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

Author

Listed:
  • 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.

Suggested Citation

  • Mark Ritson & Mark Zbaracki & Shantanu Dutta & Daniel Levy & Mark Bergen, 2005. "The Three Capitals of Pricing – Human, Systems and Social Capital," Macroeconomics 0505014, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0505014
    Note: Type of Document - pdf; pages: 43
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0505/0505014.pdf
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    References listed on IDEAS

    as
    1. Mark Zbaracki & Mark Bergen & Daniel Levy & Mark Ritson, 2005. "Beyond the Cost of Price Adjustment: Investments in Pricing Capital," Working Papers 2005-03, Bar-Ilan University, Department of Economics.
    2. Andrew S. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 703-725.
    3. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-658, September.
    4. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U. S. Supermarket Chains," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 791-824.
    5. Yuxin Chen & Chakravarthi Narasimhan & Z. John Zhang, 2001. "Consumer Heterogeneity and Competitive Price-Matching Guarantees," Marketing Science, INFORMS, vol. 20(3), pages 300-314, June.
    6. Mark J. Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 514-533, May.
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    8. Thompson, Craig J & Pollio, Howard R & Locander, William B, 1994. " The Spoken and the Unspoken: A Hermeneutic Approach to Understanding the Cultural Viewpoints That Underlie Consumers' Expressed Meanings," Journal of Consumer Research, Oxford University Press, vol. 21(3), pages 432-452, December.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    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;

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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