ENHANCING BUSINESS PERFORMANCE THROUGH PRICING CAPABILITY: EVIDENCE FROM INDIAN SMEs

Abstract

Pricing is the most critical management function that generates profitability and revenue for firms. In the era of global competition, determining price is not a one-time decision due to the dynamic nature and size of the business market, which is growing exponentially and creating intense market rivalry and tremendous pricing pressure among firms. Considering these challenges, pricing strategy failure may become more common for firms, particularly small-and-medium-sized enterprises (SMEs) operating in developing nations with fierce competition, an unstable and unpredictable market environment, and a lack of pricing transparency. Thus, the skills to manage and execute pricing properly have become essential in many business organizations for continued development and existence in today’s competitive market environment. As a result, developing the specialized organizational capability connected to pricing, known as “pricing capability” (PC), enters into the picture and has increasingly piqued the interest of practitioners and researchers alike in the domain of industrial pricing. The development of PC provides a firm’s ability to determine the right price at the right time in response to competitor actions and market changes. Extant literature has strongly emphasized the formation of PC from broader market-relating capabilities to define the firms’ pricing practices and achieve greater business profitability. Despite the growing benefits of PC development and the increased number of studies on PC, the notion is still in its initial stages, and the request for further research has been constantly emphasized in the existing literature. Furthermore, a thorough examination of the PC literature has discovered some potential and substantial research gaps, including a lack of contextual emphasis, a limited number of antecedents and consequences, and a shortage of empirical research, all of which demand further academic attention. More specifically, there is a paucity of empirical and conceptual studies on the performance effects of PC in the SMEs context. Furthermore, most pricing scholars underline the need for market-based organizational learning to improve PC development, but few studies have examined its importance in achieving better SME performance. Consequently, there is a lack of understanding of how SMEs develop their PC and contribute to superior performance outcomes. To address the aforementioned research gaps, the present thesis draws on the theoretical rationale of organizational learning and resource-based view to develop and validate the three different conceptual frameworks of three different studies conducted in the Indian SMEs context. In the first study, a conceptual framework is developed to identify market-focused learning and firm innovativeness as potential antecedents of PC, whereas pricing value and business performance are consequences. The second study intends to develop a conceptual framework for understanding the performance implications of internal market orientation and PC. The third study aims to present a conceptual framework for investigating the direct and indirect relationship amongst market-based organizational learning, PC, and SME performance. To validate these conceptual frameworks, the composite data collection technique, including online-email and onsite-paper-based questionnaire surveys, was employed for three different studies, yielding 127 (study one), 194 (study two), and 298 (study three) valid responses from the Indian SMEs functioning in service and manufacturing industries. The gathered data were statistically tested with the help of partial least square structural equation modeling technique, viz., measurement model and structural model. The research findings of the first study demonstrate that market-focused learning and firm innovativeness have a substantial and direct influence on PC, which in turn positively affects both pricing value and business performance. In the second study, the research findings show that internal market orientation and PC have substantial and differential influences on customer, market, and financial performances. The research findings of the third study indicate that PC serves as a partial mediating effect on the relationship between market-based organizational learning and business performance. Overall, the empirical findings presented substantial evidence to support not only a conceptual framework but also all of the proposed structural relationships, thereby presenting a well-defined and adequate model fit. The research findings have made a substantial contribution to theory and practice in the following ways. From the theoretical perspective, it extends the PC literature by highlighting that market-focused learning and firm innovativeness contribute significantly to the development of PC, which in turn has positive effects on pricing value and business performance. Further, it adds to the extant literature by specifying that PC has the greatest influence on financial performance, followed by customer and market performance. Finally, it advances the organizational learning literature by showing that PC is a partial mediator in the link between market-based organizational learning and SME performance. From the practical perspective, the empirical findings enlighten the SMEs about the value of market-focused learning and firm innovativeness in developing PC and, as a result, deliver superior pricing value to their clients and achieve greater business performance. Furthermore, SME managers need to understand the significance of PC development in transforming market-based organizational learning into performance outcomes. To summarize,the empirically validated conceptual frameworks of three different studies provide a feasible path for SME managers to effectively manage and execute the pricing activities in an organization and succeed in today’s competitive market.