnew pricing format imposed substantial costs onSears. Externally, they needed to communicate thischange to customers who had prevailing price normsrelated to Sears’ existing pricing policies. The com-munication task turned out to be more difficult andexpensive than they had expected. There were seri-ous customer concerns with the apparent fairness ofthe new pricing scheme and these concerns wereexacerbated by competitors like J.C. Penny who ranads asking consumers: ‘If Sears are pricing fairlynow, how were they pricing to you over the last onehundred years?’. Internally Sears had to change theirsystems, knowledge, and culture to be able to under-take EDFP effectively. In the end Sears had to dropEveryday Fair Pricing, despite having paid for manyof the costs that this change in pricing strategyimposed upon them. Had Sears realised that in orderto successfully change their pricing format theywould have to first incur these customer and mana-gerial costs, perhaps they would have been able toavoid this pricing fiasco.

There are a number of steps necessary for a managerto shatter the myth of costless pricing. First, is theunderstanding that pricing is all about price changes,and that these changes are often simultaneously sub-tle and substantial. This awareness alone will helpyou avoid the kinds of mistakes that Amazon.com,Coca-Cola, and Sears have experienced. Second, thata framework is necessary to deal with the dynamicsof changing prices. This framework should incorpor-ate customer interpretations of price changes, anawareness of the organisational costs of pricechanges, the investments that are necessary for futurepricing processes, and an understanding of the rolethat supply chains play in price change strategy. Thisframework can be used at the tactical level toimprove the specific price changes made, at themanagerial level to decide whether or not to make aparticular price change at all, and at the strategiclevel to determine what price adjustment processesshould be invested in to improve pricing effective-ness in the future.

References

Ball, L. and Mankiw, N. G. (1994) A sticky-price manifesto.Carnegie-Rochester Conference Series on Public Policy, pp.127–152.

Carr, N.G. (1999) Introduction: managing in the Eurozone.Harvard Business Review January, 139–155.

Dutta, S., Bergen, M. and Zbaracki, M. (2003) Pricing processas a capability: a resource based perspective. StrategicManagement Journal. 24, 615–630.


Jones, J.P. (1990) The Double Jeopardy of Sales Promotions.Harvard Business Review September, 145–152.

King, C. and Narayandas, D. (2000) Coca-Cola’s new vendingmachine (A): pricing to capture value or not? HBS Case,HBS 9-500-068.

Lal, R. and Kristofferson, M. (1996) Value pricing at Procter &Gamble (B). HBS Case Study M284B.

Levy, D., Bergen, M., Dutta, S. and Venable, R. (1997) Themagnitude of menu costs: direct evidence from large U.S.supermarket chains. Quarterly Journal of Economics 112,791–825.

Rotemberg, J.J. (1982) Sticky prices in the United States. Jour-nal of Political Economy 90, 1187–1211.

MARK BERGEN, Carlson MARK RITSON, LondonSchool of Management, Uni- Business School, Sussexversity of Minnesota, Min- Place, Regents Park, Londonneapolis, MN, USA. E-mail: NW1 4SA, UK. E-mail:[email protected] [email protected]

Mark E. Bergen is Carlson Mark Ritson is AssistantProfessor of Marketing at Professor of Marketing atthe Carlson School of Man- London Business School.agement, University of Min- His research focuses onnesota. Recipient of many using ethnographic methodsawards for teaching excel- to understand consumer

lence, his research focuses on pricing and channels of behaviour and managerial strategy.production, price pass-through, branded variants, dualdistribution, grey markets, coop advertising and quickresponse.

SHANTANU DUTTA, DANIEL LEVY, Depart-London Business School, ment of Economics, EmorySussex Place, Regents Park, University, Atlanta, GALondon NW1 4SA, UK. E- 30322, USA. E-mail: econd-mail: [email protected] [email protected]

Shantanu Dutta is Professor Daniel Levy is Associateof Marketing at London Professor of Economics atBusiness School. He has Emory University and atresearched extensively on Bar-Ilan University (Israel).strategic market issues, His main research centresspecifically, how firms can on optimal pricing and price

use distribution, partnerships and value pricing to adjustment, and costs of price adjustment.build competitive advantage in many B2B markets,including technology-intensive markets.

MARK ZBARACKI,Wharton School, Universityof Pennsylvania, Philadel-phia, PA 19104, USA. E-mail: [email protected]

Mark Zbaracki is on the fac-ulty of the Wharton School,University of Pennsylvania.His research addresses howorganizations implement

management practices, including TQM, supply chainmanagement, and strategic pricing initiatives.


Silk, A.J. and Michael, S.C. (1993) American Airlines’ valuepricing (A). HBS Case Study, 0-594-001.

Thaler, R., Kahneman, D. and Knetsch, J. (1986) Fairness as aconstraint on profit-seeking: entitlements in the market.American Economic Review 76(4), 728–741.

Zbaracki, M., Ritson, M., Levy, D., Dutta, S. and Bergen, M.(2002) Pricing as a strategic capability. Sloan ManagementReview 43(3), 61–66.

Zbaracki, M., Ritson, M., Levy, D., Dutta, S. and Bergen, M.(in press) Managerial and customer costs of price adjust-ment: direct evidence from industrial markets. Review ofEconomics and Statistics.

shattering the myth of costless price changes

Documents