As a result of evolving technology, opportunities for innovative pricing strategies continuously emerge. The authors provide an updated taxonomy to show how such emerging strategies relate to recent technological advances. Specifically, they cite increased availability of information, enhanced reach, and expanded interactivity as three technological advancements and identify six pricing strategies enhanced by these factors. They also discuss the role of utility, prospect, range, and signaling theories for emerging pricing strategies, along with several applications and managerial implications.
A pricing strategy represents a reasoned choice from a set of alternative prices (or price schedules) targeted to meet firm objectives during a planning period in response to a given scenario (Tellis, 1986). The strategy relies on extensive industry analyses that assess the nature and complexity of available products, consumers, competitors, suppliers, and market structures (see Monroe, 2003 and Nagle and Holden, 2002).
Recent advances in information technology (IT), such as digital products, real time computational abilities, intelligent agent technologies, and database marketing, have opened a vast array of pricing possibilities (Bakos and Brynjolfsson, 1999, Iyer and Pazgal, 2003 and Jap, 2003). Decreasing search costs and marginal costs of information goods, along with increasing Internet risk perceptions, challenge the direct applicability of long-standing pricing strategies (Bakos and Brynjolfsson, 1999) and encourage previously infeasible, innovative pricing strategies (Biswas and Krishnan, 2004).
Nonetheless, the variety of labels associated with these innovative pricing strategies enhances the complexity of this discussion, so managers have trouble identifying and applying appropriate strategies. As Marn et al. (2004, p. xi) note,
Even thoughtful general managers feel helpless to make real progress on the pricing front. They do not even know where to begin to get a handle on identifying—much less capturing—the exciting performance upside that pricing often holds.
The IT revolution has advanced the scope of pricing strategies to the point that an updated taxonomy is both appropriate and timely. In addition, the wealth of recent academic articles on innovative pricing strategies necessitates a logically derived structure and greater integration. Although some authors (e.g., Dixit et al., 2005) discuss IT-enhanced pricing strategies (ITEPS), the literature contains no updated taxonomy. This research differs from and expands upon previous research. For example, Dixit et al. (2005) primarily focus on policy implications and provide cases and company examples. The main focus of this paper is to expand upon Tellis's (1986) pricing classifications by updating it to reflect the recent IT revolution. Furthermore, this article contains a review of extant research and thus provides a conceptual framework for the emergence of ITEPS. Specifically, it includes discussions of utility, prospect, range, and signaling theories in the context of emerging pricing strategies (Kahneman and Tversky, 1979, Spence, 1974 and Thaler, 1985).
In summary, this research creates a revised taxonomy of pricing strategies that considers recent developments, including increased availability of information, enhanced reach, and expanded interactivity, and identifies six pricing strategies that have surfaced in response.
