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The Three Capitals of Pricing – Human, Systems and Social Capital

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Author Info

  • Mark Ritson

    (London Business School)

  • Mark Zbaracki

    (The Wharton)

  • Shantanu Dutta

    (University of Sourthern California)

  • Daniel Levy

    (Bar-Ilan University)

  • Mark Bergen

    (University of Minnesota)

Abstract

In this paper we explore the possibility, heretofore unexplored in the marketing literature, that firms “invest funds” in their pricing processes. This builds on some of the recent economic work on the costs of price adjustment. To do this we undertook a two-year, cross- disciplinary, ethnographic study on the nature of investments made by senior managers to enhance the effectiveness of the pricing processes within their firms. We discovered at least three distinct types of investments that managers at these firms made to price more effectively, which we term as the three capitals of pricing - human capital, systems capital and social capital. Our evidence suggests that pricing is really about managing both prices and investments in the pricing capital used to set and adjust those prices. The existence of these three forms of pricing capital provides a new perspective on pricing strategy, suggesting that firms compete on prices simultaneously in three different ways within their organizations. First, they compete on whether to invest in pricing capital versus or other areas of capital investment, such as plant, equipment, etc. Second, they decide what form of pricing capital to invest in – human, systems or social. Third, they set and adjust prices constrained by the existing pricing capital they have in place at the time of their pricing actions. We discuss the implications of these three forms of pricing capital and these new perspectives on pricing for the marketing, economics and strategy literature.

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File URL: http://128.118.178.162/eps/mac/papers/0505/0505014.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0505014.

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Length: 43 pages
Date of creation: 15 May 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0505014

Note: Type of Document - pdf; pages: 43
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Web page: http://128.118.178.162

Related research

Keywords: Cost of Price Adjustment; Menu Cost; Managerial and Customer Costs of Price Adjustment; Pricing Capital; Pricing Production Process (PPP); Price Rigidity; Sticky Prices; Rigid Prices; Microfoundations of the Costs of Price Adjustment; Allocative Efficiency; Price System; Endogenous Price Adjustment Cost; Pricing; Human Capital; Systems Capital; Social Capital; Resource Based View of the Firm; Ethnography;

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References

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  1. Mark Zbaracki & Mark Bergen & Daniel Levy & Mark Ritson, 2005. "Beyond the Cost of Price Adjustment: Investments in Pricing Capital," Working Papers 2005-03, Department of Economics, Bar-Ilan University.
  2. Mark Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2003. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," Working Papers 2003-07, Department of Economics, Bar-Ilan University.
  3. Caplin, Andrew S & Spulber, Daniel F, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 703-25, November.
  4. Birger Wernerfelt, 1988. "Umbrella Branding as a Signal of New Product Quality: An Example of Signalling by Posting a Bond," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 458-466, Autumn.
  5. Rajiv Lal & Ram Rao, 1997. "Supermarket Competition: The Case of Every Day Low Pricing," Marketing Science, INFORMS, vol. 16(1), pages 60-80.
  6. Ball, L. & Mankiw, N.G., 1992. "Asymmetric Price Adjustment and Economic Fluctuations," Harvard Institute of Economic Research Working Papers 1602, Harvard - Institute of Economic Research.
  7. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 2005. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," Macroeconomics 0505012, EconWPA.
  8. Mahoney, Joseph T., 1995. "The management of resources and the resource of management," Journal of Business Research, Elsevier, vol. 33(2), pages 91-101, June.
  9. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  11. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  12. Rao, Vithala R, 1984. "Pricing Research in Marketing: The State of the Art," The Journal of Business, University of Chicago Press, vol. 57(1), pages S39-60, January.
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